CEO John Stumpf faces grilling from Congress on why his bank keeps breaking the law, but if no one goes to jail, nothing changes, says economist Bill Black
Story Transcript
KIM BROWN, TRNN: Welcome to the Real News Network. I’m Kim Brown in Baltimore. CEO and Chairman of Wells Fargo bank John Stumpf was back on Capitol Hill on Thursday. This time testifying in front of the House Financial Services Committee about his bank’s fraudulent practices opening as many as 2 million credit accounts without the permission or knowledge of its customers. The bank has been ordered to pay 185 million dollars in fees and restitution and joining us today from Kansas City to discuss this is Bill Black. Bill was an associate professor of economics and law at the University of Missouri at Kansas City. He’s also a white collar criminologist and a former financial regulator plus author of the book titled, the best way to rob a bank is to own one and he’s a regular contributor here to the Real News. Bill welcome back. Thank you for joining us. BILL BLACK: Thank you. BROWN: Bill there’s been lots of developments since we last spoke about the Wells Fargo saga. While not resigning, CEO John Stumpf will forfeit his 2016 salary and will also reportedly return some 41 million dollars in stock options. Only one executive has left the company. Her name is Carrie Tolstedt and she ran the division which created the phony customer credit accounts. But she was given the opportunity to leave as she was slated to retire at the end of this year and she will also forgo some bonuses, severances, and tens of millions of in stock options. Bill is this enough punishment for Wells Fargo and its executives or not enough punishment? BLACK: Well, first it’s obviously not a punishment for Wells Fargo to have claw back. It benefits Wells Fargo. So why did they–were Wells Fargo forced to do this? This is something that any board of directors on its own logically should’ve done because of its mission and should’ve done it of course years ago and should’ve done it to a much larger extent. You are correct that they were forced to do this because it became untenable. It’s been a public relations disaster and because they did nothing before the first hearings in front of the Senate and CEO Stumpf was pretty much universally viewed as being a disaster in that testimony. And so the board felt that it had to do something before this new testimony today in front of the House Financial Services Committee to start at least undoing the disaster of no accountability. That no accountability comes because of the failure of the federal government to insist on any accountability of any officer. Not only did no officer have to pay a penny in the way of fines, no officer was fired, no officer was demoted for any of these things. In fact, it was so bad that nobody was held accountable to anything because there were no admissions. Zero. So Wells Fargo has not admitted any fraud. In fact, in his senate testimony, CEO Stumpf refused to admit that the frauds were frauds. So Wells Fargo remains in fundamental denial about the nature of this crisis. Again I would emphasize yes 2 million frauds is an extraordinary thing. Yes, that the fact that they went on for probably over a decade and that the actual number’s far more than 2 million is an extraordinary thing. But the far larger abuse was the non-fraudulent sales. Because what has come out in the testimony and in particular from the whistle blowers who come forward, it is that the sales quotas could not be met honestly and that they were enforced by the fear of firing, being fired. Now this is being fired from a 35 thousand dollars a year job which means two thirds of the people who make 40 thousand dollars a year have less than $400 in total savings in accounts in banks. And of course you’d not only be fired but you’d be fired for cause by the world’s largest bank in terms of capitalization so your ability to get any new job would be nailed and they fired the whistleblowers in all of these things. Now the bigger thing is under these kinds of pressures yes there were millions of fraudulent sales but there were tens of millions of sales of product that should’ve never have been made. That made the customer worse off. That entire abuse of selling scandal is being completely ignored by congress and by the media. BROWN: That’s a very interesting point and CEO John Stumpf he did raise that point. Can we go to the John Stumpf clip instead of the Chairman of the House Services Committee? We’ll get back with [Jeb Hensarling] in a second but let’s hear from John Stumpf about this exact issue that you raised Bill. JOHN STUMPF: While these issues that we will discuss today are deeply disappointing and will take time to repair, they do not represent the true culture and nature of Wells Fargo. Some have suggested the problem was cross selling. But that is not the case. At it’s core, cross selling is all about deepening customer household relationships with products they want, they use, and they value. It is not about improper sales practices used to create unwanted accounts. That’s not good for our customers and not good for Wells Fargo. BROWN: Bill it’s not about improper sales practices. It sounds though CEO Stumpf is still pushing this plausible deniability that no-no this is sort of a one off thing but our sales practices are still