1. Opinion

Editorial: Wells Fargo scandal shows need for consumer watchdog

Eventually, Wells Fargo customers will be paid back for the fees and interest charges they incurred when the bank applied for credit cards and opened bank accounts in their names without their consent. But a full refund will not fully compensate the customers for the inconvenience, tarnished credit reports and damaged reputations inflicted upon them by a bank gone rogue. The record $185 million in fines Wells Fargo must pay seem unsatisfying for such rampant fraud, but they reinforce the important role the Consumer Financial Protection Bureau plays in looking out for consumers.

The Wells Fargo case might have gotten lost in this era of big bad bank stories if not for the audacity of the employees' tactics. This did not involve complex transactions like the credit default swaps that took down the mortgage industry and triggered a worldwide recession. This was simple, old-fashioned fraud. Going back at least five years, regulators say, Wells Fargo employees opened 1.5 million bank accounts without customers' knowledge. They created fake email accounts to sign customers up for online banking, requested and issued debit cards that customers knew nothing about and opened more than a half-million credit cards for unknowing customers that incurred annual fees and interest charges. Thousands of employees took part in the scheme, boosting their individuals quotas and paychecks. The fact that the practices were so widespread — more than 5,000 Wells Fargo workers were fired — is evidence of a corrupt culture and lack of oversight inside the bank.

In fact, Wells Fargo had a system of incentives that allowed and even encouraged cheating. Employees didn't just need to open new accounts to earn bonuses. Those accounts had to have money in them. So employees transferred funds from legitimate accounts into the phony ones, resulting in overdraft fees and monthly service fees for customers. The bank rewarded employees who sold customers on an array of products — credit cards and online banking, for example — in addition to traditional deposit accounts. That led to more bogus signups that should have been caught if Wells Fargo had adequate internal scrutiny.

The consumer bureau slapped Wells Fargo with a $100 million fine, in addition to a $35 million penalty the bank will pay to the Office of the Comptroller of the Currency, and another $50 million to the city and county of Los Angeles. The settlement does not preclude the U.S. Justice Department from further investigating and bringing criminal charges, but many analysts think that is unlikely. While $185 million is a hefty sanction, the lack of a criminal prosecution still sends the wrong message that egregious misconduct on Wall Street can be dispensed with for enough cash.

Americans have grown wearily accustomed to bank scandals. Wells Fargo employees followed the playbook of common identity thieves, and got away with it for five years as bank executives turned a blind eye. Steep financial fines are appropriate in this case and should inflict real pain on the bank's bottom line. The consumer protection bureau, which is too often accused of being too meddling and the symbol of overregulation, did its job.