A funny thing happened in the United States Senate today, as a chorus of cross-party agreement broke out during a Senate Banking Committee hearing on revelations that Wells Fargo employees created hundreds of thousands of fraudulent bank accounts and credit cards in order to meet company targets for cross-selling new products to existing customers. The targets were extremely aggressive — so aggressive that they couldn’t actually be met — so thousands of employees responded by faking it.
Wells Fargo is paying $185 million in fines and fired more than 5,000 rank-and-file employees, but so far nothing has been done to personally punish the high-level executives who reap the rewards when the company performs well.
Senators today weren’t having it, with banker scourge Elizabeth Warren telling Wells Fargo CEO John Stumpf that he ought to resign and face personal investigation. She described his failure to take responsibility as “gutless leadership” and said we may need “tough new laws” to hold executives personally accountable for their misdeeds.
.@SenWarren is right: "The only way that Wall Street will change is if executives face jail time when they preside over massive frauds.”— Bernie Sanders (@SenSanders) September 20, 2016
Warren, as you might expect, is on the leftward flank of the panel.
But it featured a surprising level of bipartisan agreement, with committee chair Richard Shelby, a hard-right Alabama Republican, accusing Stumpf in his opening statement of personally fostering “a corporate culture that drove company ‘team members’ to fraudulently open millions of accounts using their customers’ funds and personal information without their permission.”
And yet Shelby, along with his fellow Banking Committee Republicans, is committed to eliminating the entire agency that discovered the wrongdoing in the first place.
Bipartisan slams on Wells Fargo
Warren’s fellow Democrats got in on the action, naturally.
When Stumpf tried to punt on compensation issues and say that he would leave it up to a special committee of the board of directors rather than weigh in personally on whether he and other key leaders should have their pay docked, Ohio’s Sherrod Brown called the decision “unfortunate.”
But Tennessee Republican Bob Corker got in on the game, too, arguing that “to not invoke some degree of clawback for yourself and others involved would be committing malpractice from the standpoint of just public relations.”
And it was Pennsylvania Republican Pat Toomey who raised what was arguably the most salient legal issue of the hearing, namely whether Wells Fargo’s failure to disclose this matter as a potential risk to investors in Securities and Exchange Commission filings constituted a separate breach of securities law.
All of which is to say that while the subject of financial regulation is a sharply partisan and polarized one in Washington — with Republicans routinely charging the 2010 Dodd-Frank financial regulation overhaul of hamstringing the economy with red tape and excessive regulation — when actual wrongdoing comes to light, everyone is inclined to agree that it’s important to get tough.
But even while Republicans are outraged by Wells Fargo’s wrongdoing, all the Republican senators who spoke against the bank at today’s hearing have gone on record at various times in calling for the full repeal of President Obama’s financial regulation law — which would mean eliminating the agency that uncovered the wrongdoing and levied the biggest fines.
Why the CFPB matters
Before she was a senator and before Obama was president, Elizabeth Warren laid out the case for creating what became Dodd-Frank’s Consumer Financial Protection Bureau, making the point that it’s not good enough for consumer abuses to be against the law — there needs to be an agency charged with specifically enforcing those laws.
“Each agency, for example, has some power to control certain forms of predatory lending,” she wrote, describing the old status quo, “but their main mission is to protect the financial stability of banks and other financial institutions, not to protect consumers.”
Mainstream bank regulators, in other words, are charged with making sure that banks’ balance sheets don’t get too risky. Protecting consumers from rip-offs was always a secondary mission, which in some ways ended up in conflict with the basic safety-and-soundness mission, since tough enforcement of consumer rules can undermine bank profitability. Historically, the needed consumer protection function was carried out at the state and local level (and indeed, in the Wells Fargo case it appears the LA City Attorney’s Office played an important role), but as modern banks are national in the scope of their activities only a national agency can really get a handle on them.
With today’s rhetoric, Shelby, Toomey, Corker, and others confirmed that consumer abuses by major national banking conglomerates are a serious problem. Warren, Obama, and other Democrats have a solution to the problem — a national regulatory agency focused on consumer abuses. Banking committee Republicans want to grandstand when banks get caught, while voting to make it much less likely that banks actually do get caught.