Trump: Bad Bankers Beware

George Yacik - Contributor - Fed & Interest Rates

So now President Trump has thrown himself into the discussion about Wells Fargo. Maybe now the bank will get the justice it deserves. And maybe now the message about Trump’s intentions about financial regulation will become less fake.

First a little background. Three months ago Federal Reserve Chair Janet Yellen made some pretty startling comments for a Fed chief, publicly criticizing Wells’ behavior toward its customers as “egregious and unacceptable.”

She was talking, of course, about the bank’s years-long practice of signing up its customers for checking accounts, savings accounts, credit cards and other products without asking their permission or even telling them. But since then there have been reports and admissions by the bank of several other excesses, such as charging auto loan customers for insurance they didn’t ask for, dunning mortgage customers for interest rate-lock extension fees when the bank itself caused the delays, overcharging military veterans on mortgage refinance loans, and allegedly closing customers’ accounts without telling them why it did so.

You would think that the Fed – which regulates Wells and other big banks – would have come down on the bank by now. Yet nothing’s happened since Yellen made those comments.

Then last week the president injected himself into the fray.

“Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be dropped, as has incorrectly been reported, but will be pursued and, if anything, substantially increased,” the president tweeted. “I will cut Regs but make penalties severe when caught cheating!”

He was responding to a news report that the Consumer Financial Protection Bureau was reviewing potential fines against the bank for its mortgage problems. The CFPB has already fined the bank $100 million – a mere slap on the wrist – over the phony accounts scandal, but now, apparently, is ready to hit it again.

“As a matter of principle, acting director [Mick] Mulvaney shares the president’s firm commitment to punishing bad actors and protecting American consumers,” John Czwartacki, a CFPB spokesman, added.

So now we’ve had two of the most powerful government officials in the land – the President of the United States and the head of the Fed– saying publicly that Wells Fargo is a bad actor. But when is it actually going to be punished? Pretty soon, apparently, if we can believe the president.

Many people are under the impression that because the Trump Administration wants to ease the regulatory burden on banks – just as it wants to do for lots of industries, and is already doing so – that also means that it’s content to sit back and let companies get away with wrongful, if not illegal, behavior. The president’s tweet should dispel that notion.

Trump and Mulvaney have come under a lot of criticism for their supposed high-jacking of the CFPB leadership following the departure of the former director, Richard Cordray, on the Friday after Thanksgiving and naming his own replacement, which a federal judge subsequently rejected. These same critics would have us believe that without the fearless Cordray not watching the henhouse, Trump and Mulvaney are happy to let the wolves in.

It looks more like the opposite is the case.

Let’s not forget that also back in September; it was reported that the CFPB’s own lawyers had argued for hitting Wells with a $10 billion penalty over the phony accounts scandal, rather than the laughable $100 million it agreed to. Needless to say, Cordray, who is now safely back in Ohio running for governor, has yet to explain why he agreed to such a ridiculously low settlement given his supposed passion to protect innocent consumers from the big, bad banks. He also has yet to explain why the accounts scandal went on for so long under the CFPB’s nose – remember, it was the Los Angeles Times that broke the story, not the agency empowered to regulate it.

And that’s not the only instance of the valiant Cordray going to bat for America’s consumers.

Reuters reported this week that as he slinked out the door last month, Cordray approved the terms of a settlement with Wells over the mortgage matter involving “tens of millions of dollars,” which would be another slap on the wrist. That’s apparently what has Mulvaney and Trump angry about, as they should be.

In September, Reuters said, the Republican staff of the House Financial Services Committee wrote a report titled “Did the CFPB let Wells Fargo ‘Beat the Rap’?” in which it said the agency may have had room to seek a penalty of $10 billion or more against Wells – as did the CFPB’s own legal staff – but instead settled for 1% of that figure. That committee’s policy director, Brian Johnson, is now Mulvaney’s senior adviser at the CFPB. If I were Wells or one of its investors, I would be worried.

The CFPB issue is now shaping up like so many other criticisms of Donald Trump, namely that the exact opposite of what many – most? – People believe is the real truth. Meanwhile, the defenders of Cordray continue to cry crocodile tears over his departure, rather than criticizing his self-righteous political grandstanding while failing to do his job – and letting banks get away with murder.

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George Yacik Contributor - Fed & Interest Rates

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

3 thoughts on “Trump: Bad Bankers Beware

  1. Gary,

    The Head of The Fed, while being appointed by the President, is an employee of the Federal Reserve (which is a closely held private group of banks). Try suing them as a government entity (or Yellen as a government official) and watch what happens. The case will be dismissed because she and they are not government. In fact, this has happened numerous times in NY US District Court and in the DC Circuit.

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