What should be done to stop banks like Wells Fargo from scamming us?

Image via Peg Hunter (CC BY-NC 2.0) / Cropped from original

Wells Fargo’s CEO John Stumpf deserves every bit of the anger that the Senate Banking Committee directed at him for leading Wells Fargo while it created more than 2 million fake deposit and credit-card accounts, and then charged unknowing customers for them.

Stumpf has tried to lay the blame at the feet of workers. But this was not the behavior of a few out-of-control workers. The problem was systematic, and it followed from Wells Fargo’s use of high-stakes sales quotas for its employees. As the Los Angeles City Attorney’s office explained in its lawsuit, these quotas were often impossible to fulfill, and yet employees who fell short were often fired.

But Wells Fargo’s failure points to a broader problem. After all, this is hardly the first time Wells has faced scrutiny for illegal acts. As Senator Sherrod Brown (D-OH) pointed out, this is only one of 39 enforcement actions that Wells has faced in the last ten years.

Wells Fargo has racked up over $10 billion in fines for offenses from racial discrimination in mortgage lending, tomortgage fraud, to violations of the Americans with Disabilities Act.

So what should be done to stop banks from scamming us? Americans for Financial Reform has five specific proposals.

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Wells Fargo execs should not profit from the company’s misdeeds

Last week, we learned from an important joint enforcement action by the CFPB, OCC and Los Angeles City Attorney that Wells Fargo had opened accounts for 2 million customers without their consent. Bank employees had been pressured to do so by aggressive sales quotas that could not be met through actual sales. This week, we are appalled by the further news that the executive who oversaw the unit responsible for this fraud was not fired, and in fact is retiring with nearly $125 million in compensation.

Regulators have a tool in front of them to make it harder for bank executives to get away with giant pay packages in cases of lawbreaking and abuse. Section 956 of Dodd-Frank and Section 39 of the Federal Deposit Insurance Act give the watchdogs a mandate to stop banks from rewarding executives for practices designed to produce short-term gains with long-term risks. The regulatory agencies should exercise their existing authority to compel banks to use pay-clawback mechanisms, and they should make sure the final rule implementing Section 956 requires banks to take back pay from executives who oversee lawbreaking. In addition, the CFPB and OCC should refer their findings to the Department of Justice for a full investigation.

In the meantime, it is important that the penalties resulting from the illegal activity at Wells fall on the executives responsible for putting an abusive system in place and allowing it to continue. Wells Fargo and its CEO John Stumpf should claw back the $125 million going to the company’s head of consumer banking, Carrie Tolstedt, who supervised the employees directly engaged in these illegal acts. The company should also recover the bonuses received by Stumpf himself during the time period covered by the abuses. This money should be used to pay the penalties and refunds.cfp

After massive bank fine, Congress considers bill to gut financial reform

Image via Brandon Doran on flickr.com

Image via Brandon Doran on flickr.com

This week, the House Financial Services Committee will consider an extraordinarily dangerous bill that takes many of the worst ideas concocted by Wall Street lobbyists and their political friends and combines them into one toxic package.

The bill, the “Financial CHOICE Act” (H.R. 5983) is authored by House Financial Services Chairman Jeb Hensarling (R-TX-5), and it not only rolls back key portions of the Dodd-Frank Act, it also guts regulations that came before it. If passed, it would make financial regulation even weaker than it was even prior to the 2008 crisis. It also eviscerates the Consumer Financial Protection Bureau (CFPB) mere days after the CFPB fined Wells Fargo $100 million for widespread unlawful sales practices and ordered Wells Fargo to issue full refunds to all scammed customers. With banks continuing to abuse their own customers we need  MORE accountability, not less.

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Dangerous House Bill to Deregulate Private Equity Could Enable New Fraud

At a time when private equity funds are in the news and under scrutiny by the regulators, the House is set to consider a bill that rolls back the clock to a time when private fund advisers operated in the shadows, without meaningful oversight.

The Investment Advisors Modernization Act of 2016 (H.R. 5424) would allow private funds to evade SEC examinations, and to distribute misleading and even fraudulent advertising materials. The bill also allows private funds to evade SEC examinations, and to distribute misleading and even fraudulent advertising materials. In addition, it eliminates key systemic risk information for regulators by dramatically reducing the number of funds who must report complete information on their leverage and holdings on a confidential form (Form PF) used to track risks to the financial system. Finally, the bill exempts private equity firms and hedge funds from having to provide independent confirmation that they own the securities they claim to own – a change that could open the door to the next Madoff-style Ponzi schemes.

