Wells Fargo is getting yet more deserved bad press. Gretchen Morgenson and Emily Glazer of the Wall Street Journal reported Tuesday that the bank was making a hash of the customer restitution it had promised to make in connection with its various scandals. Even though the press firestorm last fall was over the bank’s “fake accounts,” the much bigger payments to customers, and the ones it is messing up involve the force placing of auto insurance, which in over 20,000 cases led to car repossessions, and charging unjustified fees in connection with mortgages. The Journal’s story got the attention of Elizabeth Warren, who shot off a letter to Wells Fargo CEO Tim Sloan demanding answers.
As we’ll describe below, even though Wells Fargo may try to depict the delays and errors as mere mistakes, there’s at least one process Wells Fargo set up was clearly designed to lower how much the bank has to pay out.
And since we are talking dollar totals across all the abuses that are chump change for a bank the size of Wells Fargo, what this accidental or deliberate ham-handedness says about the bank is not pretty. At best, the bank doesn’t care about doing this right. Another possibility is that the bank is addicted to maximizing profit at no matter what the risk to its reputation and was arrogant enough to think it wouldn’t be disciplined again. Finally, there may be people in positions of influence who resent the regulatory choke chain and are trying get away with as much as they can get away with out of a reflexive, “How dare they tell us how to run our business.” If that is found to play any role in these supposed screw-ups, expect the boot to come down hard on Wells Fargo management.
Although the story only suggested the connection in passing, recall that in the evening of February 2, her last day in office, departing Fed chair Janet Yellen hit Wells Fargo with a balance sheet cap plus required that four directors be replaced. The press seemed stunned at this development, but Yellen had threatened Wells Fargo since last July that it could force the bank to appoint new directors or impose other sanctions if it didn’t shape up. One has to wonder if she’d gotten reports from the OCC and/or the CFPB of these shenanigans and had decided enough was enough.
And in a breathtaking demonstration of tone-deafness, Charlie Munger, the vice chairman of big Wells Fargo investor Berkshire Hathaway, tried depicting “regulators” as meanies who needed to let up on the oh-so-well meaning bank.
Berkshire's Munger urges regulators to ease up on Wells Fargo https://t.co/3D31S2JlGM pic.twitter.com/pbkscliJvW
— Reuters Top News (@Reuters) February 14, 2018
“Of course, Wells Fargo had incentive systems that were too strong in the wrong direction, and of course they were too slow in reacting properly to bad news,” but “practically everyone” makes those kinds of mistakes, Munger said.
“Wells Fargo will end up better off for having made those mistakes,” he added. “I think it’s time for regulators to let up on Wells Fargo. They’ve learned.”
Help me. It took far too long for Wells Fargo’s board to force out former chairman and CEO John Stumpf. That reflects a lax attitude by Warren Buffett and Munger. Had they cleared their throats, Stumpf would have been out pronto. The bank lost more points with regulators by not coming clean with the full scale of the fake accounts abuses even before the next scandals broke (it was Morgenson who first reported on the forced placed auto insurance).
And notice how Munger artfully used the word “regulators,” hoping bank-friendly investors will think of the meanies at the CFPB, and forget that it was the normally bank-friendly Fed that hit the bank with the latest sanctions, and the first to dent the stock price in a meaningful way. And even though it was Yellen that took this move, her successor Jerome Powell also backed punishing Wells Fargo.
The delayed and botched compensation involves the auto insurance and mortgage customers. Over 600,000 car owners had insurance force placed on them, and over 274,000 became delinquent on their payments as a result. That means even if they didn’t wind up losing their car, they may have suffered credit report damage, which in turn could hurt their ability to get loans and could also undermine a job search. The San Francisco bank had pledged to make $100 million in payments and $30 million of “account adjustments” 1
In addition, Wells Fargo “charged improper fees” to as many as 110,000 customers for extending interest rate commitments on their mortgages. If they were Wells Fargo depositors and these “improper fees” were debited fro their accounts, that would normally be called stealing.
