WTFargo: How Bad Does a Bank Have to Be?

Posted by Raúl Carrillo

Yet another scandal may soon rock Wells Fargo. According to informed sources, the Office of the Comptroller of the Currency (OCC) — the federal agency that oversees Wells Fargo and the other large, national banks — is set to downgrade Wells Fargo’s Community Reinvestment Act (CRA) rating sometime this month.

In 2012, New Economy Project and many other groups called on the OCC to issue Wells Fargo a “Substantial Noncompliance” rating — the lowest possible CRA rating. We echo that call now. If the OCC “passes” Well Fargo, it will make an ongoing travesty of the CRA. Given the too-big-to-fail bank’s routine exploitation of low-income communities, especially low-income communities of color, one wonders why we allow Wells Fargo to keep its doors open at all, much less receive stamps of approval.

Why should the OCC downgrade Wells Fargo’s CRA rating?

Passed in 1977, the CRA is rooted in the assumption that because public charters convey substantial benefits, banks owe something to the public — especially to low and moderate income neighborhoods. Above all else, the CRA is an anti-redlining law, intended to encourage banks to treat all communities equitably (within each area where they do business). Regulators must periodically review banks’ CRA performance and publicly issue them one of four ratings, which regulators consider when banks seek, for example, to merge or open new branches.

The OCC hasn’t issued a CRA rating for Wells Fargo since 2009, even though it is reportedly examining the bank for the second time since. Seven years ago, the OCC gave Wells Fargo an “Outstanding,” the highest possible rating. If that rating was laughable then, it would be absurd now. Wells Fargo has not only treated communities unfairly, it has actively harmed them.

In September 2016, the Consumer Financial Protection Bureau (CFPB) imposed a historic $100 million penalty on Wells Fargo for engaging in a giant fraud scheme in which employees secretly opened more than 2 million fake accounts. Wells Fargo employees allegedly shifted funds from customers’ existing accounts into the new accounts, racking up fees and other charges. Following public backlash, CEO John Stumpf resigned. The OCC itself decreed Wells Fargo must now obtain its approval before making myriad business decisions.

The “fake accounts” scandal is only one nefarious incident. Here are some others:

  • In February 2012, the country’s five largest mortgage servicers, including Wells Fargo, agreed to a monumental $25 billion settlement with the federal government and 49 states. Then, in May 2016, the OCC assessed a $70 million penalty against Wells Fargo for violating that settlement.
  • In July 2012, Wells Fargo agreed to a $175 million settlement with the U.S. Department of Justice after allegedly steering Black and Latino borrowers into subprime loans. Some employees referred to borrowers as “mud people” and the loans as “ghetto loans.”
  • In October 2013, Wells Fargo entered into an $869 million settlement with Freddie Mac after allegedly selling the government-backed firm toxic home loans.
  • In August 2016, Wells Fargo entered into a $4 million settlement with the CFPB after allegedly engaging in illegal private student loan servicing practices.
  • Within the last eight years, Wells Fargo has invested in private prisons and the Dakota Access Pipeline, which (suffice it to say) disproportionately harm low-income people and communities of color.

The list goes on and on. What else does a bank have to do to fail its CRA exam? Regulations state the OCC may not award Wells Fargo (or other banks) a “Satisfactory” rating if its rating on the lending test is unsatisfactory. Thus, Wells Fargo’s rating should not only drop, but dive.

One wonders if the OCC’s issuance of a poor CRA rating to Wells Fargo in 2012 would have deterred the bank’s recent predatory practices. Comptroller Thomas Curry has claimed the OCC may soon release several banks’ older evaluations, perhaps implying the delay is due to a general backlog. Others suggest the delay is due to an appeal by Wells Fargo. Either way, the OCC should no longer stall. Congresswoman Maxine Waters made the case clearly in October:

Neither Congress nor the American public should have to wait seven years for the OCC to release information about Wells Fargo’s performance under CRA. In addition, the ongoing CRA examination of Wells Fargo must fully reflect the bank’s numerous fair lending and consumer compliance violations.

Beyond the CRA: Banking for Public Purpose

The CRA is a crucial law that we must not only defend from potential repeal but fight to update and strengthen. Roughly 97 percent of banks examined have received “Satisfactory” or “Outstanding” CRA ratings. New Economy Project has long called on the OCC and other regulators to update CRA assessment methods, and has urged regulators to issue ratings of “Substantial Noncompliance” to banks (like Wells Fargo) that engage in illegal or discriminatory activities.

Beyond the CRA, we must do more than force for-profit institutions to meet community credit needs. We must build community-led financial institutions, with aims above profit  — aims based on cooperation, democracy, equity, racial justice, and ecological sustainability. This means establishing community development credit unions (CDCUs) and other financial cooperatives. It means pressing municipal, state, and federal governments to provide and support public banking alternatives. It means advancing the work New Economy Project and our sister organizations do every day. Confronted with the deceitful, abusive, and discriminatory practices of Wells Fargo, we must show a better way.