House report on CFPB's Wells Fargo investigation is no smoking gun
A GOP report on the Consumer Financial Protection Bureau's Wells Fargo investigation appears aimed at providing more ammunition for potentially ousting Director Richard Cordray, but its impact will likely be limited, observers say.
The report, published last week by the Republican staff of the House Financial Services Committee, alleged that the committee could not corroborate Cordray's congressional testimony that the CFPB conducted an "independent and comprehensive" investigation into Wells' phony accounts.
Legal experts say the findings could be added to a record used by those seeking to have Cordray fired. But many question the report's significance. The suggestion that the bureau should have been more aggressive with Wells, for example, runs counter to congressional criticism of an overaggressive CFPB, and the report's appendix seems to detail how the CFPB conducted an active investigation.
"I have a difficult time believing that the group that wants to disband the only consumer watchdog group in the banking industry is truly concerned about the failure to properly monitor Wells Fargo," said Richard McCune, a partner at the law firm McCune Wright Arevalo. "That being said I do believe this is likely to give them the cover to try and be more aggressive in terminating the director."
In general, both the CFPB and Office of the Comptroller of the Currency have been criticized for being slow in responding to the bank's alleged impropriety, while the Los Angeles city attorney moved more aggressively.
According to an investigator for the House committee, who asked not to be named, a key complaint against the consumer bureau is that the agency appeared to take credit for having made progress in probing Wells — credit that was not backed up by the committee's findings.
"We're not saying they didn't investigate at all," said the committee investigator. "We can't corroborate that the investigation was independent and comprehensive."
The OCC, meanwhile, appeared not to draw similar criticism since the agency issued its own report that was self-critical, acknowledging that the comptroller's office did not follow up on problems it detected at Wells and failed to interview any whistleblowers.
The committee "has been able to corroborate and understand everything the OCC did," the investigator said, but "if you look at what [the CFPB] did, in our view it does not match up with what they said they did."
Yet some former CFPB officials and consumer groups most supportive of the agency's mission argue that the House report lacks merit, saying that Republicans on Capitol Hill — constantly critical of the agency's mission — cannot be objective in any assessment of how the bureau investigated Wells. They also say the report seems to gloss over its own findings about how the CFPB actually did probe the bank.
For example, the report's own 938-page appendix included a description of the CFPB's four civil investigative demands for information from Wells that forced the bank to quantify the number of potentially illegal violations and consumer harm.
"The report in its own appendix contains facts that show the CFPB did an investigation," said Jennifer Lee, a partner at Dorsey & Whitney and a former CFPB enforcement attorney.
Several consumer advocates said it was also hard to judge such investigative reports simply on the merits since the House Financial Services Committee, led by Chairman Jeb Hensarling, R-Texas, has heaved so many partisan bombs at Cordray already.
"Chairman Hensarling has filed a long series of attacks on Director Cordray for years, relentlessly criticizing him for an enormous number of supposed bad acts," Paul Bland, executive director of the nonprofit advocacy group Public Justice, said in an email. "It's not a serious or well-founded attack."
Hensarling has been stymied by Cordray's refusal to state if he plans to fulfill his term through July 2018 or to resign early to run for governor of Ohio. A recent appeals court decision has also made it tougher for the Trump administration to fire Cordray.
"Financial Services Committee Chairman Hensarling has made no secret of the fact that he wants Director Cordray to leave the CFPB, and Hensarling has made a few disingenuous attempts to make that happen," said Christine Hines, legislative director at the National Association of Consumer Advocates.
A key allegation of the Republican staff is that the CFPB did not investigate Wells' practices before May 4, 2015, when the Los Angeles city attorney's office filed a complaint against the bank. The Los Angeles Times first detailed the illegal sales practices in an article in December 2013.
Yet Cordray wrote several letters to Hensarling defending his and the bureau's actions. He noted, for example, that the bureau was able to go beyond the Los Angeles city attorney's complaint, which only would have covered consumer violations in California, because the bureau's consent order established federal violations.
In addition, it was a CFPB civil investigative demand that compelled Wells to hire the accounting firm PwC to quantify the consumer harm. Last month, Wells raised its estimate of potentially unauthorized accounts to 3.5 million checking and credit card accounts opened from January 2009 to September 2016.
The report faults the CFPB for relying on the PwC investigation, but regulators often urge companies to hire independent third parties to investigate, rather than conduct such an analysis themselves, lawyers said.
One of the more inflammatory allegations in the GOP report was that the CFPB could have sought $10 billion in penalties from Wells. But some said such a huge penalty would have triggered a negative response from Hensarling and other CFPB critics.
"Hensarling is faulting [Cordray] for not doing enough against Wells Fargo when the chairman overwhelmingly has backed policies that benefit Wall Street lobbyists over the interests of American consumers," said Hines.
Furthermore, the CFPB was bound by specific provisions in the Dodd-Frank Act that describe mitigating factors that the bureau must apply to reduce a civil money penalty, based on the size and good faith of the company, the severity of the issue and other matters.
"At the end of the day, the committee's assertion that the CFPB's penalty was improper depends on a worldview that ignores the civil money penalty provisions that Congress itself wrote into the CFPB's enabling statute," Lee said.
Ultimately, regulators charged $190 million in fines and restitution against Wells, including a $100 million fine by the CFPB, its largest to date.
"The $100 million penalty was record-setting and the CFPB would have been criticized if it had used its position to push for the largest theoretically possible fine," said Lauren Saunders, an associate director at the National Consumer Law Center.