By Jeff Bater
Sept. 13 — Democrats attacked Wells Fargo and Republican efforts to change the Consumer Financial Protection Bureau as a House panel approved a Dodd-Frank rollback bill one lawmaker said would gut the agency that cracked down on the big bank over millions of unauthorized accounts.
The House Financial Services Committee voted 30-26 on Sept. 13 for the Republicans’ Financial CHOICE Act, which would turn the CFPB into a five-person commission and subject the bureau to congressional appropriations.
Analysts doubt the full House this year will take up the bill, which is more likely to be used as a platform for Dodd-Frank foes in the next Congress. Still, committee Democrats lashed at the bill — Rep. Carolyn Maloney (D-N.Y.) said the measure “would take us back to the regulatory stone age.”
The markup became part of the backlash against Wells Fargo. Democrats invoked the recent enforcement action against the bank, fined Sept. 8 by the CFPB and other authorities over allegations employees secretly opened more than 2 million unauthorized accounts to hit sales targets (175 BBD, 9/9/16).
“This bill would completely gut the Consumer Financial Protection Bureau, which has been an effective watchdog for consumers,” Maloney said. “I am particularly disturbed that this bill would take away the Consumer Financial Protection Bureau’s authority to penalize companies for practices that are abusive to consumers, such as the practices of Wells Fargo.”
The bank agreed to pay $100 million to the CFPB, $35 million to the Office of the Comptroller of the Currency, and $50 million to the city of Los Angeles, plus $5 million in remediation to customers. The $100 million penalty to the CFPB is the largest imposed by the regulator to date.
The bureau said employees, spurred by sales targets and compensation incentives, boosted sales figures by covertly opening accounts and funding them by transferring funds from consumers’ authorized accounts without their knowledge or consent, often racking up fees or other charges.
“We need to look no further than just last week to see why we need a strong Consumer Financial Protection Bureau, which used its authorities under Dodd-Frank to uncover a massive scheme under which millions of consumer accounts at Wells Fargo were fraudulently opened, with the bulk of this fraud perpetrated in my hometown of Los Angeles,” Rep. Maxine Waters (D-Calif.), the ranking Democrat on the committee, said during the markup. “But rather than enabling the CFPB’s important work, we’re here today tearing the bureau down.”
Wells Fargo's Chief Executive Officer John Stumpf has been asked to appear at a Senate Banking Committee hearing Sept. 20 and one prominent panel member previewed the Democrats likely line of questioning.
“Make no mistake — this business with Wells Fargo isn’t over,” Sen. Elizabeth Warren (D-Mass.) said in an e-mail to supporters. “How could the bank create more than 2 million fake accounts without senior executives knowing? How could the bank fire more than 5000 low-level employees for misconduct without stopping to wonder whether there was a problem with the firm’s incentives or culture? I think there are more questions for Wells Fargo to answer.”
In a separate statement, Warren said it is difficult to believe that thousands of employees could have created so many phony accounts without anyone in senior management knowing about it. “It’s one or the other: either individuals in senior management knew about this fraud and should be held personally accountable, or they didn't know about it and a bank as big as Wells Fargo is simply too big to manage,” she said.
The financial services giant announced Sept. 13 it will eliminate all product sales goals in retail banking, effective Jan. 1, 2017. “Our objective has always been and continues to be to meet our customers’ financial needs and drive customer satisfaction,” CEO Stumpf said in a news release. “We are eliminating product sales goals because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers.”
Jaret Seiberg, an analyst with Cowen and Company, suggested in a research note the enforcement action against the megabank will help CFPB defenders beat back Republican efforts to stifle the agency.
“Forget about substantially curbing the CFPB's powers,” he wrote. “Not that Sen. Elizabeth Warren needed more ammunition to protect the CFPB, but she has it now. The assertions here are almost beyond belief in an age when every bank knows that the CFPB is looking at the cross-selling of products. Progressives will argue that the Wells Fargo's case demonstrates that the CFPB needs more power and more funding rather than less.”
The Financial CHOICE Act (H.R. 5983) is sponsored by Rep. Jeb Hensarling (R-Texas). Aside from its CFPB provisions, the plan calls for repealing Dodd-Frank’s Title II orderly liquidation authority. Also under the Republicans' plan, banks that maintain a simple leverage ratio of at least 10 percent and have a composite CAMELS rating of 1 or 2 may elect to be functionally exempt from the post-Dodd-Frank supervisory regime, the Basel III capital and liquidity standards, and a number of other regulatory burdens that predate Dodd-Frank.
Less than two hours into the markup, Democrats said they would not offer any amendments to the bill and called for an immediate vote.
“Mr. Chairman, this bill is so bad that it simply cannot be fixed,” Waters said. “This markup is not a serious attempt to move thoughtful legislation, evidenced by the fact that we had only one hearing on one portion of this bill. And it’s amazing that you guys on the opposite side of the aisle cannot even mention Wells Fargo and what’s happening right before our eyes.”
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