How Wells Fargo Became a Proxy for the Fight Over the CFPB
Earlier this week, Senator Elizabeth Warren (D- MA) called for the entire Board of Directors at Wells Fargo to be fired. This is not the first time the Massachusetts senator has demanded a change in leadership at the beleaguered bank. In fact, even when their CEO John Stumpf stepped down last fall, she questioned the hiring of his replacement. Much of her vitriol stems from a fraudulent scheme by the bank to open secret accounts for customers and charges service fees and other expenses related to those accounts. An investigative report by the Los Angeles Times in 2013 initiated a multi-party investigation by the City and County of Los Angeles, the Federal Reserve’s Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB). The investigation culminated in a record $185 million fine for the bank and the dismissal of over 5,000 Wells Fargo employees.
Despite a successful and cooperative investigation between federal and local officials, along with restitution to customers and stiff penalties for the bank, Congress members on both sides of the aisle cannot agree whether the scandal was appropriately handled. In some respects, Wells Fargo has become a proxy in the war over the future of the CFPB.
On one side are the Democrats led by Sen. Warren. The CFPB was the brainchild of Sen. Warren and came to being as a part of the Dodd-Frank Act, legislation passed in 2010 to address the significant issues that led to the mortgage crisis and economic downturn a few years prior. She remains an ardent supporter of the agency and its embattled director, Richard Cordray, even in the face of growing legal challenges.
The Republicans stand in opposition with House Financial Services Committee Chairman Rep. Jeb Hensarling (R- TX) at the helm. Hensarling is very clear in his distaste for the CFPB and its director. The House recently passed a bill authored and championed by Rep. Hensarling called the Financial CHOICE Act that would gut the CFPB and significantly curtail its authority.
So how does Wells Fargo fit into this Congressional turf war?
First, the prosecution of Wells Fargo (and the unprecedented fines imposed on the bank) stands as a massive triumph for the young agency and Sen. Warren’s vision for the CFPB’s role and authority in consumer finance after the Great Recession. At a hearing in April before Rep. Hensarling’s House Financial Services Committee, Democrats on the committee were quick to extol praise on Director Cordray for how his agency handled the investigation and the cooperation with fellow federal agencies and local authorities. Continued deceptive actions by Wells Fargo in recent weeks only appears to heighten the need for a powerful investigative and enforcement consumer agency like the CFPB, emboldening Democrats to link the illegal acts by the bank to the critical work performed by the CFPB.
On the other hand, not everyone is so satisfied with how the CFPB handled the investigation and monitoring of Wells Fargo. The House Financial Services Committee is currently seeking further information on the Wells Fargo scandal and has subpoenaed thousands of documents from Wells Fargo, the OCC, and the CFPB. A report was released earlier this month by committee staff that chronicles the repeated refusal of the CFPB to turn over documents germane to the investigation, especially after claims that some of Director Cordray’s testimony at a House hearing conflicts with information found in documents from the OCC and Wells Fargo. Hensarling is now considering holding Cordray in contempt of Congress for failure to hand over the documents, a charge that carries fines up to $100,000 and a prison sentence of one year.
The war over the future of the CFPB is unlikely to end soon. Federal courts are debating the constitutionality of the agency’s structure, Congress is crafting legislation that would make major changes to the agency, and the President is exploring ways to manage the agency through executive power. As for Wells Fargo, they just began a new employee payment system that should discourage the incentives that originally brought on scandal; it is too early to tell if this will be enough to shift the war to a new front.