Waters is right to make Wells Fargo a poster child for bad practices
Wells Fargo will testify several times this month before the House Financial Services Committee, under the leadership of Rep. Maxine Waters, D-Calif.
And Waters is no radical, despite what right-wing propagandists say.
She is an experienced, capable legislator with a solid track record of protecting the public. Yet Waters is also not to be trifled with.
Both the independent chairman and lead director at the board of Wells Fargo resigned Monday after Waters called for their resignation. Interestingly, those same two leaders are the only witnesses scheduled to testify at Wednesday’s hearing. (It’s long overdue that the entire board be replaced, as noted in 2018.)
In 2019, Wells Fargo reported net income of $19.5 billion. That was lower than the $22.4 billion the bank earned in 2018, as the cost of litigation started to impact profits. Wells recently agreed to pay regulators an additional $3 billion to cover fines for violating consumer protection laws.
The bank has a long and sordid history of engaging in unethical behavior. As noted in June 2009, Wells set up special sales offices to steer risky subprime loans to predominantly black communities, including in Prince George's County and Baltimore city, according to statements by two former Wells Fargo loan officers.
These former bank employees state that Wells "targeted black churches” and neighborhoods by offering escalating-interest mortgages, which some loan officers called “ghetto loans.”
Further, the former employees testified that if a loan officer referred a prime borrower to a subprime loan, that loan officer received a bonus.
Conventional wisdom praises U.S. banking organizations as engines of growth, providing economic opportunity to millions. But this cannot be the entire truth, since these organizations bear some responsibility for economic disparities.
For example, the black median net worth dropped 50% from 2005 to 2011, based on Census data. From 1983 to 2013, the median wealth of black and Latino households declined by 75% and 50%, respectively. Meanwhile, median white household wealth rose by 14%.
It is the lack of regulation in the public interest that is the issue. Over the past 45 years, banking institutions like Wells Fargo, operating in the most materially advantaged country ever to exist, has repeatedly abandoned ethical principles in the pursuit of material well-being.
To be fair, however, at the March 10 hearing, the megabank announced that it is looking to invest up to $50 million in black-owned banks. Given the impact of Wells’ past behavior on the black community, for this investment, it is critical that the bank get authentic, creditable advice from those outside the traditional set of community development advisors. Still, this is regarded as a positive development.
Wells also recently announced a $6.3 million donation for global efforts to prevent the coronavirus, as well as a $5 million donation for local community-specific needs.
Trust is central to the proper functioning of a banking system.
To mitigate the risk of the U.S. banking industry either damaging the public or falling into a position of competitive disadvantage, Waters is asking regulators to take aggressive, innovative and disruptive steps — and to start with Wells Fargo.
She is absolutely right.