On Tuesday, the Senate Banking Committee will hold a hearing in Washington on the growing scandal at Wells Fargo, one of the nation’s top lenders, which illegally charged customers $1.5 million in fees after it secretly opened two million sham accounts in their names. Among those socking Wells Fargo with a total of $185 million in fines is the Consumer Financial Protection Bureau, a federal regulatory watchdog.
“Our investigations found that employees of the bank created unauthorized deposit and credit card accounts across the country in order to collect financial bonuses for themselves,” CFPB director Richard Cordray told reporters last week. “Money that belonged to customers was used and moved around without their consent, and in some instances these activities generated new fees and costs.”
But across the Capitol, not much is being said about the scandal by the House Financial Services Committee, where U.S. Rep. Andy Barr of Lexington sits.
Like most of his Republican colleagues on the committee, Barr has spent his four years in Congress defending banks from what he calls “over-regulation by unelected bureaucrats” at the CFPB. Barr has pushed bills — including one, the Financial CHOICE Act, the committee approved last week — that would cut the agency’s funding and powers and repeal much of the law that created it, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The House committee has no Wells Fargo hearing scheduled. Barr spokesman Rick VanMeter declined to say whether Barr wants one.
“Congressman Barr believes that if Wells Fargo or any other institution committed fraud, they should be held accountable to the fullest extent of the law,” VanMeter said in a statement last week. However, VanMeter said, “It is ironic that supporters of Dodd-Frank claim the law protects consumers, when this alleged fraud occurred after the law went into effect.”
Wells Fargo, based in San Francisco, is among scores of campaign donors in the finance sector that cumulatively have given Barr more than $1 million since he first ran for Congress, according to an analysis by the nonpartisan Center for Responsive Politics. As of June 30, Barr had $1.48 million for his re-election fight against Democratic challenger Nancy Jo Kemper of Lexington, who had $66,858.
This has been such an egregious example, a red-hot, shining example of why we need the CFPB to protect consumers from unethical business practices that it’s resonating even outside of the Beltway.
Yana Miles, policy counsel at the Center for Responsible Lending
Consumer advocates say the Wells Fargo case should make Barr and other lawmakers reconsider their hostility toward the Consumer Financial Protection Bureau. The bank has apologized for the sham accounts and fired 5,300 employees it said were responsible, although the executive who oversaw those employees is being paid $124.6 million as she retires, according to Fortune.
“This has been such an egregious example, a red-hot, shining example of why we need the CFPB to protect consumers from unethical business practices that it’s resonating even outside of the Beltway,” said Yana Miles, policy counsel at the Center for Responsible Lending. “This should deflect the push we’ve been seeing on House Financial Services to repeal Dodd-Frank and diminish the funding and structure of the CFPB so that it can’t go after bad actors.”
Kemper said Barr reflexively sides with banks, not consumers, because of the many contributions he has collected.
“Wells Fargo, we need to note, has been a significant supporter of Andy Barr’s congressional career, as have lots of other banks,” Kemper said. (Barr has taken $10,500 from Wells Fargo’s political action committee since 2013 and $1,100 more from one of its financial advisers.)
“If he had succeeded in doing the things with Dodd-Frank that he wanted to do, Wells Fargo probably wouldn’t have been found guilty. It seems to me that Andy has worked hard to shield them, and similar institutions, kind of under the cover of working for community banks,” she said. “The CFPB has been doing an outstanding job of protecting the consumers from being defrauded. And if Wells Fargo’s not even protesting this fine, then they know it’s true.”
A thorn in banks’ side
The Consumer Financial Protection Bureau was created to be a thorn in the side of banks, payday loan stores, credit card companies and other lenders.
After the 2008 financial collapse brought on a global recession, Congress placed new lending and capitalization requirements on banks — the Dodd-Frank Act — to discourage risky behavior in the future. To protect the interests of borrowers, it established the CFPB as an independent watchdog, funded by the Federal Reserve System rather than Congress to insulate it from political pressures.