Here is the part that does not pass the smell test. From the Journal:
Wells Fargo will soon require mortgage customers to agree to a refund through the mail before sending them money, and estimates half or fewer will do so….
Wells Fargo for months also has debated internally how to refund customers impacted by its improper mortgage charges. The bank is planning to send letters to customers who were charged interest-rate locks over a particular timeframe, people familiar with the process said. It already refunded customers on a one-off basis who complained directly to the bank about the fees.
With the bank’s planned broader outreach, customers must opt in to the possible refund, and then the bank will send a check, one of these people said. Since the bank is relying on customers to open their mail and get back to them, the bank estimates half or fewer will do so, in line with direct mail response rates, another person said.
So Wells Fargo has been foot-dragging, and to add insult to injury, plans to use a process designed to insure that most the of people entitled to receive compensation won’t get it. It is more work to send customers a letter and process an opt-in than just send out checks. And please don’t try telling me banks find it hard to mail them. I’ve had credit balances on credit cards from three different issuers (Amex, Citi, and Chase) in the last two years, and they seem almost allergic to having the funds, that’s how fast they issued payment, even when the amounts were teeny.
The story also contains a lot of detail on the mess of making payments to the auto insurance scam victims:
The big bank acknowledged that it recently sent out 38,000 erroneous communications to customers that it forced to buy unneeded auto insurance…
Wells Fargo has sent more than 100,000 checks to auto-loan customers out of roughly 800,000 planned, a person familiar with the process said. It has been in close touch with the regulators about the different phases of customer checks and so far agreed on the refunding process for more than half of those customers, the person said.
The first phase was refunding customers who were owed less than $100, with average payments around $30, the person said. Later phases involved larger refunds and states that had more complicated legal processes. Another stage focuses on customers who claim lost wages and out of pocket financial costs because of, for example, a car repossession, mental and emotional distress or other issues. The bank is still sorting out what customers can claim, the person added.
It seems a bit fishy that payments are being delayed for customers owed more than $100 merely because the payment has three or more figures. It seems even more fishy for Wells to blame a delay in reimbursement on state “legal processes”. There may be states like New York with insurance regulators who are awake, but informing them would be a compliance/reporting issue, which has nothing to do with getting money to people.
Elizabeth Warren saddled up again as a result of the Morgenson/Glazer report. Her letter to Wells Fargo CEO Tim Sloan, who Warren has repeatedly said she thinks should be fired, does not appear to be public yet. The high points from Morgenson’s story yesterday:
Ms. Warren asked Mr. Sloan to explain why Wells Fargo is making customers opt in to receive refunds of improper mortgage rate-lock fees. Because the bank’s customers must respond to a mailing to get repaid, Wells Fargo has estimated, according to a person familiar with the matter, that half or fewer will do so—a typical response rate for direct mailing.
“What do you intend to do for the victims that do not ‘opt in’ to receive a refund?” Ms. Warren asked.
Regarding the bank’s effort to repay customers it forced to buy unneeded auto insurance, Mr. Sloan was asked how Wells Fargo will calculate those refunds, especially for customers whose cars were repossessed or whose credit scores were hurt.
Wells Fargo’s efforts to compensate its customers have been “utterly inept,” the letter said. The bank “has caused thousands of people to spend valuable time and money trying to deal with a problem Wells Fargo created.”
As Lambert likes to say, pass the popcorn.
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1 The story reports that Wells expected to send 800,000 checks, which is more than the number of harmed customers. Curious as to what sort of process has some customers getting more than one payment.
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No wonder the wealthiest CONgress Member from my state, Joe Kennedy III, is invested in WFC, it pays!
Just saw an Atlantic article from last July entitled “Power Causes Brain Damage” that seems apt, and even highlights former Wells CEO John Stumpf as a prime case in point.
https://www.theatlantic.com/magazine/archive/2017/07/power-causes-brain-damage/528711/
Close the Bank. They have made it abundantly clear they just don’t care about their customers. There will be yet another oopsie 3 months from now. Rip the bandaid off. Close the Bank.