on the up and up. BLACK: Right so this is the more fundamental big lie that is being exposed in this clip but is largely being ignored by congress and media critics. No it is all about cross selling and it really is true. I went back and looked it up myself, what Senator Warren asked about in the hearing. She didn’t just ask about it, she actually read from the 2010 annual report, the letter to shareholders by Stumpf that said the reason we created this program that said our goal is to sell 8 of our product to every consumer we deal with is because 8 rhymes with great. So it was all about profitability. It had nothing to do with a good product or a bad product. You would get fired if you didn’t sell this product whether it was suitable, unsuitable, outright harmful to the folks. Again whistleblowers made this clear that they were being pushed to for example give credit cards, new credit cards who are already at 3 credit cards and weren’t able to repay them on a timely basis. Well, all this is going to do is sink you into a ever deeper debt trap and such. That’s exactly why the employees, some of them even say to my shame I actually did this in some cases. But eventually I refused to do it anymore and that’s when we got fired. So yes there are thousands of documents at Wells Fargo. All of which say oh this wonderful for customers. We want you to do the right thing all the time. We want you to only sell product that are good for our customers but then say but of course selling products to our customers is good for them. And this is all stuff drafted by PR specialists and lawyers to make sure the CEO doesn’t end up in prison. It’s not what you say, it’s what you do. And what they did was fire people unless they sold bad crappy product to people that made the customer worse off. Now on top of that, in at least 2 million cases they committed outright fraud. But as I say, the first group, these improper sales that should’ve never occurred, they don’t number in the millions, they number in the tens of millions. BROWN: Now let’s hear from the Chairman of the House Committee where CEO and Chairman of Wells Fargo John Stumpf was testifying on Thursday. JEB HENSARLING: So in 2011 isn’t it true that Wells Fargo entered into a consent order with the Federal Reserve that required Wells to cease and desist from certain practices in the mortgage lending department and that you paid an 85-million-dollar civil penalty? Is that true? STUMPF: Mr. Chairman that is true. That was in a different business area but that is a true statement. HENSARLING: It’s in a different business area but I will read from the consent order. Quote “Wells Fargo’s internal controls were not adequate to protect and prevent instances when certain of sales personnel in order to meet sales performance standards and receive incentive compensation altered or falsified income documents in inflative perspective borrowers’ incomes to qualify those borrowers for loans that they would not otherwise have been qualified to receive. This sounds eerily like the retail banking division. Also as I understand it, the Fed required Wells Fargo to submit a plan to investigate and to change policies and procedures. So I think you testified on the senate side that you were not personally aware of the problems in the retail banking division until 2013. Surely you were aware of the problems in the mortgage lending division in 2011 correct? STUMPF: That is correct and Mr. Chairman we shut that division down. That was even shut down– HENSARLING: But if you saw the problem in one area of the business why didn’t you thoroughly investigate in the other? STUMPF: There’s no question Mr. Chairman. We should have done more sooner. BROWN: Bill that was congressman from Texas Jeb Henstarling. Bill this isn’t Wells Fargo’s first time around this rodeo. As you know from what the testimony we just heard at the House Financial Services Committee, they also paid a sizeable fine of over a billion dollars in their role during the housing crisis and this appears to be a rinse wash repeat type of thing where these big banks engage in these unlawful, certainly unethical practices. They get caught. They pay a fine, they get scolded by congress, and somehow the behavior and the practices persist. BLACK: Again because not a single officer was actually held accountable personally for any of these abuses. So you’re quite right. There is an enormous amount of this recidivism. In other words, they keep committing crimes year after year after promising that they’ll change and of course that is normal unfortunately in the modern world. All of our largest banks share that characteristic. But here’s what’s very strange about all of it this. So what’s really different about Wells Fargo is that despite this record of millions of felonies of repeated felonies in you name it, discrimination, FHA lending, home lending, regular home lending, any of these things, Wells shows up as being an entity of committing enormous violations of the law. Despite all these things, Wells Fargo has this propaganda page that list what the industry, and how the industry media have treated it and they have been [renamed] time after time and I mean in recent years, best bank in the world. Best bank in America. Highest integrity, etc. etc. etc. In other words, this is why we talk about control fraud. Frauds led by the people