It did not take long after the Silicon Valley Bank failure for politicians in Washington to rush to the next available microphone and lament the “loosening of bank regulations”. Instinctively the finger pointing began, and in many quarters ended up in the direction of the prior administration’s policy to generally roll back stringent business regulations and allow free market decisions to govern various industries. Chief among the complainants (no pun intended) was Sen Elizabeth Warren, who emerged out of the 2008 crisis as an architect and advocate for the Wall Street Reform Act and the creation of the vaunted Consumer Financial Protection Bureau ( CFPB), which she briefly directed. Just yesterday in DC’s The Hill publication, Sen Warren was reported as blaming the the collapse of Silicon Valley Bank on Republicans in Congress, which in 2018 helped pass a law to ease bank regulations put in place following the 2008 financial crisis. “No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Warren is quoted as saying. According to The Hill piece, Warren, who voted against the 2018 bank deregulation bill, said that the crises would have been avoided if the banks were required to hold more liquid assets because the bill exempted banks with less than $250 billion in assets from rigorous Fed stress tests. Warren and other Democrats say the old rules could have caught the issues at SVB sooner. Given that politicians generally “never let a crisis go to waste,” many now suspect that the banking industry is about to be slammed with heightened regulatory scrutiny, tighter operational rules, more audits and exams, and larger and very public fines, penalties and consent orders. What does this mean for independent mortgage bankers (IMBs)? It means that they have to get back to the compliance mindset they were frightened into adopting between 2008 and 2018, and before the bottoming out of interest rates led everyone to believe that easy money was here to stay and that self-regulation meant hiring more loan officers. Keep those risk management officers and compliance directors close by folks, we are all in for a bumpy ride on the regulatory
Last year Wells Fargo reached a $185 million settlement for what the Consumer Financial Protection Bureau and other federal officials called a widespread practice among employees of creating fake customer accounts, PIN numbers and emails in order to meet sales targets and earn bonuses. Details reveal that Wells Fargo employees may have opened as many as 1.5 million bank accounts and another half million credit card accounts not authorized by consumers. The penalty resulted after the CFPB became aware of the details from the bank’s own investigation that reviewed accounts between 2011 and 2015.
Further details revealed publicly indicate that Wells Fargo employees issued debit cards with fake PINs and used phony email addresses to secretly sign up customers for online banking. They then temporarily transferred customers’ money to the bogus bank accounts, sometimes leaving a low balance and triggering overdraft or other charges. Many customers also were charged annual fees and interest on the credit cards.
Although more than 5000 Wells Fargo employees were terminated because of their roles in this widespread scheme, and the bank acted on its own initiative in rooting out and ending the practice, the news has added to consumer fears about how their non-public personal information is being handled by bankers generally.
The Wells Fargo incident raises some key issues that are worth considering by all banks and mortgage lenders:
- Enforcing corporate policies in locally managed branch offices is a daunting task that requires constant supervision and accountability.
- Determining who may access consumer private data and for what purpose requires careful consideration and technological checks and balances.
- Creating an environment where non-licensed and regulated employees can benefit financially by “upselling” financial products to unsophisticated consumers is dangerous.
- Tying manager income or bonuses to branch financial goals could create an untenable conflict of interest that may result in consumer harm.
- Viewing consumers as vehicles for advancement and financial reward rather than as individuals, neighbors, and members of your community violates the George Bailey –Bailey Savings and Loan Golden Rule: bankers are to help lift people up, not use people to lift themselves up!
Wells Fargo did the right thing by conducting an internal investigation and holding wrongdoers accountable for consumer privacy violations and unauthorized banking transactions. The CFPB has planted a stake in the ground on privacy rights that every lender of any size will do well to heed.