Kat Taylor is CEO and Co-Founder of Beneficial State Bank.
Here we go again. On Friday, Wells Fargo received a $1 billion fine from the Consumer Finance Protection Bureau (CFPB) and the Office of the Comptroller of the Currency for customer abuse in their mortgage and auto lending departments. The bank slapped fees on prospective homebuyers when it shouldn’t have (it should be noted that Wells Fargo is the nation’s largest home loan originator) and it made clients buy unnecessary car insurance policies, which the CFPB says may have contributed to defaults and vehicle repossessions for at least 27,000 customers.
Risk management practices were deemed “reckless, unsafe or unsound.”
Most of the commentary coming out in this short aftermath has been something along the lines of: Hasn’t Wells Fargo already paid the price for their mistakes?
The answer is a resounding NO. The reason we see these fines over and over again is because the fines don’t do enough. Even a $1 billion fine is not enough to change incentives and corporate behaviors. It’s just a slightly higher cost of doing business. Bank of America made a $4 billion accounting error that wasn’t even noticed for an entire year by internal or external auditors! Aside from embarrassment, $4 billion doesn’t even matter to a bank with over $2 trillion in assets.
The punishment still does not fit the crime, much less change the odds of it or some new offense occurring. Which is exactly why we have to take a different approach. Banking must be in alignment with the public’s interest — it’s your $12 trillion of deposits that make up the US banking system after all — or else we will continue to see these abuses happen.
And the big banks aren’t only reckless with our deposit money (opening sham accounts, preying on the elderly, lending to risky and harmful industries like oil and gas exploration, to name a few). They are also championing a systematic stripping away of consumer protections and leaning into systemic risk (the kind that contributed to the 2008 financial crisis) with the CFPB under threat and our government removing Dodd-Frank and anti-discrimination protections and de-regulating the banking system as a whole.
What will make these banks change their behavior?
Real penalties — like revoking a charter, docking executive pay or losing a license in business lines — are essential to real reform.
We all — citizens, consumers, bank customers — must demand more from our banks. Move your money. #GrabYourWallet. #BankExit. Recently, we’ve seen some big banks make positive changes in response to students marching for their lives. It’s a start but these banks have a long way to go.
Let’s align our banking with our values because that’s the only way we can change the banking system for good. That will be priceless.