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As the big Wall Street banks, payday lenders and other opponents of consumer protection intensify pressure on Congress to weaken financial reform and gut the CFPB like a fish, reports of further Wells Fargo malfeasance serve as a warning that the Consumer Financial Protection Bureau and the rest of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act are needed now more than ever.
For those of you not keeping score at home, here's a recap of some (I may have missed a few) stories of recent Wells Fargo wrongdoing:
- Fake Account Scandal: In September 2016, the CFPB fined Wells Fargo a record $100 million after it was discovered that executives had facilitated a toxic culture and supervised a sales quota scheme that forced low-paid frontline workers to open an estimated 2 million fake accounts in the names of actual customers to meet unreasonable goals. The bank's chief prudential regulator, the Office of the Comptroller of the Currency ($35 million), and the City Attorney of Los Angeles ($50 million) joined the CFPB's regulatory action with penalties of their own; the combined penalty was $185 million. The scandal led to termination of and severe haircuts to the compensation and retirement packages of the bank's CEO and a senior retail banking official.
- Fake Account Scandal Redux, Fake Accounts Grow: In July, as part of settlement negotiations over a private class action lawsuit over the scandal, it is now estimated that the scandal had begun much earlier, over a decade ago, and actually included as many as 3.5 million (USA Today) accounts. The increase in number of fake accounts appears to have been confirmed in a Wells Fargo regulatory filing reported on August 4 by Stacy Cowley (New York Times).
- Auto Insurance Scandal I: A scandal involving 800,000 consumers forced to obtain "lender-placed" car insurance that was first reported in late July by columnist Gretchen Morgenson (New York Times) is growing as states including New York (Bloomberg) and California (Reuters) subpoena the company for more information. According to Morgenson, who obtained a confidential internal Wells Fargo report:
"The expense of the unneeded insurance, which covered collision damage, pushed roughly 274,000 Wells Fargo customers into delinquency and resulted in almost 25,000 wrongful vehicle repossessions, according to the 60-page report, which was obtained by The New York Times. Among the Wells Fargo customers hurt by the practice were military service members on active duty."
- Auto Insurance Scandal II (Completely Different!): In August, Morgenson also reported that the Federal Reserve Bank of San Francisco was investigating Wells Fargo over sales practices for a different type of insurance. GAP or Guaranteed Asset Protection insurance protects dealers against the difference between the loan value and current market value of a car. It is not required but is aggressively sold. The bank has been accused of failing to make refunds to consumers who pay their loans off early, as is required in several states.
- Settlement With Government Over Loans To Veterans: Last week, Wells Fargo agreed to pay $108 million (Bloomberg) in a settlement with the Justice Department over mortgages to veterans.
- Refusal to Settle Overdraft Lawsuit: Wells Fargo has also refused (Miami Herald), unlike other big banks, to settle claims concerning the practice of re-ordering transactions to maximize the number that trigger overdraft fees.
Of course, Wells Fargo has also repeatedly used its forced-arbitration clauses to deny many of its customers the right to join class actions, even when it set up fake accounts in their names. Under a new CFPB rule, small-print arbitration clauses could no longer be used to deny the right to join a class action lawsuit against a financial wrongdoer.
The House has already voted to repeal the new CFPB arbitration rule before it even takes effect. The Senate has a clear choice: protect consumers from corporate wrongdoing or protect Wells Fargo and other corporate wrongdoers.
The attack on this Consumer Bureau rule, of course, is just one part of a broad, comprehensive attack on financial reform orchestrated by Wall Street banks, with support from their many highly-placed officials now serving in the Trump Administration, including Treasury Secretary Steven Mnuchin and National Economic Council chief Gary Cohn, both formerly of Goldman Sachs.
For the past several years, House Financial Services Committee chair Jeb Hensarling has led Congressional attacks on CFPB and the full 2010 Dodd-Frank Act, including through recent House passage of his so-called Financial Choice Act. The bill makes the naked, bold, unsubstantiated assertion that the financial collapse that occurred ten years ago is over and so is the need for the CFPB and, indeed, any continued Wall Street oversight. While the bill itself has no chance in the Senate, the most dangerous parts of it have been separately embedded into the House Financial Services and General Government Appropriations bill, which will be negotiated with the Senate as part of a budget process which must be completed in September.
In his testimony on the Financial Choice Act -- which we call the Wrong Choice Act -- at a Financial Services Committee hearing in April, Professor Michael Barr, a former Treasury Department official who drafted much of the Dodd-Frank Act, including its provisions to establish the CFPB, referred to those who choose to forget the lessons of the 2008 economic collapse as having "collective amnesia." An excerpt from Professor Barr's remarks is instructive (emphasis added):
"The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was passed in response to the worst financial crisis since the Great Depression. In 2008, the United States plunged into a severe financial crisis that shuttered American businesses, and cost millions of families their jobs, their homes and their livelihoods. The crisis was rooted in years of unconstrained excesses and prolonged complacency in major financial capitals around the globe. [...] While those American families have not forgotten the pain of the financial crisis, a kind of collective amnesia appears to be descending on Washington. Many seem to have forgotten the causes of the financial crisis, and the brutal consequences for American families. Instead of offering hope and opportunity to American families, the legislation being considered by this Committee would needlessly expose taxpayers, workers, businesses and the American economy to fresh risks of financial abuse and financial collapse.
That’s not a risk we can or should take."
We agree. Unfortunately, a plausible alternative reasoning may be even worse: perhaps they haven't forgotten, but they've simply chose to ignore the warnings.
The idea of the CFPB needs no defense, only more defenders.
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