L.A. Adopts ‘Social Responsibility’ Rules for Banks Working With City

December 14, 2017 by · Leave a Comment 

The Los Angeles City Council Wednesday approved more stringent rules for banks that want to do business with the city, which could result in Los Angeles divesting its funds from Wells Fargo over its fake accounts scandal and support of the Dakota Access Pipeline.

“We all realize that banks have done such bad things that we couldn’t have written it if it were fiction, or imagined that companies would be creating phony bank accounts and checking accounts and making phony loans and doing all kinds of things without even letting the customer know,” Councilman Paul Koretz said.

The city’s efforts to change the rules for its banking partners was undertaken as a result of the Wells Fargo fake accounts scandal, in which 3.4 million accounts were fraudulently created by employees given aggressive sales goals, and its support of the controversial pipeline. The city does the majority of its banking with Wells Fargo through roughly 800 different accounts.

Some of the rules were approved immediately in a 14-0 vote that drafted new language for a request for proposals for banks, and others were included in a 12-0 vote that directs the city attorney to amend the city’s Responsible Banking Ordinance. The city attorney would need to make the changes to the ordinance, and the council would have to approve of the updated language in a future vote.

The approved rules include “social responsibility” factors in the RFP that will be weighed heavily when the city considers proposals from banks.

Councilman Paul Krekorian said at a recent Budget and Finance Committee meeting that “the weight of the social responsibility component” in the new rules would “exceed what has been done by any other city.”

Wells Fargo’s financial support of the controversial Dakota Access Pipeline was also cited in a council motion as motivation for the city to explore divesting its funds from the bank while outlining criteria and standards the city would have in any future agreements with financial institutions.

“It’s time for us to endeavor to only do business with ethical financial institutions that have high standards and ethical standards. This is a very fiscally sound approach to looking at what divestment will mean, and it’s a very complicated and intricate matter,” Councilman Mitch O’Farrell said in June when he co-introduced the motion with Koretz.

In response to the fake accounts scandal, some council members expressed a desire to ban banks the city does business with from having individual or branch-level sales goals, but the Budget and Finance Committee was told several times by city staff that banning banks from having sales goals would be too difficult to monitor and could eliminate all possible bidders.

“Disallowance of sales goals may result in no or limited eligible bidders qualified to provide the city’s general banking services,” according to a report from the Office of Finance.

The committee then shifted to the idea of requiring banks to disclose sales goals practices in their bids, and an amending motion that was approved as part of the vote on the Responsible Banking Ordinance included a request for the city attorney to include the requirement that banks disclose their branch-level or individual sales goals and if they would promote or fire an employee based on them.

“The disclosure would solve a lot of the problems, because if they had a set of sales goals that were not humanly possible in the normal course of business, we would be able to spot that relatively easily, so if you had Wells Fargo-style sales goals it would be pretty obvious that no one could meet those without engaging in inappropriate behavior,” Koretz said at a previous committee meeting.

The amendment was introduced by Councilwoman Nury Martinez.

“As city leaders, we must expect the highest level of financial and social responsibility from our banking and service providers. While the city is not a regulatory agency, our taxpayers deserve to know that they’re money is being handled the right way, by the right banks,” she said.

The new social responsibility score would include things like a bank’s Community Reinvestment Act score, which tracks its level of lending, investments and services in low- and moderate-income neighborhoods. Wells Fargo’s score took a significant hit due to the fake accounts scandal.

Under the new RFP guidelines, the first phase of a banking bid will focus on its financial and organizational capacity while giving it a total score up to 100. The second phase of scoring will include a possible 30 points for its social responsibility score on top of the first phase score, for a total possible score of 130.

The new rules in the RBO will also require that a bank disclose any recent regulatory action taken against it, and that it have whistleblower protections and certify that it is in compliance with all applicable consumer financial protection laws.

In a settlement last year stemming from the fake accounts scandal, Wells Fargo paid $50 million in civil penalties to the city of Los Angeles and $135 million to two federal agencies, and was ordered to provide restitution to affected customers.

