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.
There is a memorable scene in the old holiday movie, “It’s A Wonderful Life,” when Jimmy Stewart as George Bailey, president of the Baily Savings and Loan, welcomes the Martini family to their new home which he just presumably funded for them. He makes a speech on the front steps offers gifts of salt and wine to welcome them. Whenever I spoke to new MLO classes as a lender management consultant, I would recount this scene and explain that this is what consumers expect from our industry: personal and caring service at an exciting yet stressful time in their lives. Somehow, I would add, our industry has forgotten to care about the consumer in the quest to sell loans at any cost.
The implementation of Dodd-Frank and the birth of the Consumer Financial Protection Bureau (CFPB) were, in part, a legislative effort to make sure we never forget that the consumer is the heart of our business. This is the heart of QM and ATR, and the vendor management rules our company helps lenders implement and manage.
This year will be the year of the consumer, and lenders need to make sure that they implement policies and procedures, or amend existing ones, to ensure that they are consumer-centric. From better quality origination and ability to repay safeguards, to vendor management and data privacy and security, lenders will be on the hot seat more than ever over how consumers are treated by them. It will not be long before we read about large fines and penalties against a lender for failing to heed this warning.
Some of the key areas expected to face scrutiny in audits and regulatory oversight this year include:
Third party vendor management, specifically closing agents. The CFPB is currently gathering data from the public and other interested parties about the closing table experience that will likely result in more specific guidance about managing closing risk for consumers later this year.
Affiliated business relationships. The affinity relationship between lenders and title agents, lenders and appraisers and lenders and real estate agents is being examined. The CFPB understands that almost every professional involved in the mortgage process is driven to the consumer not by free will but through referrals and steering. There is an understandable concern that these methods can drive up costs, ignore quality, and hide kickbacks.
Minority inclusiveness. Consumers get the best deal when there is fair competition, free choice, and more choices for services. Like HMDA seeks to gather data and explore how lenders make loans to all consumers, there is a movement to ensure that lenders are doing business with vendors owned by men and women of all races and ethnicities. Expect to see some directives and guidance in hiring women and minority vendors later this year.
Title insurance costs and fees. There have been claims by consumer groups that there is not enough competition and that costs are much higher than the risks being insured, especially in the digital and computer age where property ownership, tax and lien information is readily available and losses from title claims nationwide are relatively small. ALTA has been doing a good job of addressing these claims however we may see movement in this area this year.
The key takeaway for lenders is that anyone not making an effort to design their business around the consumer, rather than viewing the consumer as a means to an end, may very well being paying a price for it sometime this year. The CFPB is on a mission, and as George Bailey reminded Old Man Potter, “borrowers are human beings not just cattle… they deserve better!”