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How a power trip could doom the agency that took down Wells Fargo

Consumer Financial Protection Bureaus critics want to shut the agency down and claim its structure is unconstitutional and unaccountable to the public

The resignation last week of the chief executive of Wells Fargo should have been a high point for the Consumer Financial Protection Bureau (CFPB).

The CFPB announced in early September that it would receive the lions share of a $185m fine levied on Wells Fargo as punishment for encouraging employees to open millions of savings and credit accounts for customers without their knowledge or consent. The rest went to Los Angeles regulators and the Office of the Comptroller of the Currency.

Then came congressional hearings, at which Stumpf one of those rare individuals whom Democrats and Republicans could agree was a villain embarrassed himself by fumbling the questions and passing the buck up to his board of directors and down to the rank-and-file employees who actually opened the accounts.

Nor was that the only highlight for the CFPB of late. The agency has issued new rules governing prepaid cards, an alternative to checking accounts used by large numbers of unbanked Americans who cant afford the rising fees traditional banks levy on checking accounts, or for whom banks decline to open accounts.

As the wealth gap has widened, the prepaid industry has soared, from being worth $1bn in 2003 to $65bn by 2012. Users tend to be among the more vulnerable members of society: making less than $50,000, renters rather than homeowners, minorities and women, according to research by the Pew Charitable Trusts.

In other words, they tend to be vulnerable to abuse or simple misunderstanding. The CPFBs new rules will require clear disclosure about what fees the card issuer will charge to check a balance, for instance, and ensure that losses will be limited to what a conventional debit card holder would face if their card was lost or stolen.

So far, so good for the CPFB. A US appeals court, however, rained on the agencys parade, while members of Congress and others raised questions about whether the CFPB has embarked on some kind of power trip.

The court was considering an appeal in a case involving whether the CFPB had the right to impose a $103m fine on mortgage service PHH, for allegedly taking kickbacks for directing customers to a particular insurance company. The case reached the US court of appeals for the District of Columbia, where a three-judge panel headed by Brett Kavanaugh, a George W Bush appointee, handed down its ruling last Tuesday.

Unconstitutional, Kavanaugh thundered. Not the CFPB itself, but its structure, which is headed by a single individual, Richard Cordray, who serves for a fixed term. Typically, heads of such agencies serve either at the presidents pleasure or as part of a group, such as the five-member Securities and Exchange Commission.

So much for the brief, fleeting moment of bipartisanship as Democrats and Republicans joined in bashing Stumpf.

If you believe Republicans, the CFPB part of the Dodd-Frank reforms that followed the financial crisis of 2008 is, in the words of Kavanaugh, a grave threat to individual liberty, a phrase he used once every three pages or so in his 98-page decision.

Investors Business Daily agrees. The CFPB is an out-of-control and dangerous entity, it wrote the Frankensteins Monster of federal regulatory agencies that is almost entirely unaccountable to the public.

Translation: the CFPBs critics want to shut the agency down lest it become even more effective, and are taking a weird and sometimes mutually contradictory variety of approaches to doing so.

When the CFPB has been slower than it might have been to act, as in the case of Wells Fargo, Republicans have taken delight in accusing it of being asleep at the switch, in the words of Texas representative Jeb Hensarling, the CFPBs chief critic in the House.

When the CFPB has been proactive in its core areas mortgage lending, credit cards and student loans this has also attracted criticism. For instance, while its mission didnt include looking at for-profit colleges, the agencys emphasis on student loans led it realize that a disproportionate number of problems were tied to entities such as Corinthian colleges and ITT Technical Institute, which took advantage of the student loan system while at the same time misrepresenting graduation rates. It sued both schools for predatory lending, prompting their collapses.

Still, in at least one case, a federal judge (another George W Bush appointee) denied the agency access to information about how an accreditor signed off on programs offered by these colleges.

Although it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow headlong into fields not clearly ceded to them by Congress, tsk-tsked US district judge Richard J Leon.

Last weeks ruling could have been a lot worse, and Hensarling is probably gnashing his teeth in fury, wishing that the DC court had gone further. Cordray will now serve at the presidents pleasure, rather than for a fixed five-year term unless the agency appeals and the decision is overturned.

This isnt impossible: its hard to argue how the presence of a single individual at the helm of an agency offers a threat to liberty, unless the agency under that individual restricted the ability of those it regulated to access the court system to complain about its judgments. The fact that PHH did precisely that in this instance is evidence that theres no tyranny at work.

What Hensarling and his buddies are really irate about is that the CFPB gets its funding independently thats the lack of accountability that Investors Business Daily was getting huffy about. In other words, its not politicized: the CFPB doesnt have to grovel to Congress annually to keep its budget.

The agency has reason to be concerned. Even as Dodd-Frank expanded the list of SEC responsibilities, Congress, perhaps under pressure from the financial services industry, actually cut the amount of money it had to work with.

The SECs 2017 budget will be unchanged, it now seems. But yet again, that entity only narrowly escaped a cut.

In contrast, the CFPB is financially independent of Congress, being funded directly by the Federal Reserve (and collecting its fines, as other agencies do) and that drives Hensarling and other opponents crazy.

They may characterize that as being unaccountable to ordinary Americans, but I think it actually enables the agency to listen to ordinary Americans rather than to the Very Loud Voices of the lobbyists who have a disproportionate impact on Congress.

So far, at least the CFPB doesnt seem to be using any superpowers it might have to threaten my life, liberty or pursuit of happiness.

Read more: https://www.theguardian.com/business/us-money-blog/2016/oct/16/wells-fargo-consumer-financial-protection-bureau-congress-critics

Ex-Wells Fargo CEO John Stumpf deserves jail not a plush retirement | Nomi Prins

If the Department of Justice lived up to its name, it would move forward with John Stumpfs criminal investigation

For former Wells Fargo CEO John Stumpf, this will be his first weekend as a wealthy retiree. So it goes in a world where big banks can screw over customers and the public, and the CEO who presided over these practices can slink off into the sunset unencumbered by the kind of real retribution that plagues small-time drug users and petty thieves. They go free. We pay the price.

Two days before the banks quarterly earnings announcement, Stumpf announced his immediate resignation. That decision came about a month after the firm was slapped with a $185m settlement for a fee-stealing scam that resulted in the axing of 5,300 low-level employees. He did not resign after settlements for any of the prior wrongdoing that took place under his purview for which the firm paid about $10bn in fines.

Make no mistake. Stumpf was the captain and commander of this $1.9tn empire. Its culture, as in all Wall Street culture, was defined from the top down, not the other way around. For his penance, all Stumpf had to do was forfeit $41m in restricted stock awards (stock he didnt even fully own yet).

The figure for Stumps exit hoard is currently valued around $134m, a pretty plush parachute. That includes his vested stock and other retirement plans. But that figure can rise. The firms stock took a beating due to this latest scandal (its still down 11%). With Stumpf out and this cross-selling or sales practice scrubbed in the wake of his departure, rising share prices to pre-scandal levels could place his take closer to $160m or above. So Stumps departure holds monetary value for him. In bankster terms, its a slam dunk trade.

Massachusetts senator Elizabeth Warren and other senators have called for his resignation, a return of every nickel he made during the scam and a Department of Justice and US Securities and Exchange Commission investigation. So far, Warren pointed out in a tweet, only one of those things has happened. He shouldnt be afforded impunity (like other big bank CEOs) for running Wells during an effective crime spree.

Her request for DoJ criminal investigations into Stumpfs role, in just this scandal, has not been honored. Even if it were to be, would it get very far? There have been zero criminal indictments for any mega-bank CEO, regardless of the breadth, depth and cost of the crimes committed by their institutions under their stewardships. Stumpfs chances look pretty damn good.

Stumpfs number two man, 29-year Wells veteran Timothy Sloan, is being touted as the anti-Stumpf; clean, not of the retail unit that swindled the banks average customers. Only it wasnt just the retail unit implicated in settlements. Wellss fines included $1.4bn for allegations of misleading investors in securities auctions, $5bn for loan services and foreclosure abuses, and $1.2bn for defrauding the US government regarding mortgages eligible for federal insurance.

Sloans roles spanned wholesale and commercial banking operations (areas implicated by these settlements.) Plus, as chief operating officer since November 2015, Sloan was responsible for ensuring good practices for that retail unit. Clean is relative. And meaningless.

The new board chairman, Stephen Sanger, said Stumpf believes new leadership at this time is appropriate to guide Wells Fargo through its current challenges and take the Company forward. Current challenges. Thats the kind of terminology that whitewashes the gravity of what he did. If the Department of Justice had the balls, it would move forward with Stumpfs criminal investigation and minimally slap him with an indictment. So far, it has not shown such aptitude.