How about the Swedish model instead? Nationalize the bank, sack the whole management crew and bring in outside management, send accountants in to go over ALL the books, spin off all bad debts to a separate entity to be sold off piecemeal later, throw into prison all those who have seriously broken laws, recapitalize that bank if needed and then sell it back into the market. This way you are not punishing the staff of that bank with unemployment but are putting them on notice.
Huh? What? Sorry, where was I? I must have been dreaming.
What? Why do that? Better to just turn all the branches in each city into their own credit union, or hand over their buildings and operations over to already existing CUs…I mean, if we’re dreaming…
The regulators issuing fines really need to be more draconian in their approach to customer restitution, perhaps by forcing the undistributed funds to be paid to the regulator as additional fine (perhaps with a penalty multiplier of 2 or 3x). If Wells isn’t capable of (or just drags their feet) in distributing the funds, why should they get to keep them? Just as unclaimed/abandoned funds must be turned over to the state, why not these payments?
I still don’t understand the singleling out of Wells Fargo when all the banks have committed equally egregious crimes against the populace.
Part of it is that their frauds have been egregious, obvious, and clear to the layperson; Opening up accounts without customer approval or charging fees not agreed to in the contract is a lot easier to get than fraud involving obscure, esoteric minutiae of securities structuring. Part of it is also that Wells Fargo tried to put on a face of being the “good” bank after the Great Recession, that they weren’t involved, or at least not as heavily involved, in the kind of shenanigans the other TBTF’s were. So claiming the moral high ground makes you a bigger target when your fraud is exposed.
Wells stole deposits. Even though the amounts were small, deposits are supposed to be sacrosanct. That was a big reason everyone went nuts. Even Republicans were outraged at the Congressional hearings.
By contrast, anything involving borrowing can be turned into a “but they were in debt” and can be depicted as borrower delinquency and therefore deserved, whether accurate or not.
Yves,
For the second time in the last 5 years Wells is not crediting our extra payments to principal on our mortgage. They oddly place it under a line of “Unapplied Funds”. They are stealing constantly it would seem.The last time this happened, they claimed we needed to call them to have the funds correctly applied. I had also filed a complaint with the CFPB. Not much happened then, I am sure less will happen today.
Wells Fargo did the same thing to us on bi-weekly mortgage 10-12 years ago; they were holding our extra payments to principle in some “account” even held an entire mortgage payment we paid that they had, for over a year. After a year of paying every two weeks nothing additional had been lowered on our loan balance which i had been monitoring what our loan balance should be with paying the payment I never knew they didn’t apply to our loan and their holding of money received in an account, while simultaneously STILL charging us interest for that money we paid two weeks before; they were incredulously collecting it every two weeks through a program they promoted to pay off loan quicker by paying every two weeks — and yet holding our payments and not applying them to our loan. I argued with them for over a year that the date they receive the payment, I’ve paid back that amount on that date!!! I filed a complaint and I don’t think it was understood what they were doing, it was so incredulous. I said, think about how much money they are making, when thousands of customers pay on their mortgage every two weeks and they hold the payments and don’t apply the payment until 2+ weeks later. Despite paying additional to principle through their bi-weekly program, the mortgage term was not being shortened because they were holding the money and not applying it to my loan when I paid every two weeks. I went into the local Wells Fargo branch multiple times with evidence; amortization tables showing the fraudulent interest I was being charged as each payment was held for 2 weeks before being applied. Efforts to get them to apply payments to my loan on date received were futile. After over a year of being robbed I refinanced with a different lender which cost me thousands in loan fees, just to get away from Wells Fargo stealing my money. It was worth it to get away from those crooks. Wells Fargo’s “unapplied funds” account scam on mortgages has clearly been occurring for more than a decade because they were robbing me in this manner back in mid-2000’s and here i read even after filing a banking regulator complaint they are still doing it to their mortgage holders. The use thousands of customers money held in those unapplied funds accounts, while simultaneously continuing to charge interest on mortgage balance that has not been lowered by money already paid and in the banks possession for two weeks!!! And every two weeks they kept holding the payments and not applying them on date paid. I’m so glad to see Wells Fargo being exposed and I hope they have to pay back every fraudulent penny they be stolen from their customers. They robbed us of over $5000 with their bi-weekly mortgage program. We had to pay off the loan with a re-fi just to get away from their thievery. Wells Fargo is despicable.
