Archive for the ‘Financial Reform’ Category

By Lisa Gilbert and Michael Tanglis

Don’t hold your breath waiting for Wells Fargo to do the right thing.

John Stumpf, Wells Fargo’s recently retired CEO, admitted in a congressional hearing that he first learned about his own bank’s problem with millions of fraudulent accounts in 2013. After three years of evasions and excuses, this week he resigned.

Image courtesy Tyler/Flickr/CC BY-NC-ND 2.0

Image courtesy Tyler/Flickr/CC BY-NC-ND 2.0

If the bank’s deflection of blame onto more than 5,000 low-level employees is any indication, customers waiting for Wells Fargo to take responsibility for its mismanagement, pay back customers and repair damaged credit scores could be waiting a very long time. So here are some steps you can take to see if you’ve been a victim of Wells Fargo’s fraud and what to do if you suspect foul play.

If you use Wells Fargo’s online banking system, sign in and look for accounts or transactions you do not recognize. If you do not use their online platform, signing up is a good way to monitor your banking activity. If you see something that looks suspicious, get in touch with the bank. You can either contact customer service, visit a local branch to speak with a representative or call their dedicated hotline set up in the wake of the scandal.

If you cannot achieve a satisfactory resolution, one option is to file a complaint with the U.S. Consumer Financial Protection Bureau (CFPB). If you suspect you have been the victim of fraud or a fake account was opened in your name, the CFPBwants to hear about it.

Another way to identify malfeasance is to obtain a credit report. If your credit score took a hit for unknown reasons and you are a Wells Fargo customer, it’s worth investigating the possibility that it might be related to an account that was opened in your name without your permission. If that appears to be the case, you should contact your local law enforcement and report it to the Federal Trade Commission.

A final option is to close your Wells Fargo accounts. The widespread fraud was the result of a 16-year cross-selling frenzy in which bank management put enormous pressure on workers to open as many new accounts as possible, with a goal of eight per household. Since turnabout is fair play, it may be that the best response to the Wells Fargo scandal is for consumers to leave them with none at all.

If you close your current accounts, think carefully about where you want to open new ones. It is likely that community banks and credit unions may be safer and more trustworthy alternatives than another megabank because they are smaller and therefore closer and more responsive to their customer base.

This scandal happened in no small part because megabanks are simply too big to manage. In two congressional hearings, Stumpf demonstrated as much when he repeatedly pleaded ignorant in response to even the most elementary questions about his bank’s operations and sales practices.

Megabanks tend to copy each other’s “successful” strategies and management practices, so it’s entirely possible that other large banks may have indulged in a similar cross-selling frenzy with similarly fraudulent results.

In fact, The Wall Street Journal recently reported that Bank of America COO, Thomas Montag, attended a banking function wearing a hat and T-shirt with the words “Cross Sell“ on them – the practice at the heart of the misconduct that led to the government imposing a $185 million fine on Wells Fargo.

We don’t know what misdeeds regulators will uncover at other megabanks in the months and years ahead, but the 2008 financial crash demonstrated that these banks put profits ahead of what’s best for their customers and the country.

If there’s one lesson we can take away from the Wells Fargo scandal, it’s that if banks are too big to fail, too big to jail and too big to manage, they’re also probably too big to trust.

Gilbert is the director of Public Citizen’s Congress Watch division. Tanglis is a senior researcher for Public Citizen’s Congress Watch division. This article  originally appeared on Huffington Post.

Each day this week we’ll be highlighting some of the anti-regulatory bills that Public Citizen and our allies have been pushing back against this fall.

Stop Settlement Slush Funds Act (or the “Stiff the Victims Act”) – passed on Sept. 7, 2016

Photo courtesy Johan Jonk Stenström/Flick under CC BY-NC 2.0 license.

After the 2008 financial crisis, one of the ways that big banks made amends was by providing funding to over 2,000 organizations that provide counseling on housing or legal aid to communities.

Letting third parties, like nonprofit organizations, provide relief is crucial when injured individuals are hard to identify or harm is difficult to monetize. This was certainly the case in the housing crisis and also common when there are ecological impacts or public health hazards caused by violations of environmental laws.