This dangerous deregulation would put at risk the retirement savings of teachers, firefighters, police officers, and other public servants who rely on the one-quarter of funding from private equity funds in public pensions. We expect this bill will be considered by the full House of Representatives this Friday, September 9th.

The SEC has found serious investor protection issues at over half of the private equity funds they have examined. And private equity funds have come under additional scrutiny by the agency in recent weeks for disclosure violations and possible illegal fee practices. Yet the H.R. 5424 seeks to take away the very tools the SEC uses to oversee these funds.

Two of the country’s largest pension funds, CalPERS and CalSTRS, oppose the bill, as does the Council of Institutional Investors, an association of corporate, public and union employee benefit funds and endowments. Americans for Financial Reform has also publicly opposed the bill, as has the AFL-CIO and UNITE HERE.

We have compiled below letters of opposition to this dangerous bill, along with recent press stories highlighting investigations into and abuses by the private equity industry.

Opposition letters and other documents discussing H.R. 5424:

Recent press coverage on investigations and abuses in the private eduqity and hedge fund industry:

Three-part NYTimes series on Private Equity:

Private Equity Tries to Chip Away at Dodd-Frank With House Bill | NYTimes | September 8, 2016

Apollo to pay SEC $52.7 million for disclosure violations | PoliticoPro | August 23, 2016

SEC Probes Silver Lake Over Fees | WSJ | August 19, 2016

Platinum [Partner]’s California Oil Fields Said to Be Subject of Probe | Bloomberg | August 11, 2016

This Is Your Life, Brought to You by Private Equity | NYTimes | August 1, 2016

Private Equity Funds Balk at Disclosure, and Public Risk Grows | NY Times (Gretchen Morgenson) | July 1, 2016

HR 5424, “Investment Advisers Modernization Act,” a “Get Out of Madoff and Other Frauds for Free” Bill, Passes Financial Services Committee | Naked Capitalism | June 17, 2016

Past AFR letters regarding abuses at private equity firms:

CFPB Arbitration Rule Receives Strong and Widespread Support

The U.S. Consumer Financial Protection Bureau’s (CFPB) proposed rule to restrict forced arbitration – a tactic banks and lenders use to block consumers from challenging illegal behavior in court – has been met with widespread support. Below are selected highlights of comments from individual consumers, elected officials, advocacy groups and newspaper editorial boards who weighed in during the public comment period, which ended on Aug. 22, 2016.

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More Than 100,000 Consumers Across the Country Support the Rule

Between the proposed rule’s announcement on May 5, and the close of the comment period on Aug. 22, at least 100,000 individual consumers across the country submitted comments or signed petitions urging the CFPB to restrict forced arbitration in consumer finance. On the other side, FreedomWorks – a conservative political group affiliated with the Tea Party – claims it “generated nearly 15,000 responses opposed to the rule.”

Of the 100,000-plus positive comments, 69 percent of consumers voiced general support for the proposed rule, emphasizing that “[b]arring consumers from joining class actions directly opposes the public interest.” Another 31 percent pushed the CFPB to expand the rule’s coverage and “take the extra step to prohibit individual arbitration in the final rule.”

This overwhelming support for action against forced arbitration echoes a recent national poll, which found that, by a margin of 3 to 1, voters in both parties support restoring consumers’ right to bring class action lawsuits against banks and lenders.

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Key Statements of Support

38 U.S. Senators commend CFPB for proposed rule

“Recognizing the urgent need to address these troubling practices, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 to improve accountability, strengthen the financial system and establish the CFPB. Dodd-Frank included several restrictions on the use of forced arbitration, including a mandate for the CFPB to take action on arbitration. Congress specifically directed the CFPB to study the use of forced arbitration in connection with the offering of consumer financial products and services, and authorized it to ‘prohibit or impose conditions or limitations on the use of’ such agreements based on the study results.”