Yikes. I guess this is my question to Yves. Buffet and Munger can get a bailout when their investments in Wells and Bank of America are losing billions, as they did from Obama/Congress, but what can we do when we are being robbed by the same to big to fail thieves?
Didn’t you read Charlie Mungers remarks? These are all just “mistakes” made by well intentioned bankers. And by making these mistakes, they will do better in the future. Notice how calm he sounds, and how (slightly) crazy you sound. That is one benefit of being a socio-path- you can abide evil without any rise in your blood pressure. You will die of a heart attack brought on by stress, Charlie will live to a ripe old age. Yves: “……expect the boot to come down hard on Wells Fargo management”- you are joking, right?
“but they were in debt”
That isn’t substantially different from “she was asking for it by wearing those clothes” (or other similar).
An irrational rationalization.
Enough in our society bought into that that we are pretty much doomed.
Hate to tell you, but “debt” = “sin” in many languages. The version of the Lord’s Prayer I learned, and I am from a non-religious family but you pick up this stuff anyhow, is “Forgive us our debts….”
I don’t mind telling you I think you’ve missed the point/s of the Lord’s Prayer.
The Lord’s Prayer is found in Matthew 6:9-13. At least in every version of the Bible I have access to in my personal library. I have a dozen, or so, different versions, some translated to English from another language, with a few being paraphrased, or restated, in English from a prior English version.
Jesus is likely to have spoken a Galilean dialect of Aramaic. The Gospels of Matthew, Mark, Luke, and John, were likely written in either Koine Greek, or Aramaic. The Old Testament was primarily written in Hebrew. I don’t speak, read or write, any of those languages so I’m reliant upon the English translations.
The verse of the Lord’s Prayer you’ve cited to, Matthew 6:12, uses various terms in the various versions. Some use “debts,” but others use “sins,” or “failings,” or “trespasses.”
Here is the Lord’s Prayer from the KJV:
“9 After this manner therefore pray ye: Our Father which art in heaven, Hallowed be thy name.
10 Thy kingdom come, Thy will be done in earth, as it is in heaven.
11 Give us this day our daily bread.
12 And forgive us our debts, as we forgive our debtors.
13 And lead us not into temptation, but deliver us from evil: For thine is the kingdom, and the power, and the glory, for ever. Amen.”
Regardless of the term used each of them have Jesus placing the emphasis on forgiveness. Your citation misses that point.
The Bible has a number of other passages, most of which are also misinterpreted, misapplied, and/or being ignored, particularly in the context of foreclosure litigation.
Exodus 20:15-17, which is generally considered to be in The Ten Commandments:
15 Thou shalt not steal.
16 Thou shalt not bear false witness against thy neighbour.
17 Thou shalt not covet thy neighbour’s house, thou shalt not covet thy neighbour’s wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor any thing that is thy neighbour’s.
Leviticus 19:15:
Ye shall do no unrighteousness in judgment: thou shalt not respect the person of the poor, nor honor the person of the mighty: but in righteousness shalt thou judge thy neighbour (don’t pervert justice, but judge fairly).
Proverbs 18:17:
He that is first in his own cause seemeth just; but his neighbour cometh and searcheth him (the NIV translation is a bit more accessible, “In a lawsuit the first to speak seems right, until someone comes forward and cross-examines”).
The Bible also proscribes the charging of interest. Not just usurious rates, but any at all. Further, the proscription extends not just to money, but also to food.
Exodus 22:25:
If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.
Leviticus 25:36:
Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee.
Leviticus 25:37:
Thou shalt not give him thy money upon usury, nor lend him thy victuals for increase.
