Last week I wrote that FTX’s collapse was a clear example that corporate governance “is not some ethereal, generalized concept or administrative burden. It is (or should be) a set of concrete operating and oversight processes with real responsibilities and accountability.” Yesterday we saw yet another example of how important this is – the Consumer Financial Protection Bureau (CFPB) ordered already-beleaguered Wells Fargo Bank
“… to pay more than $2 billion in redress to consumers and a $1.7 billion civil penalty for legal violations across several of its largest product lines. The bank’s illegal conduct led to billions of dollars in financial harm to its customers and, for thousands of customers, the loss of their vehicles and homes. Consumers were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed, and had payments to auto and mortgage loans misapplied by the bank. Wells Fargo also charged consumers unlawful surprise overdraft fees and applied other incorrect charges to checking and savings accounts.”
If that wasn’t enough, a new Bloomberg report claimed
“… the San Francisco-based lender underwrote 42% fewer mortgages to Black buyers than in the year it announced its target, a Bloomberg News analysis of data covering more than 50 million mortgages over the past 15 years found. Even counting mortgages purchased from other lenders, Wells Fargo has backed successively fewer loans in each of the past five years, hitting a 15-year low in 2021.”
To be fair:
- Wells-Fargo stated their internal data “show the bank has backed more mortgages than the Bloomberg analysis;
- JPMorgan “has made only modest progress toward its goal” for increasing the number of mortgages to Black buyers;
- Bank of America “almost doubled the number of mortgages it underwrote for Black buyers since 2017, but its lending to that group remains less than one-fifth of what it was in 2007.”
And there are other forces at work:
“… increased capital requirements that reduce their capacity to lend, … regulations introduced after the financial crisis, … the billions of dollars in fines they paid for sloppy underwriting practices and … wider social problems that result in lower incomes and credit scores in Black communities… Nonbank lenders [such as Rocket Companies], which face fewer restrictions account for a larger share of the market, especially for low-income buyers.”
But even with certain realities arguably outside the banks’ control, this isn’t a good look. One thing that could have been helpful is if the banks improved communications to the public and media about business changes made in response to external developments impacting their ability to meet ESG commitments. Part of that means considering ESG commitments important enough to give that kind of attention – and understanding the risk of not meeting those promises/goals. That is one component of real corporate governance that reflects and acknowledges business risks.
