If anti-consumer bank law is passed, more Wells Fargo-like scandals are coming

Wells Fargo, the banking giant that's reeling from disclosures it secretly opened millions of bogus customer accounts, recently said there was more bad news on the way.

Yet even as Wells Fargo concedes the scandal isn't over, powerful political and industry forces are pushing Congress to gut federal laws meant to protect consumers and depositors from such rogue financial giants.

It's an alarming quest, one that threatens to end hard-fought protections that rightfully arose after the 2008 banking and stock market meltdown. The proposed changes are in a banking bill that passed the House in June and is expected to be taken up in the Senate next month.

"We are in a very vulnerable spot," says Deborah Goldstein, an executive vice president of the Center for Responsible Lending, a Durham, N.C.-based consumer finance watchdog that's fighting the bill. "It's an attempt to roll back what's already been accomplished."

In Illinois, Wells Fargo has 25 area bank branches, 24 retail brokerage outlets and employs about 3,700.

Wells Fargo CEO Timothy Sloan who took over the bank in late 2016, revealed this month that an ongoing independent review of its customer service scandal will soon produce more revelations and negative news about the company.

That's saying something.

It's already known that between 2011 and 2016, thousands of employees were under corporate pressure to hit lofty sales targets. To achieve those goals — and win bonuses — some employees signed up over 2 million customers for checking and credit-card accounts without them knowing about it.

Last July, the bank also said about 800,000 auto loan borrowers were improperly charged for insurance.

As a result, the bank's longtime CEO exited the company, an estimated 5,200 employees have been canned and millions of dollars in fines are being paid, including $100 million demanded by the Consumer Financial Protection Bureau, a federal watchdog agency.

"Wells Fargo continues to work hard to make things right, build a better bank, and earn back the trust of our customers, team members, investors, government leaders and the American public," Wells said in an email statement sent to me.

Yet as the scandal at California-based Wells Fargo unfolded, the nation's mighty financial services industry — along with Illinois' two largest banking associations — was pushing legislation that would hollow out consumer protection for banking customers.

It worked.

The House passed a bill that's creatively called the Financial Choice Act of 2017.

It's a 589-page monstrosity that, in essence, chops away at many important consumer-banking protections. Its primary task is reducing the independence of the Consumer Financial Protection Bureau, which is scorned by the banking fraternity but praised by consumer advocates.

Instead of the bureau keeping its current financing through the Federal Reserve, it would be subject to annual congressional appropriations, making it susceptible to accompanying political whims and disagreements.

But this House bill also goes after the Volcker rule, named after former Federal Reserve Chairman Paul Volcker, which demands that commercial banks refrain from using a bank's funds to back riskier investment like derivatives, commodity futures and options.

The Volcker rule also curtails investing in hedge funds and private equity funds, places where heavy losses can quickly occur.

Each of these pro-consumer and pro-depositor provisions reflects the commonsense remedies that came out of the tumult of the 2008 financial crisis. They were put into place to protect taxpayers, depositors and consumers while also boosting the public's faith and confidence in the banking system.

Last week, those laws were given a vote of confidence by Federal Reserve Board Chair Janet Yellen, who said the rules have worked and the system is more resilient than before.

She recommended keeping the regulations mostly in place.

The ongoing Wells Fargo scandal, and Yellen's comments, should give senators a lot to ponder as they weigh any proposed banking legislation or significant regulatory changes.

It serves no greater good to go back in time and erase the gains that give consumers needed protection from widespread banking excesses.

If those pressing to curtail consumer protections are triumphant, it's the public that will suffer.

Considering what so many went through because of the 2008 financial crisis, that's something we can't afford.

roreed@chicagotribune.com

Twitter @reedtribbiz

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