The Dakota Access Pipeline that runs more than 1,100 miles from North Dakota to Illinois sparked a months-long protest near the Standing Rock Sioux Reservation. Members of the tribe opposed the project on grounds that it passed over a sacred burial ground and would threaten their water source.

Pipeline construction was halted in November 2016 by the Army Corps of Engineers, but President Donald Trump signed an executive order in January instructing the agency to finish the project. Oil has been flowing through the pipeline since March.

Wells Fargo executives said in a February statement that Wells Fargo is not the lead bank on the project but merely one of 17 financial institutions that made a loan to the developers of the pipeline. The company said it lent $120 million to the project.
 

A Federal Regulator Is Probing Wells Fargo’s Mortgage Practices

June 8, 2017 by · Leave a Comment 

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The Consumer Financial Protection Bureau is conducting an investigation into alleged improprieties in Wells Fargo’s mortgage fee practices.

The CFPB is looking into allegations, first reported by ProPublica in January, that the bank inappropriately charged customers fees to extend their promised interest rates when their paperwork was delayed. The CFPB probe is in its early stages, according to a person familiar with it, and there is no certainty that the agency will take action. The CFPB has the power to levy fines and seek restitution if it finds a financial firm has violated the law. A CFPB spokesperson declined to comment.

Wells Fargo is also conducting its own internal review, overseen by the law firm Winston & Strawn. The inquiry was initially limited to the Los Angeles area, but has since widened. In a sign of its escalating scope and seriousness, Wells Fargo let three top mortgages executives go last week, including Greg Gwizdz, a 25-year veteran of the bank who most recently was the head of its retail sales division. Gwizdz oversaw the bank’s more than 7,900 loan officers.

The bank also dismissed Drew Collins, the manager of the Pacific division, and Sandy Streator, the regional sales manager for Nevada and Oregon. Previously the bank parted ways with Tom Swanson, the Los Angeles County regional sales manager. Gwizdz, Collins and Streator did not respond to requests for comment.

The decision to let the executives go was a result of “some of the things we found as part of” the internal review, said bank spokesman Tom Goyda, though he added that “no single issue or situation” led to the departures. Goyda declined to comment on the CFPB probe.

ProPublica reported Wells Fargo mortgages routinely bogged down in paperwork delays. When that occurred, supervisors instructed loan officers to blame and charge the customers, even when the problems were the fault of the bank, according to current and former Wells Fargo employees. Customers were charged fees of $1,000 to $1,500 or more, depending on the size of the loan, to extend, or lock in, their interest rates. The practice of shunting the fees onto the customers was particularly common in the Los Angeles County and Oregon regions.

In Oregon, part of Streator’s territory as regional sales manager, two former loan officers and one former branch officer told ProPublica in February they were instructed to charge customers for mortgage lock extensions even when the bank was responsible. The former branch officer estimated that in 2015 and 2016 he oversaw 350 mortgages that needed lock extensions. He said the bank only paid the fee twice.

Wells has been reshuffling management elsewhere within the organization as part of the fallout into an earlier and separate scandal. Last September, the bank was fined $185 million for illegally opening as many as 2 million deposit and credit card accounts without customers’ knowledge. In February, it fired four senior managers connected to that wrongdoing.

In April, the board of directors issued a report excoriating the bank’s top-level management for its high-pressure sales culture.

The CFPB probe comes at a time when the 6-year-old agency’s own future is uncertain under the Trump administration. Banks, financial firms and the Republican Party have opposed the agency and its sweeping powers to oversee consumer finance. Consumer advocates and the CFPB’s adversaries await a decision from the U.S. Court of Appeals for the District of Columbia about the constitutionality of the agency. Adding to the uncertainty, Richard Cordray, the director of the agency, is expected to be leaving his post sometime this summer, though his term does not expire until July 2018.

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Wells Fargo Claws Back Millions in Compensation

April 12, 2017 by · Leave a Comment 

LOS ANGELES  – Los Angeles City Attorney Mike Feuer said Monday the Wells Fargo board’s decision to claw back $75 million in compensation from two ex-executives it blames for much of the company’s sales scandal is a “positive step,” but falls short.

