by Jeff Sovern
As we have discussed extensively, Wells Fargo opened millions of sham accounts in its customers' names. The CFPB responded by fining Wells $100 million. But under Financial Services Chair Jeb Hensarling's proposed Financial Choice Act 2 bill, the CFPB would have been powerless to do anything about Wells's scam. That's because, according to the memo outlining new provisions in the bill, the bill would repeal the Bureau's ability to prevent or punish financial institutions from engaging in unfair, deceptive, or abusive powers. The Bureau brought the proceeding against Wells using those powers, commonly abbreviated UDAAP powers. Even if the Bureau could have found some other basis for bringing an action against Wells, it appears that it could not have fined Wells because the Hensarling bill would also limit the Bureau's enforcement power to cease and desist orders and CID/Subpoena powers.
That doesn't mean other agencies couldn't act. The federal Office of the Comptroller of the Currency levied a $35 million fine against Wells, and Los Angeles collected another $50 million. But I'm sure Wells would have appreciated its fine being knocked down by more than half (assuming the other fines would have stayed the same).
If you're thinking that private enforcement will make up the gap, think again. Wells used arbitration clauses to block customers from bringing class actions, and under the version of the bill the House Financial Services passed last year, the Bureau would lose its ability to eliminate class action waivers in arbitration clauses. I am not aware of any reason to think that won't be in the new version.
And of course, we're not just talking about Wells. Under the bill as described in the memo, the Bureau would lose its ability to block financial institutions from committing other deceptive, unfair or abusive acts as well. As to many of those institutions, the OCC and Los Angeles won't have jurisdiction. That means that in some circumstances, financial institutions will face few impediments to hurting consumers. Last time that was true, we ended up with the Great Recession.
Why would Mr. Hensarling do this? Maybe because he believes in markets–even when those markets don't function. Maybe he should call his bill the "Make Wells Fargo Safe Again Act."
