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Why we have laws

Often with good reason, businesses in general—and financial institutions in particular—complain about the heavy weight of laws and government regulations. At the same time, a strong case can be made for such oversight.

Indeed, that’s what Wells Fargo Bank N.A. inadvertently did last week when it agreed to pay nearly $200 million in fines.

While neither admitting nor denying the wrongdoing laid out in a Consumer Financial Protection Bureau consent order, the bank agreed to pay the fines and full restitution. In a statement, the bank said it reached the agreements “consistent with our commitment to customers and in the interest of putting this matter behind us.”

The nature and scope of the behavior alleged by regulators is jaw-dropping. As the CFPB put it, Wells Fargo over a number of years “engaged in the widespread illegal practice of secretly opening unauthorized deposit and credit card accounts.” The bank’s own analysis determined that employees may have opened 2 million deposit and credit card accounts without consumers’ consent.

The reason why is simple: The Wells Fargo employees were gaming the system in an attempt to hit cross-selling targets and pocket bonuses.

Roughly 5,300 people on the Wells Fargo payroll—both sales reps and managers—have been terminated by the company as a result of the actions described in the consent order.

In an interview with the Wall Street Journal this week, the man in charge at the bank’s parent, Wells Fargo & Co. CEO John Stumpf, maintained the company’s culture was not at fault. “There was no incentive to do bad things,” he said.

But clearly, thousands of Wells Fargo employees were motivated to do a wide range of “bad things,” from creating phony email addresses and accounts to transferring funds without authorization.

If a company that has built a reputation of high ethical standards over many years can run this far off the rails, it says something. Many laws requiring regulatory oversight are on the books for good reason, and they should be vigorously enforced.

9/16/2016 (c) 2016 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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