that actually control organizations that are seemingly legitimate. Why they’re able to get away with committing vastly more damaging frauds because of that seeming legitimacy. And they hired among other things the top PR people in the world and they send out all this propaganda and they right up all these be good to consumer, be good to the customer type manuals and value statements at Wells Fargo. It’s an enormously cynical enterprise and because we never had an actual open trial with the facts of Wells Fargo come out, not just for 4 hours in a congressional hearing but for 7 hours every day in a courtroom in a trial that goes on for 4 months where you have 40 witnesses who are whistleblowers and each of them testifying to these abuses. If you don’t have that then these PR campaigns get you treated not simply as respectable but quite literally as I say, there are dozens of awards to Wells Fargo claiming that it is basically God’s representative on earth. So you can fool all the people some of the time if you have regulators and prosecutors that don’t hold you to account publicly and a media that believes what to me is fairly transparent BS. BROWN: And Bill lastly, the hits keep on coming as it relates to Wells Fargo, it’s being hit with a number of lawsuits, one of which includes a class action suit filed by its shareholders in federal court on Monday they alleged that the bank misled investors about the success of its sales practices and about how well the company was actually doing. Bloomberg is also reporting that Wells Fargo may face sanctions from the US Department of Justice and the Office of the Comptroller and Currency for allegedly illegally repossessing the vehicles of US soldiers which is a violation of the Service Members Civil Relief Act. Bill pretty briefly here can we expect Wells Fargo to survive this next round of impending lawsuits? Can the company financially survive this and even as you mentioned from a public relations perspective, can they survive it? BLACK: Well financially they can survive it easily because all of these abusive cross selling. Again I’m not talking about the fraudulent ones, I’m talking about the vastly larger tens of millions cross sellings that are abusives, have made Wells Fargo among the most profitable banks in the world. Also because they’re so big, too big to fail, and so dominant in so many markets, they’re able to pay depositors a lower interest rate than competitors. So no financially sadly they’re going to continue to make out like bandits. Reputationally, clearly Stumpf is trying to save his job. This claw back, this limited claw back that we started out talking with, I guarantee you was Stumpf’s idea as opposed to the board of directors, which by the way he chairs. Which again you shouldn’t allow the CEO to be the chairman of the board of directors but it is telling that Wells Fargo permits that kind of conflict of interests and that keeps a source of independence from arising. Not that boards of directors of major banks are typically terribly independent to begin with. So the suit that’s more threatening is not the one by the shareholders. The threat, the new suits that are most threatening are by the whistleblowers, the employees. Because these are the folks that actually have the inside information unlike shareholders. I don’t mean inside information in the bad way, I mean that they were there, they know things, they know the people, and they know the key documents and such in many cases. Those cases by the employees we are going to see Wells Fargo try to suppress. We’re going to see them try to say well no no you signed agreements that say you can’t bring a lawsuit, you can only do a arbitration, you can’t do disclosers, etc. etc. etc. This is the kind of thing that we have to stop as a nation. These are all forms of covering up felonies that are routinely used by visitors. Your viewers will presumably recognize that this is [inaud.] tactic against the former employees talking about sexual harassment. They in essence are whistleblowers as well. So first they trout out your employment agreement that says you can’t bring a case in court against us. You can only do an arbitration. Then they say, and that contract agreement says the arbitration’s secret so you can’t alert the public to this sexual predator or somebody repossessing unlawfully veterans and not just veterans, these are armed service members in Iraq, Syria, and Afghanistan who in absolute clear violation of the law have their cars seized by creditors here in the United States. All of those types of things get swept under the rug unless and until senior executives are actually sent to prison. And everybody knows how many of those senior executives have actually been sent to prison throughout the last 12 years by the major bankers and that would be zero. BROWN: Joining us from Kansas City, Missouri we’ve been speaking with Bill Black. He’s an associate professor of economics and law where he is a professor and he’s also a white collar criminologist plus a former financial regulator and you should check out his book it’s titled, The Best Way to Rob a Bank is to Own One. That sounds like fantastic advice Bill. We appreciate your contribution and analysis as always. BLACK: Thank you. BROWN: And thank you for watching the Real News Network.
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