I could go on at considerably more length were I to include other religious texts, history, the seminal documents of a number of countries, the rules of evidence and procedure, etc. That would only unduly belabor this point: Ain’t nobody paying nuff attention to that stuff, and we’re pretty much doomed cuz of it.
Wells is just the designated scapegoat. Not a NYC bank. Apparently not enough friends at the Fed. Sort of like Bear Stearns in 2008, which could have been saved but wasn’t, Wells’ competitors have apparently voted it off the island, so to speak.
Frankly, every one of the 5 largest conglomerate banks should be stripped down to “small enough to fail”, which also means “small enough to regulate” and “small enough not to own Congress”. And the customer banking (actual banking) needs to be separated from all the investment-banking activities (restore the Glass-Steagall rules). There will always be crime in banking, at some level, due to the inherent conflicts of interest, but the damage from that crime would be minimized if the scale were kept as small as possible.
In fact, the FDIC should just make it an annual process to take apart the largest bank and sell off the assets to smaller competitors. To preserve democracy and capitalism, there should always be thousands of banks, not just a few dominant ones.
If the FDIC won’t do it, the public should just start boycotting any of the largest banks that generates too many awful headlines…
With all due respect, that’s nonsense.
Wells used to be the darling as far as how it was treated by regulators. It was regarded as better than the “NYC banks” which includes Bank of America, which happens to be a Charlotte, NC bank, because it was an almost entirely traditional commercial bank (relatively little in the way of securities operations, an asset management business focused on offering index funds) that was adequately capitalized. It presented itself as the Jimmy Stewart bank compared to the Wall Street sharp operators.
And if you don’t think Warren Buffett, Wells biggest shareholder, isn’t plenty politically connected, you are smoking something very strong. Just look at how he got the preferred bid on Goldman during the crisis, and how much time he got to spend with Obama.
I agree with both sd and FreeMarketApologist. If we were talking about a poor person we’d be hearing all kinds of moralizing about personal responsibility, skin in the game, face the consequences of your bad choices/diet/education/work ethic. Close them down and show the rest of them there’s consequences…of course they won’t be closed down because there are no consequences when a corporation cheats. Regulators need to be meaner, not leaner, Sorry Charlie!
of course they should have zero customers, I closed my accounts….
I did as well and I think most consumers would be wise to do so. Thanks to the FDIC consumers should be kept solvent in the event of a bank run!
I definitely don’t wish to absolve WF of their culpability but this little episode should really serve as a wakeup call to consumers to get their savings out of these large predatory banking institutions and into smaller, democratically controlled credit unions. We’ve seen far too much malfeasance from commercial lenders this decade.
I was very involved in a yearly Wells Fargo charity project for 10 years. The complete change in environment was shocking. In the 1990’s I would often talk with managers involved in the mortgage business about how people were getting home loans that they couldn’t afford. The majority of the management agreed and saw it as a problem. Within 10 years the new management, most of the older ones had been replaced or let go, would sit around at lunch bragging about how fast they could get people into 120% helocs right after closing the original mortgage. They knew borrowers probably wouldn’t be able to afford the original loan and didn’t care at all.
Couple of years ago I received a notice from Wells (I’m not a customer) that they had a tiny bit of money in my name from a company distribution (long story), and, if I would go online, create an account with them, they would send the money (peanuts) to me. This was all legit. All the info and numbers matched up with my bookkeeping. However….
I’d been reading about Wells’ customer abuse here and elsewhere. Thought it safer to never ever opening a Wells account for any reason. The difference between the potential tiny financial gain of the distribution vs the potential huge financial loss from opening a Wells account was too big. I did not open an account. Let Wells hold the little amount. Considered that cheap insurance against the potential big accounts fraud scam.
So Wells is running the old Nigerian Prince scam, eh? Figures.
How did WF profit from forced placed auto insurance?
Did they receive fees or commissions for placing the insurance?
Or is the insurer a captive entity owned by WF?
Or did they “self-insure”? (i.e. no actual insurer; just collect fees.) This would be the most profitable as this type of insurance covers only the lien holder’s interest in the event the vehicle is totalled or repo’d with damage.
