WASHINGTON — Rep. Maxine Waters, D-Calif., introduced a bill Wednesday outlining a process to break apart systemically important big banks that engage in widespread consumer abuse.

The bill, sparked by Wells Fargo's ongoing fake-accounts scandal, was backed by seven other Democrats. It would establish an automatic review by the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Federal Reserve Board of institutions defined as a "global systemically important bank holding company" for legal violations that may have harmed consumers.

If the review finds that a bank engaged in a widespread pattern of consumer abuse, regulators would punish the bank under what bill supporters say are existing authorities: stripping the bank of its charter, membership with the Fed and access to deposit insurance. Ultimately, the bank would be placed under an FDIC receivership, and its assets transferred to an institution with high Community Reinvestment Act ratings.

Representative Maxine Waters, a Democrat from California and ranking member of the House Financial Services Committee.
Regulators “basically have demonstrated in more than one way constantly that even though they have authority" to punish banks, "they're just not going to use it,” said Rep. Maxine Waters, D-Calif. Bloomberg News

At a press conference Wednesday, Waters, who is the ranking Democrat on the House Financial Services Committee, suggested that regulators had not been willing enough to use their powers to penalize banks for impropriety.

“As long as we believe that shutting down a bank is dangerous to our economy ... we'll never move,” Waters said. The agencies, she added, “basically have demonstrated in more than one way constantly that even though they have authority, they're just not going to use it.”

The bill, which did not appear to have bipartisan support and would face an uphill climb in the GOP-controlled Congress, was clearly motivated by Wells Fargo.

Wells “has made a routine practice of ripping off and preying on their customers in a seemingly never-ending avalanche of scandals, in which service members, minorities, homeowners, small business owners, and many other consumers, have been targeted and abused by the bank,” Waters said.

Under the bill, if a bank is wound down for abuses, the agencies would be responsible for removing any executives or board members tied to the violations. Any individual responsible for “overseeing any division of the institution during the time that the institution was engaging in the identified pattern or practice of unsafe or unsound banking practices” would have to leave the company, the bill states.

“For the meltdown in 2008, nobody went to prison,” said Rep. Marcy Kaptur, D-Ohio, a co-sponsor of the bill. “The American people remember that."

Further, a large bank’s executives and board members would have to sign yearly written “attestations” confirming that all of the bank’s lines of businesses are compliant. If they have found to have lied on the attestations, the executives could be fined up to $5 million and face up to 20 years in prison.

“We don't see people being handcuffed and thrown off to jail,” said Rep. Al Green, D-Texas, who also backed the bill. “We see people acquiring a golden parachute. They get a bonus and they move on to the next ripoff.”

In addition to the initial review carried out by the regulators, the bill would also establish an ongoing review process. It would require the Consumer Financial Protection Bureau to further define a "pattern or practice" of violating consumer protection laws and the resulting penalties. The prudential regulators would carry out regular reviews in consultation with the CFPB.

“When you get too big, you can't see your feet anymore,” said Rep. Keith Ellison, D-Minn., another co-sponsor. “And when you can't see your feet you start trampling people."

In a congressional hearing last year with then-Wells CEO John Stumpf, when the bank's scandal was at full tilt, Waters said, "I have come to the conclusion that Wells Fargo should be broken up."

But she added Wednesday that Wells Fargo was only one example of a larger trend.

Large banks “think that the American people don't know what they're doing,” she said. “These members of Congress know exactly what is being done. We have no fear of megabanks.”

In a statement issued by Wells, the bank did not comment on the bill, but said, “Wells Fargo is proud to be a leading business, employer, and community member with deep ties to our home state of California. We will continue working diligently to demonstrate our continued commitment to our customers, the public and the state.”

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Lalita Clozel

Lalita Clozel covers fintech regulation, anti-money-laundering, cybersecurity and the Federal Deposit Insurance Corp. in American Banker's Washington bureau.