More than a month after regulators announced a sweeping settlement against Wells Fargo & Co. over its creation of unauthorized customer accounts, lawmakers went after the bank again Tuesday and called for reforms that could rein in abusive practices by banks.
The hearing, called by the Assembly’s Banking Committee, lacked the outrage federal lawmakers displayed at Capitol Hill hearings on the issue. But Assembly members attacked Wells Fargo for harming its customers by allowing thousands of employees to open as many as 2 million unauthorized accounts over the last five years.
“Wells Fargo did wrong,” said Assemblyman Travis Allen (R-Huntington Beach), the committee’s vice chairman, at the hearing in Calabasas City Hall. “Clearly there was a problem. Millions of accounts were created that never should have been created. How did this happen in the first place, and how did it go on for so long?”
Before the hearing even got underway, Matt Dababneh (D-Encino), the committee’s chairman, said he would consider state legislation that would prevent Wells Fargo and other institutions from using arbitration clauses to shield themselves from lawsuits over unauthorized accounts.
Wells Fargo &Co isn’t an example of an example of a “too-big-to-manage” bank despite the scandal that involved employees opening accounts in unwitting customers’ names, said Minneapolis Fed President Neel Kashkari Tuesday.
“I actually don’t think the Wells Fargo WFC, -0.44% case is an example of too big to manage,” Kashkari said, during a discussion with students and professors at Bethel University in Arden Hills, Minnesota.
The definition of a too-big-to-manage bank is when a problem is buried in the bowels of an organization and remains outside the chain-of-command, Kashkari said.
A Wells Fargo bank manager tried to warn the head of the company’s regional banking unit of an improperly created customer account in January 2006, five years earlier than the bank has said its board first learned of abuses at its branches.
In recent months, the discovery of as many as 2 million improperly created accounts has widened into a public scandal for Wells Fargo, one of the country’s largest banks by assets. Some lawmakers, including Sen. Elizabeth Warren of Massachusetts and Rep. Roger Williams of Texas, have called for CEO John Stumpf to step down. A letter written in 2005 and obtained by VICE News details unethical practices that occurred at Washington state branches of the bank, suggesting the conduct began years before previously understood.
At the core of the fake account scandal surrounding Wells Fargo right now is the fact that more than 5,000 of the bank’s former employees opened more than 2 million fake accounts to get sales bonuses.
As the Wells Fargo situation works it way through various political and legal machinations, the state of New York is taking measures to ensure that similar behavior, which led to a $185 million fine for Wells Fargo, doesn’t happen again.
New York Gov. Andrew Cuomo announced Tuesday that the state’s financial regulator, the New York Department of Financial Services, is issuing “new guidance” designed to restrict incentive pay for bank employees, requiring banks to tie those incentives to proper corporate behavior.
According to Cuomo’s office, the NYDFS guidance directs all state-regulated banks in New York to ensure any employee incentive arrangements do not encourage “inappropriate corporate practices.”
What was once unthinkable actually happened, as the United States Court of Appeals for the District of Columbia Circuit handed an earth-shattering victory to PHH, declaring the Consumer Financial Protection Bureau’s leadership structure unconstitutional and vacating a $103 million fine against PHH.
PHH, a mortgage lender, made national headlines when it challenged CFPB Director Richard Cordray’s $103 million increase to a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks.