Not long ago, the Consumer Financial Protection Bureau exacted its largest fine ever -- $185 million -- from Wells Fargo Bank for defrauding over 1 million customers. Sounds like a lot of money. But as President Nixon might have said on his secret audiotapes, revealed during the Watergate investigation, "Big f---ing deal." Paying such a fine is viewed by too many major financial institutions in much the same way -- not as a painful punishment but rather as a routine cost of doing business. Life goes on uninterrupted.
Uncharacteristically in this escapade, 5,300 employees were fired. (Hey, they systematically defrauded customers.) But with one exception, no one in the upper echelons at Wells has suffered any real consequences that I can see.
And then there is the fine itself. Does $185 million sound big? Maybe if it were paid by the individual wrongdoers, but it's a pittance when paid by an institution as large as Wells. Last year Wells' profits were about $21 billion from about $86 billion in revenue.
The fine represents less than 1% of its profits and less than a quarter of 1% of its revenue.
To keep this in perspective, how much pain would you feel if your annual salary was $100,000 and, to avoid criminal prosecution, you paid $250? That's the equivalent of a couple parking tickets for running a nationwide car-theft ring.
But wait, it gets better. What if you didn't have to pay the $250 yourself but your uncle wrote the check for you? That's the story for the 5300 fired Wells employees and their supervisors, all away up to the top. Shareholders pay the fine, not the wrongdoers themselves.
So what lead to the Wells' embarrassment? Throngs of Wells' employees established lines of credit and issued credit cards to customers who never requested them. In order to earn additional bonuses, the 5,300 employees engaged in more than 1 million fraudulent transactions.
Seems rather difficult for Wells to argue that this problem arose from the actions of a few rogue employees. Seems more like company policy. And, of course, the higher-ups at Wells claimed they had no knowledge of the matter.
All this also illustrates another practice that is all too frequent today, namely that compensation paid to the titans of the financial services industry has no relationship to real performance. The head of the department that employed the cheaters resigned, and she was rewarded with a $7 million bonus. That's on top of a total departure package of about $124 million.
Wells' shareholders got to pay for this dazzling good-bye. Shockingly, because public and Congressional outcry has been so loud, the CEO of Wells will have to forfeit about $40 million in compensation, or about two years of salary.
I have a few questions. Are the members of the Wells board of directors protecting either the shareholders' interests or their customers? Why is no one higher up in the Wells organization (other than the CEO) implicated and held responsible? Why are there no criminal prosecutions for defrauding over 1 million customers? Is anyone's bonus (other than the CEO's) going to be affected? What incentive do employees have to do right by the customers and the shareholders rather than enrich themselves?
In a recent editorial, the New York Times suggested that the real hero in this escapade is the CFPB. The CFPB did ultimately discover the fraud and bring its action. But unfortunately that was after thousands of employees took advantage of millions of customers.
I have been banking with Wells for 45 years. Between my personal accounts, my family's accounts, my business accounts and trust accounts which I administer, I currently maintain over 20 accounts with the bank. I have a personal of banker with whom I have worked for many years.
Nonetheless, when I recently opened a new checking account with an initial deposit $1,000, I was hassled about failing to submit one inconsequential document. It seems that government regulations addressing international money laundering applied to this simple transaction. It appears that Wells was being so vigilant when it really didn't matter, while millions of customers were being cheated.
Meanwhile, millions of customers were being cheated.
Once again we have an example of how white-collar criminals could hide behind corporate skirts, paying no out-of-pocket fines, nor doing time. Once again a gigantic financial institution could get away with a parking ticket-sized fine for what is massive fraud. A corrupt system remains securely in place.