The billion-dollar Wells Fargo settlement reached between the bank and the consumer agency now controlled by Trump adviser Mick Mulvaney has been heralded as evidence that the longtime critic of the Consumer Financial Protection Bureau might not burn it to the ground after all. But a closer look at the details of that consent decree reveals that it is set up in such a way that will allow Wells Fargo to set the terms by which defrauded customers can be made whole.
Mulvaney, the CFPB acting director, is under fire for suggesting to bank executives that they need to donate to members of Congress to get heard. Sen. Sherrod Brown called for Mulvaney’s resignation on Wednesday for his explicit endorsement of “pay-to-play” politics. “Banks and payday lenders already have armies of lobbyists on their sides – they don’t need one more,” Brown said.
The senator was responding to comments Mulvaney made at the American Bankers Association conference on Tuesday. “We had a hierarchy in my office in Congress,” Mulvaney said. “If you’re a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you.”
Mulvaney’s remarks are especially jarring considering his treatment of victims of abuse at financial institutions’ hands. Compared to past agency settlements, the new Wells Fargo agreement includes a number of hurdles that appear to make it harder for victims of the bank’s misconduct to get their money back.
Wells Fargo was accused of charging prospective mortgage borrowers fees for locking in interest rates for a sustained period, when the bank was responsible for the delays. It also automatically placed auto insurance on 2 million of its auto loan customers, when in many cases borrowers already had or did not need the coverage. In about 27,000 cases, the force-placed insurance premiums caused borrowers to default and have their cars repossessed, effectively stolen at the hands of Wells Fargo.
But according to the language in the settlement agreement, in order for homeowners and auto loan customers to receive restitution, they would have to identify an “economic or other cognizable harm” based mainly on a specific violation of federal law, under a standard created and judged by Wells Fargo. CFPB does get to audit the remediation plans, but there’s no mechanism for forcing the bank to change those plans outside of going to a court and claiming noncompliance with the settlement.
Consumer attorneys who have reviewed the agreement claim that this creates large and unnecessary hurdles for victims. “How many consumers do you think will be able to complete and document the claim forms that Wells will engineer?” asked O. Max Gardner, a highly regarded consumer bankruptcy attorney. “One percent at best. This is a scam by Mulvaney and Company.”
It’s hard to find any other CFPB civil settlement with a financial company that allows that company to design the means by which wronged consumers get paid back. “I don’t recall seeing that language in previous orders,” said Christopher Peterson, who worked as a special adviser in the CFPB director’s office and the office of enforcement until 2016. Peterson now teaches at the University of Utah.
A more common approach is reflected in a 2014 settlement with U.S. Bank for $47.9 million for installing “add-on” products to credit card customer accounts without authorization or providing the service.
In that instance, U.S. Bank had to pay customers the “full amount” of the add-on products for the entire time they had them, along with all fees that shouldn’t have been imposed and any finance charges. The amount had to be mailed directly to the borrower or credited to their account, with a direct explanation of how the restitution was calculated. The borrower didn’t have to do anything to get repaid. CFPB could object to U.S. Bank’s remediation plan as well, without having to go back to court.
But the Wells Fargo settlement goes a different route. It collects $1 billion from the bank, $500 million of which is satisfied by a parallel settlement with the Office of the Comptroller of the Currency. For consumers to see any money, they have to prove that they were harmed, rather than Wells Fargo having the burden of determining who was illegally charged and facing penalties for noncompliance. This puts victims in the position of having to act as their own lawyer or private investigator, tracking down the precise violation of law and affixing an explicit dollar amount. And the judge and jury for that practice will be Wells Fargo.
Complicating this further is that Wells Fargo has already announced plans to refund mortgage and auto loan customers. Last July, the bank announced the auto loan remediation plan, promising to give back approximately $80 million. The bank upped its estimates for restitution in its 2017 Annual Report to $182 million, with $145 million in cash and $37 million in account adjustments. While initial attempts to execute the entire plan have gone awry and remain incomplete, about $11.7 million in checks have already gone out, per a Wells Fargo spokesperson.
On the mortgage rate-lock extension fees, Wells Fargo vowed last October to contact all 110,000 customers charged since 2013 and give refunds to those “who believe they shouldn’t have paid those fees.” In all, those 110,000 customers paid $98 million in fees, but Wells Fargo doesn’t expect to refund the entire amount. The spokesperson said the company has been mailing refunds to customers with interest since December 2017, though they did not give an exact dollar amount.
CFPB could have ensured that the remediation was complete and total — but the consent decree doesn’t designate a clear amount going to victims or confirm that all victims would receive a full refund, and adds this “economic or other cognizable harm” hurdle. The money Wells Fargo has already sent out is “separate from the settlement,” said the spokesperson. But then why is remediation planning part of the settlement at all? The main explicit requirement from CFPB for Wells Fargo to avoid any objections is that the total payout to customers exceeds $10 million. Wells Fargo has said they’ve already paid $11.7 million, surpassing that minimal barrier.
“The CFPB was created to be a consumer advocate, to defend the interests of ordinary Americans,” said Lisa Donner, executive director of Americans for Financial Reform, in a statement to The Intercept. “It is completely backwards that Mulvaney has chosen to let Wells Fargo decide who gets their money back and who does not. With a string of scandals that make it clear just how deep and pervasive wrongdoing is at Wells Fargo, there is no good reason for such a weak approach to enforcing the law on this megabank.”
Making victims of abuse prove their own case to get their money back, when a federal agency has already determined wrongdoing, resembles a 2015 announcement from the Education Department, explaining how student debtors from fraudulent for-profit Corinthian College could get their loans discharged. Like in this case, student borrowers had to fill out an application including a detailed description of the school’s misconduct, what state law it violated, how this applied to the borrower’s decision to take out loans to pay for school and what specific injury the borrower suffered, along with supporting information.
Under the Trump administration, Education Secretary Betsy DeVos scrapped these rules and did little in her first year to reduce the backlog of applications, leaving defrauded students in a bureaucratic nightmare. Last month, the Education Department informed Corinthian students they would only get half of their loans or even less discharged.
The difference between the approach toward consumers and bank executives is pretty stark. Consumers must prove their own harm and scratch to get repayment for mistreatment, despite the agency situated as their champion. All bankers have to do to get themselves heard, according to Mulvaney, is issue a donation to the politician of their choice.
CFPB hasn’t yet responded to a request for comment.