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Wells Fargo Bank - An Example of Failure

Introduction

I have been a great supporter of Capitalism and the free enterprise system. This latest revelation about the miss deeds of Wells Fargo Bank should be a lesson for all. The system should work to punish the guilty and reward the whistle blower. Our system of justice and equality and free enterprise only survives if the wrong doers are paid a penalty and shamed as an example for others. Let's defend our system and demonstrate how it suppose to work.

- Sept. 2016

Background

A few weeks ago, it was reported that Wells Fargo had fired 5300 employees for creating false customer accounts in order to charge fees without the knowledge of the customer. This practice has been going on for a few years.

Wells Fargo branch manager Rita Murillo was the whistle blower.
Regional bosses required hourly conferences on her Florida branch's progress toward daily quotas for opening accounts and selling customers extras such as overdraft protection. Employees who lagged behind had to stay late and work weekends to meet goals, Murillo said.
Then came the threats: Anyone falling short after two months would be fired.
The Consumer Financial Protection Bureau, a new federal agency with a mission to protect average Americans from abuses by banks and other firms. Apparently, they did not do their job here.

Now Congress is holding hearings to get to the bottom of this. Chief Executive John Stumpf was called to testify at a Senate hearing last week and will face more questions before a House panel.

Where are the Failures?

If you listen to Bernie Sanders or Elizabeth Warren, they will tell you how Wall Street greed and unbridled Capitalism is to be blamed for this affair. They are wrong. The people who failed us are the regulators and our legal system. This Wells Fargo fraud accounts is one example of miss deeds in the financial industry that were too often ignored or patronized. The system should have prevented it or stopped it years ago. Why didn't they? The answer is simple. The punishment does not fit the crime.

Think back to the last financial crisis of 2008. What happened? Who were responsible? Anyone charged with a crime? Did anyone go to jail? No. Instead, our government jumped in to bail out these companies that were deemed "too big to fail." Who decided they were too big? Some legislators like Elizabeth Warren wants to enact new laws to act as watch dogs over the financial industry. They implemented regulations that supposedly make them more accountable and less risky...why didn't they work? In this case, it took a whistle blower of an ex-employee that brought this to light.

What happened at Wells Fargo is a crime, make no mistake about it. It is no different than if someone walk into a bank and attempted a holdup. Instead of being arrested and charged and convicted and sent to jail, a small fine of $185 million was imposed. What did you think the message was sent to all banks? It is loud and clear to me. It tells them if you cheat your customers, don't get caught. If you do, you only get a slap on the hand and you still make a huge profit. By the way, the government gets their cut. Where does that leave the consumer?

President Barack Obama announces the nomination of Richard Cordray as the first director of the CFPB on July 18, 2011

What Should Happen?

Here is what I think should happen going forward.

  • Wells Fargo owes its customers an apology and the return of all the fees.
  • The senior regional managers should be fired or reprimanded.
  • The CEO and CFO should step down immediately.
  • The FBI and DOJ should start a criminal investigation on this as if it is a crime. If people are found to be intentionally committing these acts, they should be prosecuted.
  • The Board of Directors should be replaced.
  • A heavy fine should be imposed on Wells Fargo. These fines should be set aside to pay for legal fees on the part of the customers and share holders filing class action lawsuits.
  • The Whistle blower should be rewarded.
  • The Financial Control Board needs to do their job.
  • Current customers of Wells Fargo should consider closing their accounts and go with another competitor.
  • Congress should stop the grandstanding of holding hearings and do their job of enacting real reforms in the financial industry. They can start by looking into the disparity of the interest rates banks pay their depositors and the rates they charge for the various loans.
  • The stock shareholders should file a class action lawsuit against Wells Fargo.

Various Interest Rates...Wells Fargo Bank

  • Pay on savings account 0.01%
  • Pay on CD 0.1-0.5%
  • Charge on Home Mortgages - 3.625%
  • Charge on Auto loan - 3.14%
  • Charge on School loans - 5-7%
  • Charge on small business loan - 13.99%
  • Charge on Credit card balance - 19.24%

What is wrong with this picture?

How to Fix This Going Forward?

The SEC should implement a whistle blower policy starting today. Any reported abuse by any employee or former employee, if verified, will be rewarded with $10 million. This will put a stop to all these abuses in these companies. Someone in the company knows exactly what is going on...They just need the proper incentive to report.

Summary

I am a strong proponent of Capitalism and the free enterprise system. The reason is that it is the best system to lead to prosperity. However, the system must have a level playing field and have a set of rules that all must follow. The market place is the most efficient way to determine winner and losers. The "hidden hand" of the market works magic if allowed to work. Our government has a role in this but only as a policeman and an empire. It's purpose is to set the rules, and oversight over the participants and keep the game fair and honest. When people violate that rule, they must be punished not only by the regulators but in the market place. That will be the ultimate incentive for any company to do well by their customers and shareholders.

© 2016 Jack Lee

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    Jack Lee (jackclee lm)77 Followers
    268 Articles

    Jack is currently a volunteer at the Westchester County Archives. Jack has worked at IBM for over 28 years working on museums and libraries



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