Clinton misses media moment as consumer protector-in-chief
Candidate’s cough eclipses her stance on Wells Fargo financial fiasco and Wall Street reform
Here’s what’s unfortunate about the Hillary Clinton cough-cough brouhaha: The preoccupation with her health has obscured what should have been a deeply considered distinction between her candidacy and that of what’s-his-name.
I speak here of the cataclysmic revelations at Wells Fargo Bank, now known to have been gaming the system via the “sandbagging” and “pinning” and “bundling” of customers and their accounts, actions that recall such sleight-of-hand language as channel stuffing and cookie-jar reserves.
Last week, the U.S. Consumer Financial Protection Bureau announced a $100-million (U.S.) fine against the fourth-largest bank in the U.S., a bank, by the way, that consistently espouses such old timey virtues as community outreach and knowing the customer.
That stagecoach logo was always a helpful reminder that Wells Fargo, founded in 1852, is really old. The quintessential down homey investor, Warren Buffett, holds a big piece of the company.
On top of that $100-million fine, the U.S. Office of the Comptroller of the Currency has ordered the bank to pay full restitution to customers, the total sum of which is not yet known. (The bank advises that customers scrutinize their accounts. Helpful.) We do know that, at an estimate, more than two million deposit and credit card accounts may have been opened without authorization. The bank was ordered to pay a further $35-million penalty to the Office of the Comptroller and another $50 million to the city of Los Angeles.
This may look like pocket change when you consider Wells Fargo’s $1.9 trillion in assets. What’s key here is the central role that the protection bureau, created under the Dodd-Frank legislation, played in bringing Wells Fargo to account. Dodd-Frank, we recall, was itself created in the wake of the financial crisis. Donald Trump thinks little of it. Trump said in an interview with Reuters in May that the legislation “has made it impossible for bankers to function” and that he will come “close to dismantling Dodd-Frank” once he is in the Oval Office. God help the Americans. As U.S. Treasury Secretary Jack Lew said in a CNBC interview Tuesday, the Wells Fargo debacle “ought to be a moment when people stop and remember how dangerous a system is when you don’t have the proper protections in place . . . This is a wake-up call.”
Clinton’s position was made clear in late August with her insistence that she would “veto any effort to weaken Wall Street reform.”
Clinton never signed on to the Bernie Sanders notion of reinstituting the Glass-Steagall Act, the Depression era legislation repealed under her husband’s administration, but she has been strong, nevertheless, on consumer protection within the banking industry.
As I’ve written previously, the protection bureau has undertaken a robust investigation of payday lenders. Clinton is for it. The Wells Fargo disaster should have been a key media moment for Clinton to reassert her potential role as consumer protector-in-chief.
What was Wells Fargo fully up to? Well, one of the bank’s distinguishing features, and one that held great appeal on Wall Street, was its crossselling success rate. It is as it sounds, increasing the number of products sold to customers, from savings and checking accounts to mortgages, debit cards and so on. Those community-level bankers the company was famous for were incentivized to get those cross-selling numbers up.
So, the bankers engaged in simulated finding. Here’s how the protection bureau explains the practice: “To qualify for incentives that rewarded bankers for opening new accounts that were funded shortly after opening . . . employees opened deposit accounts without consumers’ knowledge and then transferred funds from consumer’s authorized accounts to temporarily fund the unauthorized accounts in a manner sufficient for the employee to obtain credit under the incentive-compensation program.”
Customers ended up paying service fees on accounts they never opened, including fees imposed for failing to keep a minimum balance on accounts that were never authorized. According to a legal complaint filed by the state of California, the bank is alleged to have “placed customers into collections when the unauthorized withdrawals from customer accounts went unpaid.”
Tricks included opening thousands of credit card accounts without customers’ knowledge. PIN numbers were created for debit cards customers did not know they had — “pinning” in the bank’s argot.
The bank has taken easy action. More than 5,000 of its employees have been terminated for engaging in the practice. The bank’s culture and its management practices remain in question. Carrie Tolstedt, the ultimate overseer of those fired employees as head of community banking, retired in July on a wave of complements from Wells Fargo CEO John Stumpf, who described her as a “trusted colleague and dear friend.” Fortune magazine has now dubbed Tolstedt, who exits with $125 million in the usual stock option/restricted share haul, the company’s “‘sandbagger’-in-chief.”
On Tuesday, Wells Fargo, which says it serves one in three U.S. households, announced it was eliminating sales goals in retail banking as of Jan. 1. As far as the bank is concerned, this is now a story about rebuilding trust. That story’s not over. The unfortunate reality is that Hillary Clinton should have had a great deal more to say about upholding that “highest standard” in financial regulation that she espouses. I want to hear more about that, and, please, no more about that little rattle in her chest. jenwells@thestar.ca