By Dr. John E. Warren | Following a series of high-profile lawsuits and allegations of misconduct, the embattled Wells Fargo Bank just suffered another loss in the form of a rating downgrade.
Late last month, the Office of the Comptroller of the Currency downgraded Wells Fargo’s rating from an “Outstanding” to a “Needs to Improve” rating.
The Office of the Comptroller of the Currency is an independent government agency within the U.S. Treasury Department that supervises all banks and federal savings associations. The downgrade comes on the heels of an agreement by Wells Fargo Bank to pay $110 million to settle a class-action suit involving customers, who discovered that the bank opened fake accounts in their names.
The amount might seem small compared to the revelation last September that the bank had opened over two million fake accounts in customers’ names without their permission. In September 2016, Wells Fargo agreed to pay $185 million in fines and penalties and to refund customers $5 million.
The latest settlement covers at least 10 other lawsuits.
“These payouts are on top of the $3.2 million Wells Fargo has paid to customers on over 130,000 potentially unauthorized accounts or services,” CNNMoney reported. “That works out to a refund of roughly $25 per account.”
The closer one looks at Wells Fargo’s practices, the further back the bank’s problems go.
According to a September 2016 article by CNNMoney, “six former Wells Fargo employees filed a class action lawsuit in federal court against the bank seeking $7.2 billion or more for workers who were fired or demoted after refusing to open fake accounts.”
CNNMoney article continued: “The federal class action suit accuses Wells Fargo of orchestrating a ‘fraudulent scheme’ to boost its stock price that forced employees to ‘choose between keeping their jobs and opening unauthorized accounts.’”
Some of the legal allegations arising from the case include wrongful termination, violations involving the California labor code, and failure to pay wages and other charges.
“The suit represents California employees who worked at Wells Fargo in the past 10 years or who continue to work there and were fired, demoted or forced to resign due to not meeting their sales quotas,” CNNMoney reported.
Another federal class action involving the beleaguered bank, alleged that Wells Fargo violated the Dodd-Frank Wall Street Reform and Consumer Protection Act and a section of Sarbanes-Oxley Act, that prohibits retaliation against whistleblowers. That lawsuit also alleged that the bank violated the overtime provisions of the Fair Labor Standards Act covering hours of work. These lawsuits paint a far different picture than the one Wells Fargo offered when it fired more than 5,000 employees, after the bank’s own investigation into the fake accounts. The mass firings suggested that the employees who were terminated, opened the fake bank accounts on their own and without the bank’s knowledge or participation. The class action lawsuits involving former bank employees shed light on a shadowy pattern of practices that can’t be explained away as a handful of rogue tellers working on their own to defraud customers. In recent years, Wells Fargo has also received fines for misconduct in their mortgage lending division.
On April 8, 2016, the U.S. Department of Justice issued a press release citing Wells Fargo’s agreement to pay $1.2 billion for improper mortgage lending practices.
According to the press release, Wells Fargo, “admitted, acknowledged and accepted responsibility for, among other things, certifying to the Department of Housing and Urban Development (HUD), during the period from May 2001 through December 2008, that certain residential home mortgage loans were eligible for FHA insurance when in fact they were not, resulting in the Government having to pay FHA insurance claims when some of those loans defaulted.”
The settlement was approved by the U.S. District Court for the Southern District of New York on April 8, 2016.
In the Justice Department’s press release about Wells Fargo’s $1.2 billion settlement, then-HUD Secretary Julián Castro said that the Obama Administration was committed to holding lenders accountable for their lending practices.
“The $1.2 billion settlement with Wells Fargo is the largest recovery for loan origination violations in FHA’s history,” said Castro. “Yet, this monetary figure can never truly make up for the countless families that lost homes as a result of poor lending practices.”
In the same press release, then-U.S. Attorney Preet Bharara for the Southern District of New York said that Wells Fargo took advantage of the FHA mortgage insurance program, that was designed to help millions of Americans realize the dream of home ownership, and wrote thousands and thousands of faulty loans.
“Driven to maximize profits, Wells Fargo employed shoddy underwriting practices to drive up loan volume, at the expense of loan quality,” Bharara said in the Justice Department’s statement.
Bharara continued: “Even though Wells Fargo identified through internal quality assurance reviews thousands of problematic loans, the bank decided not to report them to HUD. As a result, while Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust.”
MSN Money reported that “shares of Wells Fargo gained only 2.9 percent in the last two years, significantly underperforming” the 22.8 percent growth expected by some analysts.
According to MSN Money, “the primary reason for this underperformance is the substantial plunge in shares following the September lawsuit settlement.”
The San Diego Voice and Viewpoint is a member publication of the National Newspaper Publishers Association. Learn more about becoming a member at www.nnpa.org.
Dr. John E. Warren is the publisher of the San Diego Voice and Viewpoint and a contributing writer for the NNPA Newswire specializing in intergovernmental affairs.
