Consequences Begin to Build for Wells Fargo

In this brief post, the focus will be on updating the stories we have covered in the past here in Financial Regulation Matters regarding Wells Fargo and their performance over the past decade or so. The last time we covered the scandal that has blighted Wells Fargo’s progression was in May of last year, and since then there have been a number of developments. However, very recently, the bank has received a number of fines which demonstrate the failures that have left the bank struggling to regain the trust it needs to move forward.

We last looked at Wells Fargo this time last year, and in that post we looked at the actions of a bank who fraudulently created between 2 and 3.5 million fake bank accounts for the purposes of selling services to customers who often were not aware of the actions taken on their behalf. We covered the details of the fraud in those previous posts, so today it is worth looking at the legal reaction to that fraud. We begin at the end of last month when the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency took action against the bank: each agency has fined Wells Fargo $500 million (so, $1 billion total) for transgressions in relation to car insurance payments, amongst other things. Wells Fargo was suspected of charging more than half a million customers for car insurance they did not need, whilst 20,000 of those clients subsequently defaulted and suffered repossession as a result of the inappropriate charges. The charges also related to mortgage lending practices, where the bank was charging customers for delays on ‘mortgage interest locks’, even though those delays had been caused by Wells Fargo themselves. In response to these penalties, the bank has agreed to work with the regulators to strengthen their compliance procedures, which both regulators identified as having failed in its mandate.

These fines are on top of what has already been levied against them with regards to the accounts scandal, with it being reported that the bank has already been mandated to pay more than $1.5 billion already. On Friday, that figure increased with the news that the bank has ‘reached an agreement in principle’ to settle a class-action lawsuit brought against it by its shareholders for the reported total of $480 million. The bank’s investors have stated that there had been ‘misstatements and omissions’ from key financial documents, which had the effect of artificially inflating its stock price. In response to this development, the bank suggested that its problems may not be over, with it being suggested that the bank will need to find $2.6 billion more than what it set aside to cover the actions taken against it (both in relation to the accounts scandal and the auto/mortgage misdeeds).

It is clearly a very chastening time for the bank, and it is right that these transgressions are coming to light. It was interesting to read Warren Buffett’s comments on the bank recently – Berkshire Hathaway maintains a 9% interest in the bank – when he insinuated that the practices within the bank are not much different from other banks its size. Buffett and his approach will be discussed in a forthcoming post that is related to an article this author has recently produced regarding the effect Buffett has upon his businesses, but the sentiment he provides is a negative one; it is not enough to say ‘they all do it’. Wells Fargo is rightly being held up as a clear demonstration of the excesses within the financial sector, and even more so the invasive potential of a commitment to ‘short-termism’. It would be comforting to suggest that Wells Fargo will suffer serious and long-standing consequences for their actions, as they surely should, but the reality is that they will not. The reality is that they will pay their fines with the people responsible for initiating such practices long gone because, as we saw in the last post, those leaders were allowed to leave with compensation, rather than facing the punishment that most would in any other circumstance.


Keywords – Wells Fargo, Banking, US, crime, fraud, @finregmatters

Comments

Post a Comment

Popular posts from this blog

Lloyds Bank and the PPI Scandal: The Premature ‘Out of the Woods’ Rhetoric

Image
Today’s very short post focuses upon the news that the Financial Conduct Authority (FCA) has recently extended the deadline to claim compensation for mis-sold ‘Payment Protection Insurance’ (PPI). Whilst a lot of financial institutions will have to prepare to offset the extended deadline, it is Lloyds that has grabbed the business headlines by apportioning an extra £350 million to offset any further claims that may be made of it – however, this comes only a week or two after the Bank posted its best performance figures in over a decade, as was previously discussed in Financial Regulation Matters . This post will therefore argue that the rhetoric being advanced recently regarding Lloyds – rhetoric like Lloyds represents ‘ a modern day success story ’ is wide of the mark and creates a false sense of security that we simply cannot afford to believe in. The ‘ robust recovery ’ was heralded far and wide upon the publication of Lloyds Bank’s financial performance for the previous fi
Read more

The Analytical Credit Rating Agency: A New Entrant That Will Further Enhance Russia’s Isolation

Image
This short post is based upon a forthcoming article by this author that examines the viability of the latest entrant into the credit rating arena, the Analytical Credit Rating Agency (ACRA). The article, which is due to be published in the European Company Law Journal (and is available here in a pre-published version), looks at the chances of the ACRA succeeding when viewed within the parameters of perception , an aspect that underpins the credit rating sector. For this post, the focus will be upon introducing the ACRA, and then on examining the effect it may have upon the wider political issues affecting the Russian Federation. The Analytical Credit Rating Agency was established in November 2015 and comprises of 27 major Russian companies and financial institutions that serve as its shareholders. The agency, which became the first rating agency to receive accreditation from the Russian Central Bank under the new N 222-FZ Law which was designed to protect investors, has a re
Read more

British McDonald’s Workers To Go On Strike: The Enduring Legacy of Corporate Greed and Political Irresponsibility

Image
Today’s post reacts to the news that next week, in the UK, workers will make history by staging a strike at two McDonald’s restaurants – one in London and one in Cambridge. The first strike of its kind in McDonald’s British history is a result of poor working conditions, the use of the infamous ‘zero-hour’ contracts, and a demand for an increase in the minimum wage paid to McDonald’s employees. In this post this particular story will be used a vehicle to cover an aspect that has almost become accepted in the mainstream media, unfortunately, and that is the concept of austerity and its repulsive effects. Whilst onlookers hope that the strike will see a revolution-of-sorts amongst the fast-food industry with regards to working conditions, the reality it is that the underlying causes of the grievances aired by the staff will remain whatever the outcome of the strike, as the problem is a systemic problem. The proposed strike, which is scheduled to take place on Monday 4 th Septembe
Read more