65 members of the U.S. House of Representatives praise the rule

“Consistent with the bureau’s exhaustive study on forced arbitration, which found that forced arbitration restricts consumers’ access to relief in disputes with financial service providers by limiting class actions, the proposed rule is a critical step to protect the public interest by ensuring that consumers receive redress for systemic unlawful conduct… There is overwhelming evidence that class-action waivers in financial products and services agreements undermine the public interest.”

18 state attorneys general want to extend the reach of state enforcement efforts

“Although we believe consumers will be best served by the total prohibition of mandatory, pre-dispute clauses in consumer financial contracts and we encourage the bureau to consider regulations to that effect, the proposed rules provide a substantial benefit to consumers by restoring their fundamental right to join together to be heard in court when common disputes arise in the commercial marketplace. Many of our respective consumer protection laws include private right of action provisions, the purpose of which is to complement and extend the reach of our state enforcement efforts.”

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CFPB Stops and Punishes Bank’s Deceptive Telemarketing Fueled By Sales Quotas

The Consumer Financial Protection Bureau has taken an enforcement action to force Santander Bank to stop enrolling customers in overdraft protection without their informed consent. The bank has also been ordered pay a $10 million fine.

Santander, which has nearly 700 branches in 8 northeastern states, sold high-cost overdraft protection through a telemarketing contractor that enrolled some customers without their consent and lied to other customers about its cost.

The CFPB also found that the telemarketer’s employees were incentivized to cut corners by unrealistic sales quotas. Employees were fired or had their hours reduced when they failed to hit a specific sales target, a practice that encouraged the illegal behavior. As the Committee for Better Banks, the National Employment Law Project, and AFR have previously documented, sales quotas create widespread risks for consumers in the banking industry. Recognizing the problem with these employment practices, the CFPB’s order bars Santander from using outside telemarketers or imposing sales quotas on its employees to sell its overdraft products.

Santander is not the only bank to use high overdraft fees as a profit center. Banks charge billions in overdraft fees per year, costing the average consumer who pays an overdraft fee $225 per year.

On the CFPB’s Fifth Birthday, Senator Warren Celebrates the Bureau’s Achievements

EW woo hoo freeze frame

This week, the Consumer Financial Protection Bureau (CFPB) turns five years old. AFR and a large number of consumer, civil rights, and community-based groups celebrated the anniversary, noting that life is better for American families and neighborhoods because the CFPB is at work fighting predatory lending and financial abuse. In addition to winning the praise of advocates, recent polling has shown that there is overwhelming, bipartisan support by the public for the work of the Bureau.

Senator Elizabeth Warren also delivered her own accolades to the Bureau in a video message that stresses the importance of its good work. In it, she notes that in just five short years, the CFPB has “ returned over $11 billion to consumers who were cheated on their mortgages, credit cards, checking accounts, and other financial products.”


Americans for Financial Reform is a nonpartisan coalition of over 200 organizations fighting for a safer and fairer financial system. To learn more, join our email list!

The best-paid hedge fund managers made $13 billion last year

That’s enough to end family homelessness in America

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Image credit: Pictures of Money (CC BY 2.0)

The 25 highest paid hedge fund managers in America took home $13 billion in compensation last year, according to Reuters.

They’re able to make such astronomical amounts thanks in part to the many loopholes in our financial regulation. So-called “activist” hedge funds, for example, abuse lax securities laws to gain large stakes in public companies, and then demand cost-cutting, layoffs, and more debt. These moves enrich the hedge funds while often dooming the companies they acquire.

To top it off, hedge funds are costly investments whose performance often just mirrors the stock market overall, despite charging exorbitant fees. In 2015, those fees added up to a cool $13 billion in compensation for the 25 managers at the top of Reuters’ list.

It’s hard to wrap your head around a number like $13 billion. To make it a little easier, here are a few comparisons — inspired by a report from the Coalition on Human Needs.

$13 billion could end family homelessness for ten years

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Image credit: Lavin Han (CC BY-ND 2.0)

The Department of Housing and Urban Development (HUD) has said that it would take $11 billion over ten years to provide housing subsidies to 550,000 more families — an amount that could effectively end family homelessness, since in January 2015, HUD found that 564,708 people were homeless on a given night.

