Wells Fargo agreed this week to pay an $85 million fine to the Federal Reserve amid allegations it misled customers into more costly loans and falsified information on mortgage applications. Wells Fargo will also have to compensate the victims - a number that may exceed 10,000 customers.
The $85 million fine is the largest the Fed has issued under its consumer-protection authority but amounts to a rounding error to Wells Fargo, which earlier this week reported quarterly net income of $3.9 billion on revenue of $20 billion.
As is the standard in these type of settlements, Well Fargo admitted no wrongdoing for what CEO John Stumpf dubbed "alleged actions committed by a relatively small group of team members."
Paying a fine that amounts to a slap on the wrist without having to admit wrongdoing, much less senior executives having to be worried about losing their jobs or facing jail time explains why this kind of bad behavior continues: There's no disincentive for banks and others lender to NOT do this kind of stuff, as my Breakout colleague Jeff Macke and I discuss in the accompanying video. (See also: Taken to Task: Jamie Dimon's House of Ill Repute)
Ah, It's a Profit Game!
"You don't have to be Snidely Whiplash as a CEO to be doing that, twirling your mustache and being evil," Macke quips. "What you have to do is be a CEO who's incented to making your company money."
It was a profit motive (if not outright greed) that prompted some Wells employees to steer more than 10,000 borrowers into subprime loans when then should have qualified for prime mortgages. And it was profit motive that spurred employees of Well's non-bank unit to doctor information about applicants' income and creditworthiness on mortgage loan documents.
The malfeasance cited in the Wells settlement occurred between 2004 to 2008, so it's tempting to write this off as a product of the times, a.k.a. the housing and credit bubble.
But the beat goes on: Reuters reports banks are up to the same old tricks today when it comes to illegal foreclosure practices, a.k.a. robo-signing, a.k.a. mortgage fraud.
"Some of the biggest U.S. banks and other 'loan servicers' continue to file questionable foreclosure documents with courts and county clerks," Reuters reports. "They are using tactics that late last year triggered an outcry, multiple investigations and temporary moratoriums on foreclosures."
Reuters found 5 of the 14 firms who signed a settlement with federal regulators last year to stop such practices are at it again: Bank of America, OneWest, HSBC Bank USA, GMAC Mortgage and, you guessed it, Wells Fargo. (Wanna bet Stumpf similarly chalks up these "alleged" actions to a small group of employees who went rogue?)
Rocket Man Trumps Robo-Signers
Meanwhile, Florida Attorney General Pam Bondi recently fired the state's top two mortgage fraud investigators for reasons that remain unclear. Whether done for pure political reason or poor performance, the dismissals will slow fraud investigations in the state because new investigators will need time to get up to speed. Plus, firing two investigators is a big deal when it comes to mortgage fraud but a pittance relative to the literally hundreds of federal agents involved in the Roger Clemens case, which ended with a mistrial.
If that doesn't tell you all you need to know about the sorry state of America's Corporatocracy, consider this:
In an op-ed in The WSJ today, Sen. Richard Shelby of Alabama, the ranking member of the Banking Committee, warns about "the danger of an unaccountable 'consumer-protection' Czar," and declares Richard Cordray's nomination "dead on arrival." (See: "Indefensible": Credit.com's Levin Blasts GOP Opposition to CFPB )
There may indeed be problems with the structure of the Consumer Financial Protection Bureau, and Cordray himself. I just wish Sen. Shelby and other elected officials were similarly concerned about an unaccountable financial services industry, where seemingly very little has changed.