In an effort to shield industry from paying settlements that compensate injured parties, conservatives drafted the misnamed Stop Settlement Slush Funds Act (H.R. 5063). H.R. 5063 would cut off any kind of payment to third parties, other than direct forms of payment for “actual harm.” The bill aims to prohibit settlement agreements where the United States is a party from including certain payment terms to non-federal actors, also known as third-party payments. In order to make sure victims are properly compensated, settlement terms that result from a federal enforcement action sometimes include payments to third parties to advance programs that assist with recovery, benefits and relief for communities harmed by lawbreakers if a court finds that such payments further the objectives of the enforcement action.

H.R. 5063 would undermine law enforcement goals by reducing the availability of suitable remedies to address these kinds of injuries to the public caused by illegal conduct. This bill is a gift to industry lawbreakers that comes at the expense of families and communities impacted by injuries that cannot be addressed by direct payments but whose suffering still deserves compensation.

Disclosures from a sick Wells Fargo obviously soil the efforts of deregulators on many issues. One of these is the very issue of disclosure.

In the Wells Fargo scandal, more than 5,300 employees created more than 2 million accounts unsolicited accounts for their customers.

Photo courtesy J B/Flickr, CC BY 2.0.

Photo courtesy J B/Flickr, CC BY 2.0.

First, the Wells Fargo employees faked the accounts to avoid being fired for failing an account creation quota.  Then, their bosses pressured them to meet quota because the bosses got bonuses based on quotas. And finally, their bosses and bosses’ bosses all the way to the CEO got bonuses when investors drove up the stock price as those investors figured those ever expanding account creation numbers demonstrated exceptional management.

Twelve times in the last half decade, CEO John Stumpf made reference to those account numbers on the quarter calls with Wall Street analysts.

The very core of this pathology involves disclosure.  In this case, both non-disclosure and fake disclosure.

Yet at this very time, Chair White’s Securities and Exchange Commission is railroading through a monster rule designed explicitly to reduce disclosure. Keeping with the tradition of misdirection, this reduction is misnamed the “Disclosure Update and Simplification.”

As Wells Fargo was diligent in reporting rigidly account sales figures, here are simply a few of the inconvenient items that are obviously material to how an investor values this stock that Wells Fargo elected not to disclose.

  • In 2009, Wells Fargo executives recognized that certain ambitious sales programs – such as “Jump into January” – were generating fraudulent accounts. This was not disclosed.
  • In February 2011, Chairman and CEO John Stumpf reportedly received an email from a 22 year veteran of the company explaining how the appearance of growth in new accounts could be faked; this employee was subsequently terminated. This was never disclosed.
  • In 2011, employee satisfaction surveys reportedly found that bank employees were uncomfortable with instructions from management to push customers to buy products. This was not disclosed.
  • In 2012 the community banking unit began to investigate suspicious practices in areas with high levels of customer complaints, such as Southern California. These investigations reportedly led to the firing of 200 employees in February 2013. This was not disclosed.
  • In 2013 and 2014, the board and management took action in response to these signals and at the behest of regulators— including increased risk management standards in the community banking divisions, modification of some sales goals, and an internal investigation by Accenture and Skadden, Arps on which the board was reportedly updated. This was not disclosed.
  • The Consumer Financial Protection Bureau began its investigation in 2013. This was not disclosed.
  • Wells Fargo employees delivered petitions with more than 10,000 signatures to the board at both the 2014 and 2015 annual meetings that urged the board to recognize the link between Wells Fargo’s high-pressure sales quotas and the fraudulent opening of accounts without customer permission. These petitions called on Wells Fargo to cease using these high-pressure quotas. This was not disclosed.
  • The New York Times reports that even after the company began to recognize the problem and provide ethics training that warned against creating false accounts, the continued sales pressure from management overwhelmed the ethical training. When employees either refused to sell customers products they did not want, or reported fraudulent account creation to the Wells Fargo ethics line, they were subject to discipline including termination. This was not disclosed.

While viewing this perfect example of non-disclosure, Chair White has been speeding through her SEC a major proposal to gut disclosure rules. The bewilderment of changes includes gutting disclosure on executive compensation.