And we’d still have $2 billion left over.
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Hard-sell Banking

At a briefing organized by Communications Workers of America and the Committee for Better Banks in the Rayburn House Office Building, a panel of front-line bank workers and representatives from Americans for Financial Reform (AFR) and the National Employment Law Project (NELP) discussed the banking industry’s growing use of aggressive sales quotas and their dangerous consequences. The event marked the release of a NELP report, Banking on the Hard Sell: Low Wages and Aggressive Sales Metrics Put Bank Workers and Customers At Risk. The panel was convened by Representative Keith Ellison (D-MN) and drew a capacity crowd that included several members of the House Progressive Caucus.

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The bank worker panelists, representing varied regions of the country and a number of large financial institutions, told similar stories about the toxic work environment created by practices designed solely to provide maximum profit margins for the banks. Khalid Taha, an Iraqi immigrant to the United States, imagined his job with Wells Fargo as the fulfillment of the American dream; but it turned into a nightmare, he testified, when the cumulative pressure of persuading multiple customers to open new banking accounts every day led to his hospitalization for exhaustion.

The bank employees spoke of their commitment to quality customer service and their dismay at being compelled to engage in transactions they knew would result in great financial damage to consumers. Modern bank teller positions are entirely “sales oriented,” said Oscar Garza, who worked at JP Morgan from 2010 to 2012. Garza testified that he and other JP Morgan workers were instructed to open new accounts at “any cost” and even to falsify financial information to help customers qualify for loans. Similarly, the bank employees explained that quotas and incentives mandated by corporate offices tacitly encourage deceptive behavior. Cassaundra Plummer, formerly an assistant sales teller at a Maryland branch of TD Bank, remembered her manager’s instructions to “only focus on the positives” rather than fully explain the terms of the financial products she was supposed to be selling.

DSC_4669Banking on the Hard Sell includes many more personal accounts like these. Caitlin Connolly, the Coordinator of NELP’s campaign on sales quotas, emphasized the need for additional regulations to address the issue of aggressive bank sales tactics. The 2008 financial crisis stirred significant public discussion of the behavior and business practices of big banks, Connolly noted; but attention hasfaded since then, she said, with bad implications for bank employees and consumers alike.

A majority of the bank employees at the hearing said they had no knowledge of the consumer protections and other provisions of the Dodd-Frank Act – the landmark financial-reform measure enacted in the aftermath of the 2008 financial crisis.

The last panelist, Brian Simmonds Marshall, Policy Counsel for AFR, pointed out that federal regulators have taken significant steps under Dodd-Frank to prohibit compensation practices that could encourage risky or deceptive behavior on the part of high-level bank executives; the NELP report and the testimony of the bank employees, he said, underscore the need to apply the same kind of scrutiny to the compensation and
management of front-line bank workers. Financial oversight agencies, Marshall said, should not just be looking for violations of the rules, but for the root causes of those violations.

Following the briefing, bank employee panelists, along with AFR and NELP staff, held individual meetings with regulators at the Office of the Comptroller of the Currency and the Consumer Finance Protection Bureau to further discuss the issues raised at the event.

 

House Subcommittee Considers Bill to Shred the SEC’s Tires

The many problems with the Investment Advisers Modernization Act

Shredded tires

While Americans for Financial Reform and our allies are busy campaigning for closing loopholes that are special privileges for private funds, the Majority on the Hill is proposing to do away with even the limited existing reporting requirements to protect investors and increase accountability.

On May 17th, the House Financial Services Subcommittee on Capital Markets held a hearing to discuss a bill called the Investment Advisers Modernization Act of 2016. Far from actually modernizing the industry, the bill rolls the clock back to a time when private fund advisers operated in the shadows, without meaningful oversight. The bill would enable the exploitation of investors and reduce the information available to regulators to address systemic risk by rolling back key reporting requirements, and by interfering with the Securities and Exchange Commission’s ability to investigate fraud at individual firms. (For a full breakdown of the problems with this bill, please see AFR’s opposition letter).

One of the witnesses who testified was Jennifer Taub, a Professor at Vermont Law School and author of Other People’s Houses, a book on the foreclosure crisis. Professor Taub pointed out in her written testimony that the Investment Advisers Modernization Act could not only “undermine investor protection and trust, which could inhibit or drive up the cost of capital,”  but would also “allow certain private equity advisers and other private fund advisers that have been exposed as lacking in recent SEC examinations to hide their tracks.”

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