There was an awkward moment this week, Sen. Elizabeth Warren (D-Mass.) told Wells Fargo CEO Timothy Sloan, to his face, that he should be fired. Things became even worse for the bank executive later that day when a top Democrat set the stage for shuttering the bank.
Sloan was appearing before the Senate Banking Committee on Oct. 3 for a hearing entitled, “Wells Fargo: One Year Later.” In recent months, Wells Fargo has been under attack for opening 3.5 million unauthorized customer accounts and credit cards. In a separate scandal, as many as 800,000 customers were charged for car insurance that they did not need; some had their vehicles wrongfully repossessed as a result.
Later in the day, Rep. Maxine Waters (D-Calif.) announced the Megabank Accountability and Consequences Act.
The legislation would demand that federal banking regulators (including the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency) review systemically important banks with more than $250 billion in assets for patterns of illegal activity or consumer abuses. Failing that assessment, repeated legal violations may lead to proceedings to either break up or wind down the institution.
Compliance with consumer protection laws would be assessed using parameters developed by the Consumer Financial Protection Bureau under the new law.
“It is it is clear that stiffer penalties need to be used when a megabank demonstrates patterns of egregious consumer abuse,” Waters said during a press conference. “But, the prudential regulators who have the ability to shut down a recidivist megabank, have not exercised that capability, even in the most appalling cases of repeated wrongdoing.”
Once passed, regulators would have 120 days to review the banks they oversee and report to Congress.
Waters was asked whether Wells Fargo should be shut down if her bill is passed. “Oh absolutely,” she said. “I think that Wells Fargo has demonstrated patterns and practices that are so obvious they certainly qualify for being shut down.”
The legislative proposal follows a Democratic staff report that similarly focused on alleged misdeeds by megabanks.
“The federal prudential banking regulators should be more aggressive in their use of enforcement measures against megabanks that demonstrate a pattern of engaging in unlawful conduct that harms consumers,” it concluded. “Recently, Federal Reserve Board Chair Janet Yellen hinted that there is indeed more that federal prudential banking regulators could and should do with respect to Wells Fargo. She said, “Let me say that I consider the behavior of Wells Fargo toward its customers to have been egregious and unacceptable. We take our supervision responsibilities of the company very seriously. And we are attempting to understand what the root causes of those problems are and to address them.”
“If federal prudential banking regulators continue to shy away from using these tools, then Congress must force them to do so, in order to protect American consumers and the needs of the public,” it added. “Congress should also strengthen the enforcement framework to provide for a more powerful deterrent against future bad behavior by megabanks and their senior executives that demonstrate a reckless disregard for the law and their customers. A more holistic investigation into the incidents that have occurred at Wells Fargo, and why regulators’ actions have not been successful preventing the reckless behavior that has been unmasked at the bank, should have been the focus of the Committee’s resources. Even absent this congressional scrutiny, we believe there is sufficient information to demonstrate that legislation is needed to prevent megabanks from repeatedly victimizing consumers, and such legislation should force federal prudential banking regulators to aggressively utilize their most potent enforcement tools, including winding down a bank found to repeatedly violate consumer protection laws.”
The bill’s original cosponsors are Representatives Michael Capuano (D-Mass.), Al Green (D-Texas), Keith Ellison (D-Minn.), Marcy Kaptur (D-Ohio), John Sarbanes (D-Md.), Pramila Jayapal (D-Wash.), Jamie Raskin (D-Md.), and Jan Schakowsky (D-Ill.).