The Agency proposes to delete its requirement that CEO and other senior officer pay be disaggregated. Disaggregation allows investors to see what in the pay package is cash, stock, options, etc. Had it been clear to investors that the millions in bonuses for the top brass stemmed from line salespeople (paid $25,000 a year) to open an absurdly high eight accounts per customer,[1] or be fired, or cheat and try not to get caught, then this runaway fraud might have lasted two years, instead of a possible two decades.

In addition,  White plans to reduce what firms using repurchase agreements (repo) for loans must disclose. Repo is like a pawn shop, where you deposit a watch worth $1,000 and get $900 for a day, then you buy back the watch for $1,100, which you agreed to from the outset. (You need to do well at the horse race track in the interim for this to work out for you.)  The financial crisis demonstrated that firms such as Lehman had grown addicted to repo, and had manipulated tax and other rules to enable its dependency. In fact, repo disclosure should be enhanced, not deleted.

There are a number of other disclosure rules that Chair White wants to white out.

On many items, White says the SEC won’t require a disclosure if GAAP requires it. GAAP may stand for “generally accepted accounting principles,” but that must be an inside joke since they’re not generally accepted. U.S. GAAP differs from accounting standards in other countries (an acute problem given that many public companies operate in multiple nations). And it can change, regardless of what the SEC does. As with many other proposals, the Agency is ceding its responsibility to safeguard disclosure.

That’s not a very cheery pep talk to write comment for the Nov. 2 deadline. So, Citizens, just try this:

Write Ms. White at, put this in the subject line:  Re: “Disclosure Update and Simplification,” Proposed Rule; File No. S7-15-16; RIN 3235-AL82, and write something like: “Chair White,  Wells Fargo shows that all’s not well that ends well short of full disclosure. Wells Fargo shows that your disclosure idea goes in the opposite direction. Investors want to know.  Sincerely, your name.”

(Oh, and white-out apparently doesn’t work on computer screens, which is double-entendre.)

wellsgraph2The Fair Arbitration Now coalition strongly denounces Wells Fargo and its CEO, John Stumpf, for refusing to end the bank’s practice of preventing defrauded customers from suing in court. At a hearing held in the U.S. House of Representatives Committee on Financial Services yesterday, Stumpf stated unequivocally that Wells Fargo will continue to force consumer disputes into secret individual arbitration. The hearing examined Wells Fargo’s massive scheme to fraudulently open accounts in his its customers’ names.

The FAN Coalition is disappointed, but not surprised, that the CEO of a powerful financial institution would publicly champion forced arbitration.  In 2015, the Consumer Financial Protection Bureau (CFPB) released a comprehensive study on forced arbitration, which found that it is heavily rigged in favor of financial institutions. Among other things, the CFPB found that in forced arbitration, consumers bringing claims against corporations won only 9 percent of the time. However, when corporations sued their customers, the corporation won in 93 percent of arbitrations. Additionally, arbitration proceedings are completely confidential, which allows which allows corporations like Wells Fargo to hide widespread wrongdoing, as was the case with their fraudulent account cross-selling scheme.

Yesterday, Stumpf was asked by Rep. Brad Sherman (D-CA) whether his bank would continue to invoke forced arbitration clauses buried in the fine print of its customer contracts to prevent customers from holding the bank accountable for its illegal activities. Stumpf refused to end the practice, stating that he “believes in arbitration.” Stumpf previously declined to restore his customers rights last week when asked by Sen. Sherrod Brown (D-OH) during a hearing held by the U.S. Senate Banking Committee. At the same Senate hearing, Sen. Elizabeth Warren (D-MA) stated that the bank’s use of forced arbitration allowed them to cover up their patterns of abusive conduct, noting that “[i]f we had class actions on thisback in 2010, 2009, 2008, then this problem never would have gotten so out of hand.”.

The CFPB recently proposed a rule to restore consumers’ right to join together in class actions. More than 280 consumer, civil rights, and small business advocacy groups and over 100,000 individuals commended the CFPB for taking this crucial step to limit big banks’ and other financial companies’ efforts to escape accountability for breaking the law, and urged the agency to use the full force of its authority to restore consumers’ right to choose how to resolve disputes with financial institutions.