Read more: https://www.theguardian.com/commentisfree/2016/oct/14/john-stumpf-retirement-wells-fargo-ceo-jail-time

Wells Fargo announces profit drop after CEO exits in fake accounts scandal

The bank said on Friday, days after John Stumpf announced his retirement, that earnings slipped in the third quarter, though the results beat expectations

Wells Fargo profits dropped by 2.6% as earnings slipped in the third quarter, the bank said on Friday, days after its chief executive and chairman, John Stumpf, announced his retirement in the wake of a scandal over sales practices.

In early September, Wells Fargo reached a $185m settlement with regulators following allegations that employees opened up to 2m bank and credit card accounts without customers authorization, in order to meet sales goals.

In the quarter ending on 30 September, the banksaid, it earned $5.6bn or $1.03 per share, compared with $5.8bn or $1.05 per share in the same period a year earlier. The results beat analysts expectations, of $1.01 per share.

Under pressure from politicians and investors, Stumpf retired on Wednesday. John will not receive any severance payment. His retirement benefits are disclosed in our proxy statement, a spokeswoman told the Guardian.

Stumpf could however leave with as much as $130m, according to CNN Money analysis. Stumpf owns 2.4m shares of stock, worth $107m.

If Wells Fargos John Stumpf is leaving with all of his ill-gotten millions, thats still not real accountability, Massachusetts senator Elizabeth Warren tweeted after Stumpf announced his retirement.

Warren, a leading voice for accountability and reform in the financial sector, previously called on Stumpf to resign, return every nickel he made during the scam and submit to inquiry from Securities and Exchange Commission and the US Department of Justice.

A bank teller would face criminal charges and a prison sentence for stealing a handful of twenties from the cash drawer, she said.

Elizabeth Warren (@SenWarren)

A bank CEO should not be able to oversee a massive fraud & simply walk away to enjoy his millions in retirement.

October 12, 2016

Stumpf has forfeited stock awards worth $41m; had he stayed on, he was to forgo any salary while an independent investigation into sales practices was ongoing.

Carrie Tolstedt, who oversaw the retail banking business when the unauthorized accounts were created, retired earlier this year. According to Wells Fargo, Tolstedt will not receive severance and has waived about $19m in unvested stocks.

However, she is still to walk away with about $77m. In mid-September, the bank told US lawmakers Tolstedt owned 960,017 shares, then worth about $43.6m, and $34.1m worth of vested stock options.

Chief operating officer Tim Sloan was named to replace Stumpf as chief executive. In a statement, he said: I am deeply committed to restoring the trust of all of our stakeholders, including our customers, shareholders, and community partners.

We know that it will take time and a lot of hard work to earn back our reputation, but I am confident because of the incredible caliber of our team members. We will work tirelessly to build a stronger and better Wells Fargo for generations to come.

Asked in a call with investors on Friday if Wells Fargo should consider bringing in someone new to lead the bank, Sloan said that was a fair question but said the board was comfortable with and supportive of the current management team.

Sloan also said it was disturbing to hear claims of retaliation against staff members who tried to flag the practice of opening unauthorized accounts. Wells Fargo, he said, had reached out to staff members who were let go for not meeting their sales quotas and might be eligible for rehire. As of 1 October, the bank has eliminated sales quotas in its retail banking business.

Employees are the banks most important asset, Sloan said.

From 2011, more than 5,300 such employees were fired for creating unauthorized accounts. Stumpf said those firings were not part of an orchestrated effort.

Matt Moscardi, head of financial sector research at MSCI, said scapegoating former employees and firing those who did not meet quotas could hurt Wells Fargo. A significant drop in productivity, he said, would lead to a drop in revenue.

Fridays results do not reveal the long-term impact of the sales-practice scandal, which broke in mid-September, when the quarter was nearly over. The bank had noticeably higher non-interest expenses in the quarter, due partly to the $185m settlement.

In a presentation to investors released on Friday, Wells Fargoreported a drop in what it called banker and teller interactions in September, from both a year previously and from August, before the scandal broke.

Consumer checking account openings dropped by 25% from September 2015 and 30% from August 2016. Applications for Wells Fargo credit cards also fell sharply in September.

The bank said referrals for mortgages from retail branches were down 24% from August. Retail branch referrals account for 10% of all mortgage originations at what is the nations largest mortgage lender.

Wells Fargo revenue in the quarter was $22.33bn, up 2% from a year earlier.

  • The Associated Press contributed to this report

Read more: https://www.theguardian.com/business/2016/oct/14/wells-fargo-profits-down-third-quarter-john-stumpf

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