By Phil Mattera, Corporate Research Project of Good Jobs First
The chief executive of Wells Fargo would have us believe that more than 5,000 of his employees spontaneously became corrupt and decided to create bogus accounts for customers who were then charged fees for services they had not requested.
John Stumpf has earned himself a place in the corporate hall of shame for putting the blame on underlings for carrying out a fraud that must have been sanctioned by top officials at the bank, which has a reputation for pushing new products on customers. He may have been inspired by Volkswagen, whose senior people have been claiming that they knew nothing about systematic cheating on auto emissions tests.
After the announcement that Wells would pay $185 million to settle the case, Stumpf did a self-protective interview with the Wall Street Journal in which he insisted that the misconduct was in no way encouraged by management and was inconsistent with the bank’s internal culture. Few seem to be buying that argument, and Wells is facing various federal investigations.
The notion that Wells had been a paragon of virtue is preposterous. The dishonesty begins with its name, which evokes the legendary stagecoach line. The company is actually the descendant of Norwest, a bank holding company based in Minneapolis which changed its name after acquiring the old Wells Fargo in 1998.
Four years later, the combined company had to pay a penalty of $150,000 to settle SEC charges of improperly switching customers among mutual funds. In 2005 the securities industry regulator NASD (now FINRA) fined Wells $3 million for improper sales of mutual funds.
When Wells acquired Wachovia Bank amid the financial meltdown of 2008 it acquired a bunch of legal problems, including a municipal securities bid rigging case that required a $148 million settlement.
Recent years have seen a long list of additional scandals and settlements. In 2009 Wells had to agree to buy back $1.4 billion in auction-rate securities to settle allegations by the California attorney general of misleading investors. In 2011 it agreed to pay $125 million to settle a lawsuit in which a group of pension funds accused it of misrepresenting the quality of pools of mortgage-related securities. That same year, the Federal Reserve announced an $85 million civil penalty against Wells Fargo for steering customers with good qualifications into costly subprime mortgage loans during the housing boom.
In 2012 Wells Fargo was one of five large mortgage servicers that consented to a $25 billion settlement with the federal government and state attorneys general to resolve allegations of loan servicing and foreclosure abuses. Later that year, the Justice Department announced that Wells Fargo would pay $175 million to settle charges that it engaged in a pattern of discrimination against African-American and Hispanic borrowers in its mortgage lending during the period from 2004 to 2009. Also in 2012, Wells agreed to pay $6.5 million to settle SEC charges that it failed to fully research the risks associated with mortgage-backed securities before selling them to customers such as municipalities and non-profit organizations.
In yet another 2012 case, the U.S. Attorney for the Southern District of New York filed suit against Wells, charging the bank with engaging in a “longstanding practice of reckless underwriting and fraudulent loan certification” for thousands of loans insured by the Federal Housing Administration that ultimately defaulted. (In February 2016 Wells Fargo said it would settle the case for $1.2 billion.)
In 2013 Wells was one of ten major lenders that agreed to pay a total of $8.5 billion to resolve claims of foreclosure abuses; it settled a lawsuit alleging that it neglected the maintenance and marketing of foreclosed homes in black and Latino areas by agreeing to spend at least $42 million to promote home ownership and neighborhood stabilization; and it agreed to pay $869 million to Freddie Mac to repurchase home loans the bank had sold to the mortgage agency that did not conform to the latter’s guidelines.
Jumping to 2016: the Justice Department announced that Wells would pay $1.2 billion to resolve allegations that the bank certified to the Department of Housing and Urban Development that certain residential home mortgage loans were eligible for Federal Housing Administration insurance when they were not, resulting in the government having to pay FHA insurance claims when some of those loans defaulted.
And a few weeks before the CFPB revealed its sham accounts penalty against Wells, the agency fined the bank $3.6 million plus $410,000 in restitution to customers to resolve allegations that it engaged in illegal student loan servicing practices.
Contrary to Stumpf, the sham accounts were much in line with the culture of Wells, which has been corrupt for years. As long as the bank’s top management denies the reality, it seems unlikely anything will change.