Feuer’s office last year settled a lawsuit it brought against the bank after some of its employees created more than two million unauthorized accounts as a way to meet aggressive sales goals set by management.

The settlement resulted in $50 million in civil penalties for the city of Los Angeles and $135 million for two federal agencies, and Wells Fargo was ordered to provide restitution to affected customers.

“From the moment we sued Wells Fargo over fake accounts through the time we resolved the case, the bank seemed determined to blame and fire low-level employees, rather than take responsibility at the top,” Feuer said in a prepared statement.

“While clawing back outrageous bonuses from people in charge when the scandal erupted is a positive step, providing full restitution to affected customers is imperative,” he said. “Pursuant to our settlement, next month Wells will report to me on its progress toward doing just that. My office and
our federal partners will continue to watch closely and take any further action necessary to hold Wells or other big banks accountable.”

Wells Fargo is seeking a total of $75 million from former chief executive John G. Stumpf and its former head of community banking, Carrie L. Tolstedt.

Supervisors Consider Using $25M Wells Fargo Settlement to Investigate Other Consumer Protection Violations

November 22, 2016 by · 1 Comment 

Los Angeles County officials are considering how to spend $25 million in legal penalties levied on Wells Fargo, with some proposing Tuesday, Nov. 22 that a new litigation division be set up to target violators of consumer protection laws.

The bank is set to pay $50 million in civil penalties to resolve litigation involving bank accounts set up without customers’ permission. The money, to be split between the county and city of Los Angeles, is in addition to at least $135 million in penalties paid to two federal agencies over similar allegations.

The payments settle a lawsuit brought by City Attorney Mike Feuer, filed after the Los Angeles Times reported that fake accounts were created without customers’ knowledge and caused them to rack up bank fees.

Supervisors Hilda Solis and Mark Ridley-Thomas pointed to Feuer’s success as potential justification for setting up a unit of county attorneys targeting those who routinely ignore consumer protections.

By law, the funds must be used by either the District Attorney or County Counsel. However, the money could be spent on a wide range of efforts, including enforcing minimum wage violations, battling fraudulent immigration consultants, expanding legal assistance centers, identifying theft among foster youth or establishing a Center for Financial Empowerment, according to the
supervisors’ motion.

The Los Angeles City Council recently budgeted roughly $5.8 million to fund Feuer’s consumer protection division.

Wells Fargo officials have said the agreements were made with its customers in mind and out of a desire to show accountability.

“Wells Fargo is committed to putting our customers’ interests first 100 percent of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request,” the company said in a statement issued in September when the settlement was announced.

“Our entire culture is centered on doing what is right for our customers. However, at Wells Fargo, when we make mistakes, we are open about it, we take responsibility and we take action. Today’s agreements are consistent with these beliefs.”

The Consumer Financial Protection Bureau, one of the federal agencies that also reached a settlement with Wells Fargo, alleged that the bank opened hundreds of thousands of deposit and tens of thousands of credit card accounts without their customers’ knowledge or permission.

The fake accounts were set up by bank employees to achieve sales goals and reap financial incentive rewards, and the bank fired about 5,300 employees as the result of the allegations, according to the CFPB.

The Board of Supervisors asked for a report back in 60 days.

Wells Fargo Fraud Is Stark Reminder of Need for Tougher Rules

September 22, 2016 by · Leave a Comment 

The scandal surrounding Wells Fargo Bank’s glaring unethical behavior towards its customers is only one of too many scandals involving corporate bad behavior.

It makes us wonder what our business schools are teaching their MBA students about corporate responsibility and ethics these days.

Wells Fargo CEO John G. Stumpf was far from contrite when he “apologized” for the bad actions of supposedly overzealous company employees he claims acted independently to open millions of unauthorized banking accounts and purchase company services, in the process defrauding customers of millions of dollars in unauthorized fees that fraudulently pumped up the financial institution’s bottom line.

Those unethical actions also served to increase bonuses to the company’s top executives, who face no real penalty for their part in the scandal, including failing to provide the oversight that could have/should have, caught the misdeeds and corporate culture that made it possible.

