Treasurer John Chiang Sanctions Wells Fargo, Others Follow
California State Treasurer John Chiang is leading a growing movement of state and local governments outraged over the fraudulent marketing practices of Wells Fargo Bank. He and his new allies are backing up that anger with tough economic sanctions.
On September 28, Chiang wrote Wells� then-chairman, John Stumpf, questioning the integrity of a sales scheme that induced bank employees to open more than two million bogus consumer accounts to meet harsh sales goals.
"Wells Fargo�s venal abuse of its customers by secretly opening unauthorized deposit, credit card, debit card and online banking accounts illegally extracted millions of dollars in fees between 2011 and 2015," Chiang wrote. "Moreover, the creation of unwanted accounts damaged consumers� credit records, forcing them to pay higher interest rates on some loans."
As a consequence, the Treasurer froze for at least one year a series of long-standing business arrangements with the San Francisco-based bank. The measures specifically:
- Suspend investments by the Treasurer�s Office in all Wells Fargo securities.
- Suspend use of Wells Fargo as a broker-dealer for purchasing of investments by his office.
- Suspend Wells Fargo as a managing underwriter on negotiated sales of California state bonds, where the Treasurer appoints the underwriter.
Chiang�s sanctions, announced at a San Francisco press conference, ignited a storm of related protest actions across the country.
More than a half dozen governmental entities used their various legal powers to send strong messages that such unethical business behavior will not be tolerated. The list of states, counties and cities includes Ohio, Illinois, Pennsylvania, Santa Clara and Santa Cruz counties in California, and the cities of Sacramento and Seattle. Meanwhile, New York City and Los Angeles are considering similar initiatives.
In California�s case, the sanctions remain in place for 12 months and will be lifted if Wells Fargo can show that it is in full compliance with settlement agreements reached with federal and state regulators. Anything short of that could trigger escalating sanctions that could result in termination of all business relationships with the bank.
Sanctions, however, are just one of a triad of efforts by Chiang to help clean up the Wells Fargo mess and at the same time reform the entire banking industry.
To that end, the Treasurer is putting together a task force of distinguished academics, financial regulators and consumer advocates. The panel is charged with making recommendations on how to eliminate deceptive marketing, racially discriminatory lending practices, unnecessary fees, illegal kickbacks and other abusive practices.
The task force will propose a series of practical banking overhauls to be considered by state and federal regulators and lawmakers.
Chiang�s third effort involves asking fellow members on the governing boards of the state�s two big pension funds �the California Public Employees� Retirement System and the California State Teachers� Retirement System -- to pressure Wells Fargo to change the way it operates. He wants the bank to permanently separate functions of the board chairman and chief executive; review compensation practices and consider further "clawbacks" for executives closely linked to predatory and deceptive sales practices, among other changes.
"Wells Fargo�s behavior cannot be tolerated," said Chiang. "That is why I have denounced the bank publicly, using the strongest possible terms."