Political Fight Over CFPB Heats Up After Wells Fargo Scandal
September 22 2016 - 06:49PM
Dow Jones News
By Yuka Hayashi
WASHINGTON -- Is the Consumer Financial Protection Bureau a hero
or a laggard in the probe into Wells Fargo & Co.'s sales
practices? It depends whom you ask -- and the answer digs into the
heart of the controversy over government regulators' role in the
post-financial-crisis era.
Democrats say the CFPB's enforcement action against Wells Fargo
shows the five-year-old agency needs to be strengthened to protect
consumers from what they see as harmful industry conduct.
Republicans, meanwhile, are using the scandal to build their
case for overhauling the CFPB's operations, saying the agency's
slow action on Wells Fargo showed its incompetence. They are
pressing federal regulators to explain why it took several years
for them to uncover the widespread problems at Wells Fargo, while
praising Los Angeles officials for initiating the
investigations.
The political fight over the CFPB is set to intensify over the
coming weeks, as Senate Republicans plan to vote soon on
legislation curbing the bureau's unusual independence. Unlike most
other agencies, the CFPB doesn't have to get approval from Congress
for its budget, which is funded by fixed fees from the Federal
Reserve. The GOP wants to change that; the Democrats have vowed to
oppose such a step. Republicans also want to revamp the agency's
structure, making it run by a commission instead of a single chief,
arguing CFPB Director Richard Cordray wields too much power.
CFPB officials have said the bureau's structure was designed by
Congress under the 2010 Dodd-Frank financial-overhaul law.
The CFPB imposed a $100 million fine on Wells Fargo for
allegedly opening as many as two million accounts without customer
consent -- by far the biggest fine in its history. Wells Fargo also
has to pay a further $85 million to other regulators. The bank
didn't admit or deny wrongdoing in settling the case.
Many industry executives worry the Wells Fargo case will result
in more regulations coming from the CFPB and support the GOP
efforts to change the agency's structure and budget process.
"This is going to make needed structural reforms at the CFPB
very, very difficult to get through, if not impossible," said
Camden Fine, president and chief executive of the Independent
Community Bankers of America. Mr. Fine said he expects new pressure
to create rules on cross-selling of products and executive
compensation, two areas at the center of the Wells Fargo case.
The House Financial Services Committee, led by Jeb Hensarling
(R., Texas), is holding a hearing on the Wells Fargo case on Sept.
29, where Republican lawmakers are expected to look closely at the
roles played by the federal regulators in the investigations. The
Senate Banking Committee held its own hearing on Wells Fargo on
Tuesday.
"Chairman Hensarling has always said we are going to hold both
Wall Street and regulators accountable. We are going to do our
job," said a spokesman for the House committee.
Questions remain about when each regulator got involved in the
case and how they interacted with each other and with Wells Fargo.
Testifying before the Senate panel on Tuesday, James Clark of the
Los Angeles City Attorney's Office said that agency started its
probe after a December 2013 Los Angeles Times article about the
bank's sales culture but didn't contact federal regulators until it
filed a lawsuit against the bank in May 2015.
Meanwhile, Wells Fargo Chief Executive John Stumpf told
Tuesday's hearing that the bank notified the Office of the
Comptroller of the Currency about the problems the bank had found
in 2013 but didn't tell the CFPB until 2015. Comptroller of the
Currency Thomas Curry said his agency became aware of some of the
problems in 2012.
Mr. Cordray, testifying at Tuesday's hearing, said the bureau
had been investigating Wells Fargo on "a number of fronts" after
receiving whistleblower tips in 2013.
Both the CFPB and the OCC have supervisory authority over Wells
Fargo, along with other agencies, including the Federal Reserve and
the Federal Deposit Insurance Corp. The CFPB looks at treatment of
consumers, while the OCC focuses on the overall soundness of the
institution. Industry experts say rivalries between agencies
sometimes keep them from working together effectively in
enforcement activities.
Fed Chairwoman Janet Yellen said Wednesday that the central bank
would look at the "compliance, risk management and oversight" of
bank holding companies in the wake of the Wells Fargo settlement.
Ms. Yellen said the settlement didn't necessarily mean that Wells
Fargo was "too big to manage," but said that the Fed expected banks
to have "robust" systems of risk management to prevent issues like
those uncovered at the lender. Those standards are "not impossible"
for firms to meet, she said.
The debate comes at a critical time for the CFPB. It is in the
final stages of completing two new rules -- one targeting the
payday-loan industry and the other regulating arbitration clauses
in financial contracts -- amid fierce industry opposition. The
bureau is awaiting an imminent federal appeals-court decision in a
case filed by mortgage lender PHH Corp. that challenges its
enforcement authority and the constitutionality of its
single-director structure. Legal experts say the CFPB could face
its first significant litigation defeat with the case.
--
Gabriel T. Rubin
contributed to this article.
Write to Yuka Hayashi at yuka.hayashi@wsj.com
(END) Dow Jones Newswires
September 22, 2016 18:34 ET (22:34 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Wells Fargo (NYSE:WFC)
Historical Stock Chart
From Feb 2024 to Mar 2024
Wells Fargo (NYSE:WFC)
Historical Stock Chart
From Mar 2023 to Mar 2024