We have to wonder if Stumpf believes American consumers will feel comforted and vindicated by him throwing the company’s lowest paid employees, the Wells Fargo sales force, under the bus while the executives who engineered the sales quota plan that put pressure on the employees in the first place, walk away with hundreds of millions of dollars in corporate bonuses.

The $185 million in fines and penalties the company will pay are just a drop in the bucket for the company. Sadly, employees at the lower end of the company’s pay scale and consumers will likely bare the burden of making up the financial loss.

Regardless of how large the fines are, they will probably do little to stop the casino mentality of Corporate America. Not until the executives who not only allow but also often promote abusive corporate behavior start to go to jail or are forced to suffer large personal financial penalties, will we begin to see a change in corporate behavior.

It’s been less than a decade since the near collapse of the country’s financial institutions that led to the Great Recession and the loss of millions of jobs, pension plans and foreclosed homes. The Wells Fargo debacle is a stark reminder that financial institutions still need close oversight.

Unfortunately, Stumpf and his executives aren’t the only bad actors among American corporations. Efforts by Republicans to unwind tougher banking regulations under Dodd/Frank, reforms following the financial melt down to curtail excessive bad and speculative practices by the nation’s big banks are ongoing.

It’s time our elected officials stand up and acknowledge the bad actors in our economy, including banks and pharmaceutical companies, and reign in their abusive practices, even if it means sending some executives to jail.

Singer Sues Wells Fargo for Negligence, Deceit

July 1, 2016 by · Leave a Comment 

Mexican singer Ana Barbara sued Wells Fargo Thursday, alleging two employees looted more than $400,000 from her accounts and forced her to lose another $884,000 after she had to cancel a concert tour.

Barbara, 45, filed the lawsuit in Los Angeles Superior Court, also naming as defendants Wells Fargo employees Arturo Arias and Jorge Valdez. The allegations include negligence and deceit. She seeks more than $1.5 million in damages.

The bank is “well-known for creating a corrupt business culture which pressures its employees to lure customers into setting up multiple undesired accounts … thereby maximizing Wells Fargo’s profits while at the same time exposing its customers to needless costs and injuries,” according to the lawsuit.

Wells Fargo also has “adopted the practice of enrolling its customers in online banking and online bill paying without their consent,” the suit alleges.

A Wells Fargo representative did not immediately reply to an email seeking comment.

The suit states that Arias, a fan of Barbara’s who had attended some of her performances, approached Barbara in April 2012 and “then proceeded to insinuate himself into (her) circle of friends and associates.”

Arias convinced Barbara to open up a personal checking account at a Wells Fargo branch in January 2013 by going to her home and having her sign the agreement there, the suit states. Two  months later, Arias talked Barbara into establishing a business checking account linked to a savings account in the name of her corporation, Lo Bosque Productions Inc., the suit states.

In about May 2013, Arias began using Barbara’s personal identification information to steal money from her two checking accounts, the suit alleges. He created passwords known to him that prevented the entertainer from having access to her own accounts, the suit states.

In January 2014, Arias and Valdez opened a line of credit in Barbara’s name, the suit states. The two conspired to forge Barbara’s signature, according to the complaint.

Together with other Wells Fargo employees, Arias also opened credit and debit card accounts in Barbara’s name, the suit states.

“Arias and Valdez caused over $416,000 of Barbara’s funds fraudulently to be transferred away from Ana Barbara and into Arias’ hands … for his benefit,” the suit alleges.

Barbara’s credit was damaged “to the point where she is unable to obtain ordinary financing for her purchase of a new home,” according to the complaint.

Arias and Valdez confessed to their alleged wrongdoing last August, the suit states. A month later, Wells Fargo created a new checking account in Barbara’s name without telling her and deposited nearly $127,5000, apparently to reimburse her for a portion of the money allegedly stolen by Arias, the suit states.

Barbara, whose real name is Altagracia Ugalde Motta, is considered a major figure in the modern Grupero genre and she has an international following.
 

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