Having been in the retail insurance biz for 30+ years, I’m curious as to how they were getting their cut out this scam.
Why in hell is this open for debate in the first place?!?!?! In a just world, the head of one of the relevant regulatory agencies would give Sloan two choices:
1) Figure out where every single customer that was ripped off currently lives and make the CEO deliver them a refund check in person to insure restitution is made to 100% of those affected by Wells’ scam.
or
2) Go to jail.
Maybe Munger could give Sloan a hand too.
ProPublica:
The campaign ads should write themselves.
Where the [family blog] is the Democratic messaging on this?
Thanks for this. I had missed that key detail. So Wells was hoping to blow off the CFPB, and the Fed lowered the boom on them.
“Where the [family blog] is the Democratic messaging on this?”
Same place their messaging on failure to prosecute the crooks. They can’t point fingers because they have not done anything to protect consumers. AT. ALL.
” If that is found to play any role in these supposed screw-ups, expect the boot to come down hard on Wells Fargo management.” If by “boot” you mean the padded cuddle-gloves, sure.
Throwing out board members hasn’t been done in decades. Warren has been wanting Tim Sloan fired, and the new Fed chair Jerome Powell is on board with being tough on Wells. The Fed has forced out top management before, see Salomon Brothers in its Treasury bond big rigging in the early 1990s. The sin with Salomon wan’t the original crime, it was the refusal to shape up. The Fed does not have much tolerance for that when it has (finally) decided to make a real issue of something
You need to go watch the Congressional hearings with Stumpf. I have never seen so much outrage from both sides of the aisle. The Republicans were furious and were explicit: Wells’ behavior was showing that regulations were necessary. It was making the free market types look bad. They were besmirching the entire capitalist enterprise.
When Mr American Capitalist is on your side, there’s nothing to worry about.
I hope Buffett lives long enough to see his empire crumble together with Murica.
A friend closed his account and parked his van in front of his local Hells Embargo.
Lots of blow ups of Naked Capitalism articles about those parasites pasted onto magnetic media stuck on the van with a bunch of pull tabs to NC URLS about the bank.
Every person walking in and out of the bank got a look and a chance to pull a few tabs off or were offered a few in person until he got tired and went and had coffee across the street.
Thanks for letting me know!
Cheating is in the DNA of Wells Fargo. Recall that years ago Walmart was found to have deliberately programmed their scanners to add a few pennies to purchases of their customers, because for the Walton family there is never enough profit. Pennies from the many add up to serious dollars, and the greed and arrogance of the men running Wells Fargo is extraordinary, by any standards. Without any threat of personal liability to its leaders Wells Fargo will continue screwing over its customers, past and present. With respect to the penalties against them, Wells leadership has obviously settled on a strategy of non-compliance via overly burdening their customers and obfuscating their regulators. In playground parlance, the bully Wells Fargo has told the regulators to “make me”. To date, no one has, and Wells firmly believes no one ever will.
I had my car finance thru wells Fargo at almost 700$ a month, and think they may have put my payments for finance charges only,
Wells Fargo don’t care about their customers at all and raise my rates from 2,25 to 5. percent
Solution to this mess: Banks that have committed crimes and stolen from customers, and are ordered to give it all back by the Fed, should _immediately_ have to turn all that money, plus 25%, over to the Fed. The bank can then distribute the money, and, when they can show an amount has been distributed, they get that amount (plus the 25%) back.
I.e., Wells Fargo owe someone $100, they immediately have to give the Fed $125, and then later, after WF write someone a check for $100, and can show that check was deposited and WF doesn’t have the money anymore, Well Fargo gets back the $125.
This would make banks attempt reimbursements in a timely manner, because it costs them 25% more until they do.
As a fun bonus of this, there’s going to always be some percentage of people who are legitimately unfindable or who simply don’t want to deal with it…and it makes Wells Fargo not only out their original money (Which they currently would be able to keep.), but Wells Fargo is out another 25%!