Last year, the agency employed about 1,500 people, requested $485 million in funding and received 265,500 complaints from consumers. The CFPB also has collected $342 million in fines from lenders — Bank of America, Citigroup and JP Morgan Chase among them.
The Bureau of Consumer Financial Protection is one of the most powerful and unaccountable agencies in the entire federal government.
U.S. Rep. Andy Barr in a 2014 House floor speech
Banks and their allies in Congress, including Barr, say the CFPB needlessly stifles Americans’ access to credit by harassing lenders. Regulators are punishing banks for investment and lending practices that would not hurt borrowers or imperil the economy, these critics say.
“The Bureau of Consumer Financial Protection is one of the most powerful and unaccountable agencies in the entire federal government,” Barr said in a 2014 House floor speech in favor of a bill that would have replaced the CFPB director with a five-member Financial Product Safety Commission, subject to stricter congressional control.
“This avalanche of red tape coming out of the bureau is making life harder for millions of Americans, which is why we need to pass this legislation that will reform the bureau in a way that reins in the misguided rules that stem from its partisan excesses and unaccountable culture,” Barr said.
The measure Barr backed that day, the Consumer Financial Freedom and Washington Accountability Act, was easily approved by the House but died in the Senate. Barr hasn’t been more successful with most other CFPB-related bills he has sponsored or supported, including his Taking Account of Bureaucrats’ Spending Act of 2016, which would require the agency’s spending to be decided by Congress and capped next year at its 2015 level.
Market discipline, not government control
Last week, the House Financial Services Committee voted along party lines to approve the Financial Choice Act, sponsored by the panel’s chairman, Jeb Hensarling, R-Texas. Its 513 pages would rewrite much of the Dodd-Frank Act, allowing larger banks to exempt themselves from some regulations if they hold enough capital and repealing the so-called “Volcker Rule,” meant to stop banks from making risky bets with their own money.
And the bill would try again to replace the CFPB director with a five-member commission under congressional control. Also, it would eliminate the agency’s authority to target “abusive” — as compared to “deceptive” or “unfair” — lending products, and it would require a detailed cost-benefit analysis of proposed regulations to justify the burden they would impose on lenders.
“It substitutes market discipline for government control,” Hensarling said last week at the committee hearing. “It creates true consumer protections so that our consumer agency will enforce the law and not actually make it up. It will hold Washington accountable by removing a Soviet-style command-and-control economy. It will ensure that shadow regulators come out from the shadows and that government will be subject to the will of we, the people.”
The Financial Choice Act would “reform” the CFPB and “impose far harsher and stricter penalties for violations than those currently on the books,” said VanMeter, Barr’s spokesman, in his statement.
Just last week, we saw that more than two million fraudulent accounts were opened by Wells Fargo — enough for every resident of the state of New Mexico — and yet our chairman has uttered nothing about this major scandal.
U.S. Rep. Maxine Waters, D-Calif.
However, the committee’s Democrats protested that the GOP majority wanted to hobble the CFPB even as news was breaking about Wells Fargo’s illegal activities.
“Just last week, we saw that more than two million fraudulent accounts were opened by Wells Fargo — enough for every resident of the state of New Mexico — and yet our chairman has uttered nothing about this major scandal,” said U.S. Rep. Maxine Waters, D-Calif. “Let us be clear about who would benefit from the Republicans’ ‘Wrong Choice Act.’ It’s Wall Street and other special interests who have been fighting against financial reform since before it was enacted.”
The lesson from Wells Fargo is that federal banking regulators need to stay strong, said Miles of the Center for Responsible Lending. The more that members of Congress can control the agency, the more they will try to satisfy their campaign donors by hamstringing it, she said.
“If you look at Wells Fargo and what they did to their customers, it’s clear this would never have come to light under the Financial Choice Act — certainly not at the speed that it did,” Miles said. “These bills coming out of House Financial Services, they directly seek to gut the rules and completely restrain the CFPB’s ability to do its job. I don’t see how you can make an honest argument that these bills are going to strengthen regulators’ scrutiny or make the public safer.”