Managing Director
Lenders Compliance Group
It seems it all comes down to money, sooner or later. Anthropologists
have long known that we are a predatory species. Our laws and rules are meant
not as guides to decent behavior but to keep our primal instincts in check. And
where money is involved, the rapacious and ravening impulse to plunder,
pillage, covet and steal is fully aroused.
By now you have heard about Wells Fargo’s unrestrained, pitiless
rampaging over the laws meant to protect consumers from financial predation. Is
Wells Fargo the only company that has preyed on consumers? We all know deep
down that this is a case of breaking rule number one: don’t get caught!
Most of us do our best to abide by the vast network of mortgage acts and
practices. We want to abide by the law because we respect the law and respect
one another. Yet is Wells Fargo no more than an outlier? An edacious
eccentricity of deviance?
Will Wells Fargo paying $185 million to settle allegations of
“widespread illegal practices” stop depredation? Will it even slow it down?
Employees of Wells Fargo secretly opened 2,000,000 unauthorized deposit and
credit card accounts in order to meet sales targets and receive bonuses.
Pressure points: Sales targets and bonuses. Now those are familiar carrots
and sticks!
Will throwing monetary penalties at the problem make it go away? Will
money paid for violations solve the problem of money illicitly taken by a marauding
horde of 5,300 Wells Fargo employees? The violations in this instance brought
about a $100 million fine from the CFPB, a $35 million fine from the OCC, and a
$50 million fine from the City and County of Los Angeles. $185 million sure
seems like a lot of money. You tell me. Last year, Wells Fargo had net interest
income of $45 billion – meaning that the monetary penalty is .0411% of the
total, based on using the foregoing metric. I can use many other metrics and
the ratio does not improve. I think you get it.
And then there’s this quirkiness of legal maneuvering to avoid larger
fines, stay out of or get out of court, avoid certain onerous litigation, and
let it all just dissipate from public view and memory: agree to a settlement without
admitting or denying wrongdoing. Yet, without admitting or denying wrongdoing,
the bank gets to unabashedly make this statement: “We regret and take
responsibility for any instances where customers may have received a product
that they did not request.” Note the weasel word, “may,” on which the whole
statement rests.
Settlements are a fact of life. I doubt that anybody would reasonably
dispute the value of settlements as a tool toward bringing about a resolution between
litigating parties. However, there is that distressing, oppressive, and
vexatious issue of accountability. Being provably culpable for a capital
offense, for instance, usually sends people to jail. Being provably culpable
for conning and swindling people usually gets people sent to the clink. Being provably
culpable for fraud usually has people on a lockup line. Being provably culpable
leads to a monetary settlement, neither admitting or denying wrongdoing, for an “incentive compensation program and plans [that] … fostered the
unsafe or unsound sales practices … and pressured bank employees to sell bank
products not authorized by the customer.”
Pressure points.
Blame the employees for doing what the company’s culture expected of
them!
Yet even though this army of plundering bandits preyed on unsuspecting
consumers, Wells Fargo pays a puny fine relative to its assets and skips away,
unsullied by admissions of wrongdoing.
We should not jettison notions of checking predatory instincts by
regulations, even when it all comes down to notions of just misbehaving and trifling
monetary fines for being merely disobedient. In my view, this is where compliance
situates its most important role. It is in the interstitial space between the
boundaries of regulatory rules and instinctual reflexes that compliance is the
first line of defense, ensuring that the social fabric of society, so deeply
enmeshed in the interests of money, is kept intact.
Compliance may unearth systemic defects, but it cannot rectify the inadequacy of systemic accountability.
4 comments:
Appreciate the time and research put into your Wells Fargo article "Wells Fargo, A Predators Tale".
Excellent post. Thanks for taking the time to write it.
We used to call it "morality" and "moral upbringing." Having summarily dismissed those as a cultural norm, in its place are legislative requirements, compliance, "systemic defects" and "systemic accountability." There is an old mantra from the manufacturing management industry: "You can't test in quality." That is, having failed to produce quality products, it's a 2nd failure to attempt to improve the lot by "testing in" the quality after the fact. In this case more effort is spent on legislative oversight than on moral education, and will continue increase to match unrestrained impulse.
:)
The bank and its shareholders get charged $185M fine. The executive in charge of this division leaves with a golden parachute of 124.5 million. You tell me where is the incentive for any executive to do the right thing and follow the law. They break the law, make huge profits for the bank, they get caught, the bank takes a small fine and the executives in charge get huge comp packages. No one, no one in the executive suite is penalized to the point where they would not do this again. Fraud is the predominant business model of the Big Banks and Wall Street.
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