How Wells Fargo spent millions on lobbying the feds
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As Wells Fargo holds its annual shareholder meeting this week, all eyes are on the embattled banking giant to see whether it will commit to major reforms in the wake of its recent scandal. Last September, the Consumer Financial Protection Bureau (CFPB) led a $185 million enforcement action against Wells Fargo for opening more than two million fraudulent accounts and credit cards to meet aggressive sales quotas. Ahead of Tuesday’s meeting, shareholders have filed proposals pushing the company to root out the practices that led to such widespread fraud.

The fact that Wells Fargo’s board of directors has advised shareholders to vote against most of these proposals should come as no surprise. Even as this scandal unfolds, the bank has continued to spend vast sums fighting the kinds of regulation that stop abusive practices and has doubled down on its use of practices like forced arbitration to get money out of consumers with no accountability. Indeed, new figures reveal that the bank spent $46.4 million more lobbying Congress to loosen consumer protections between 2009 and 2016 – the prime years of its scandal – than it returned to defrauded customers in arbitration. Shareholders of U.S. public companies, including Wells Fargo, have been calling for disclosure of corporate lobbying activity and political spending for years because proper oversight is critical to responsible management.

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This revelation adds a new layer to the scandal that rocked the banking world. While the bank initially tried to pin the fraud on 5,300 front line employees it deemed “bad apples,” there is no doubt executives were well aware of this fraud long before the story became public.  In fact, workers warned the board on multiple occasions about these harmful practices, and defrauded customers had been trying to sue the bank over these fake accounts since at least 2013. The aggressive cross-selling that drove the problem was a longstanding tactic pushed by upper management.

 

Yet instead of addressing these practices, Wells Fargo kept the scandal out of the public eye by invoking “rip-off clauses” buried in the fine print of its contracts to force consumer lawsuits out of court and into secret arbitration proceedings. Forced arbitration is an increasingly common corporate trick that allows companies to handpick a private arbitration firm to decide all customer disputes and rig the rules in their favor. In practice, these clauses make it nearly impossible for customers to get justice when corporations break the law.

A newly released report from the nonprofit Level Playing Field found that only 215 Wells Fargo customers went to the trouble of filing arbitration claims against the bank in the past eight years, despite the more than two million instances of fraud unearthed by the CFPB. It’s no wonder so few consumers pursue arbitration; of the 48 cases that went to a final hearing between 2009 and 2016, just seven consumers received any money in the end – with Wells Fargo returning a paltry $349,549. In fact, consumers ended up paying Wells Fargo more in arbitration awards than the other way around.

While Wells Fargo’s lawyers denied consumers justice in secret arbitration, its teams of lobbyists were just as busy avoiding accountability in the halls of Congress. Between 2009 and 2016 – the same years examined in the Level Playing Field report – Wells Fargo spent $46.7 million on federal lobbying alone –  a staggering $46.4 million more than it returned to defrauded consumers before the CFPB forced its hand last September. Available data shows the company lobbies primarily on financial legislation in an effort to decrease federal oversight and dismantle consumer protections, weighing in on nearly 30 bills per year.

To add insult to injury, Wells Fargo does not disclose any lobbying information directly to shareholders or reveal how much money it pours into trade associations that lobby heavily on the bank’s behalf. The company lobbies in at least 35 states, but does not disclose the details of this activity. Tracking down a full picture is nearly impossible, as each state has different disclosure requirements. Wells Fargo does disclose some of its trade association memberships including the U.S. Chamber of Commerce, which has been the primary force lobbying in Washington, D.C., to oppose an important pending CFPB rule to restrict banks’ and lenders’ use of secret arbitration. However, shareholders have no idea how much Wells Fargo is spending to thwart efforts to rein in abusive corporate tactics that gave rise to this scandal, or on political lobbying generally.

That is why Wells Fargo shareholders joined the investor trend and filed a proposal asking for an annual report detailing all of the company’s lobbying activity and trade association memberships and payments. Wells Fargo board members have made their opposition to such transparency clear, and additional data suggests the board may have its own reasons for wanting to conceal such information. In the midst of the scandal last year, the bank’s board of directors separately spent another $150,000 to hire a team of six to lobby the House of Representatives and Senate on “issues related to congressional investigations of Wells Fargo & Company.” A corporate board hiring its own lobbying firm is essentially unheard of; experts indicate this action raises red flags and suggests the board is looking out for its own interests in the face of congressional scrutiny.

Wells Fargo’s decision to spend millions lobbying for fewer regulations and running PR cleanup for its board of directors while just seven of the millions of consumers who lost money received any recompense before the CFPB stepped in should worry the bank’s shareholders as much as it alarms the broader public. Wells Fargo has a long way to go to win back the trust of its shareholders, customers and the public, but if the bank is truly committed to changing its culture, it must first bring these practices out of the shadows.

Rachel Curley is Democracy Associate with Public Citizen’s Congress Watch division and Amanda Werner is Arbitration Campaign Manager with Americans for Financial Reform and Public Citizen.


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