Our country is still reeling in the aftermath of the greed-fueled contagion of the 2008 economic collapse and Wall Street getting caught in villainous behavior is daily news. The anger of the American public toward Big Banks that were bailed out while average citizens went under—institutions that continue to get away with mere slaps on the wrist to settle claims of severe wrongdoing— is the foundation of the current populist political surge. It’s not surprising that Hollywood wants to get in on the act, and they should be applauded.

oneheart-invite215The Academy Award-winning  film The Big Short spotlighted for the movie-going public the complex web of financial maneuverings that tumbled down like a house of cards, leaving millions without homes and millions more with empty nest eggs. “A-listers” Julia Roberts, George Clooney, and Jodie Foster have even embraced the “us-versus-Wall Street” theme in the recently-available-for-the-small-screen film, Money Monster. The plot focuses on the problems that cascade from an everyman feeling wronged by a high-speed trading firm, and a “glitch” that bottomed out the value of a stock. Without commenting on the quality of the film, it can be said with all conviction that such glitches are not fiction.

In May of 2010, there was a flash crash that brought the curtain down on a trillion dollars of market value in a matter of minutes. And, in October 2013, in an unexpected twist, the normally very steady U.S. Treasury bond market went on a wild ride that was eventually blamed partially on high-frequency trading, computer programs called algorithms that automatically buy and sell financial instruments in much less than a blink of an eye.

Why should we risk our market stability with such rampant speculation? Spoiler alert: we don’t have to!

Right on cue to tamping-down on undesirable market behavior is an idea associated with Nobel prize-winning economist James Tobin, who called for a corrective tax on speculative trading that would  “throw some sand in the wheels” of the market to slow it down. Dozens of countries already have these taxes in place and the U.S. had a tax on Wall Street taxes from 1914 through 1965. Public Citizen has long advocated for reinstating a tax on Wall Street trades to protect consumers.

Not a Hollywood blockbuster, but another recent film, The Same Heart, also chronicles the rise of the high-speed trading ‘bot. However, the problem toward which the documentary film’s lens is primarily pointed is the horrible injustice of childhood poverty. But, instead of showing only the negative—the unthinkable hurdles of hunger, disease, and violence that billions of children face worldwide—it focuses on a possible solution: taxing Wall Street trades. The Same Heart makes the ethical and economic case for the wealthiest among us, the financial elite who make millions and billions of dollars in profit from financial transactions, to fund programs that invest in the world’s youth.

On September 27, at 1 pm in the Capitol Visitor’s Center, Public Citizen, in coordination with Media Voices for Children, which produced the film, the Child Labor Coalition, and the Congressional Progressive Caucus, is hosting an event called “Investing in our Future, One Transaction at a Time,” a panel discussion and screening of an excerpt of The Same Heart. I will be center stage for a dialogue with U.S. Rep. Keith Ellison (D-Minn.), filmmaker Len Morris, and experts from the Center for Economic and Policy Research, Communications Workers of America, the Institute for Policy Studies, and the National Consumers League. In addition to speaking about how the tens of billions in estimated yearly revenues from a Wall Street tax could benefit the next generation, I will outline how current legislative proposals to reinstate a tax on Wall Street trades to make markets less volatile and work better for average investors.

A fairer market does not have to be a celluloid dream. If we want to flip today’s script: the robbers being the banks themselves, bad guys costumed in pinstripes, never jail stripes, we need to take on Wall Street. The first step is making Wild West Wall Street stock market gamblers pay their fair share by taxing their trades at a fraction of a percent.

And, even if you’re not in DC to make the movie and panel event, you can still help set the scene for a legislative win. Please tell your U.S. Representative that you want her or him to be a hero and cosponsor the Putting Main Street FIRST (Finishing Irresponsible Reckless Speculative Trading) Act (HR 5745). If you’ve already done that, be a social media superhero and help spread the word about the Take on Wall Street fight by sharing this blog on Twitter with the hashtags #WallStTax or #TakeOnWallSt.

With your help, soon we will reach a critical consensus: no longer will we let the One Percent steal the show.

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