Wells Fargo made national headlines in September after investigations revealed bank employees opened more than 2 million fake accounts to get sales bonuses.
Government agencies slapped the mega bank with a total of $185 million in fines, leaving the bank scrambling as it tried not to completely lose the trust of borrowers who were infuriated by the news.
Get past the proud press releases from government agencies, and you’ll find that one of the biggest financial scandals to ever be uncovered was revealed by journalists, not the Consumer Financial Protection Bureau or its director, Richard Cordray, as so many government officials like to give credit to.
On Dec. 31, 2013, the Los Angeles Times published an article titled, “Wells Fargo's pressure-cooker sales culture comes at a cost,” by E. Scott Reckard.
The article unraveled the first-ever reports of Wells Fargo employees opening unneeded accounts for customers, ordering credit cards without customers' permission and forging client signatures on paperwork to meet sales goals.
The Los Angeles Times, on its own, came to this massive discovery from a review of internal bank documents and court records, and from interviews with 28 former and seven current Wells Fargo employees who worked at bank branches in nine states, including California.
By the time the Los Angeles Times reported on the situation, it had already been going on for approximately two years, and it wasn’t until the whole story was published, printed and sitting in front Los Angeles City Attorney Mike Feuer that the city, not the CFPB, started an investigation.
As Feuer stated in his testimony to the U.S. Senate Committee On Banking, Housing and Urban Affairs on Sept. 20, “On a Sunday morning in December, 2013, I was appalled when I opened the Los Angeles Times and read an investigative story by Scott Reckard regarding Wells Fargo Bank’s sales culture.”
“I immediately instructed my staff to investigate to determine if the facts warranted our Office filing an action pursuant to California Laws that protect consumers against, and provide relief for, unfair business practices,” his testimony stated.
Feuer’s office also even stated in its press release over the matter on Sept. 8, “In May, 2015, following an extensive investigation precipitated by a report in the Los Angeles Times, Feuer’s office sued Wells Fargo over the allegations of unauthorized accounts. After filing the lawsuit, the City Attorney received more than 1,000 phone calls and emails from customers and current and former Wells Fargo employees across the nation about the issues raised in the litigation.”
This all culminated in the CFPB, the Office of the Comptroller of the Currency and the city and county of Los Angeles levying a $185 million fine on Wells Fargo on Sept. 8, 2016, nearly three years after the original Los Angeles Times article.
Ultimately, the Los Angeles Times couldn’t levy a fine on Wells Fargo no matter how many awful facts it uncovered. The government and publications need each other and can operate alongside each other.
However, Democrats in Congress have used and continue to use this specific case as its main weapon for why Richard Cordray needs to stay at the helm of the CFPB. There’s currently a war around Cordray, with Senate Republicans calling to have him fired and Democrats fighting to defend him, find the full story here.
Financial Services Committee Democrats, led by Congresswoman Maxine Waters, D-Calif., penned a letter to President Trump back in January, urging him to reject any attempts to deregulate Wall Street by removing Cordray prior to the expiration of his term in July 2018, highlighting his success in the Wells Fargo scandal.
Here’s an excerpt from the letter:
As Director of the Bureau, Mr. Cordray has continued his impressive record of taking on powerful special interests when they violate the law. To date, the CFPB has returned nearly $12 billion to more than 27 million consumers harmed by illegal, predatory financial schemes. Indeed, in the Bureau’s short five-year history, it has brought more than 100 cases against financial firms ranging from fraudulent debt collectors to payday lenders trapping borrowers in a cycle of debt. In September of this year, Director Cordray fined Wells Fargo more than $100 million for covertly opening unwanted deposit and credit card accounts on behalf of unsuspecting consumers. As the Attorney for the City of Los Angeles has stated, this historic enforcement action against Wells Fargo would likely not have occurred without coordination and collaboration with the Bureau, under the leadership of Director Cordray.
Meanwhile, a group of Senate Banking Committee Democrats also wrote to Cordary around the same time, praising him for his outstanding work as director of the CFPB, emphasizing the need for his leadership at the agency in Trump’s Administration.
Here’s an excerpt from the letter:
The Bureau’s aggressive action against law-breakers has, to date, returned nearly $12 billion to the pockets of 29 million Americans – in addition to tough fines against banks, like the $100 million Wells Fargo paid the government for its unconscionable fake account scheme.
Reading those letters, you would forgive people for thinking that the CFPB's quick action was responsible for uncovering the scandal. In reality, the CFPB seemed to take a long time to act on the information available in that first 2013 article. In fact, a former insider at the CFPB even accuses the bureau of knowing about the situation and failing to making it a priority or take action.
In a piece in the National Review, Ronald Rubin discusses the Wells Fargo scandal. Rubin served as an enforcement attorney at the Consumer Financial Protection Bureau and the chief advisor on regulatory policy at the House Financial Services Committee.
From the article:
Congressional hearings revealed that two years of examinations, thousands of bank-employee firings, and numerous complaints had failed to get the bureau’s attention before the Los Angeles Times published a detailed exposé late in 2013. Worse yet, from 2013 to 2016, the CFPB took no action while the bank continued the incentive program that drove the unauthorized account openings.
The CFPB had waited while the city attorney and OCC completed their investigations, and then negotiated its headline-grabbing penalty.
During Senate hearings, Cordray implied that Enforcement had stood down because all available personnel were busy investigating deceptive credit-card add-on products and other violations. In doing so, he inadvertently revealed that the campaign to expand the bureau’s reach to car dealers had diverted limited resources from mission-critical tasks.
While it’s not surprising that Democrats are running to Cordray's aid, they need to rethink the facts they’re choosing to defend him.
Wells Fargo’s account scandal is widely known and one of the biggest in history, so it's understandable that the Democrats want to use that fact to hail Cordray's necessity, but it’s completely deceptive.
The CFPB has caught, fined and uncovered a lot of bad players in the industry, which is necessary and noteworthy, but its crowning moment is not Wells Fargo.