When the Consumer Financial Protection Board (CFPB) settled with Wells Fargo last month for $100 million, it did so without requiring that Wells Fargo admit to its wrongdoing
Or as the settlement agreement put it, the bank agreed to pay the $100 million “without admitting or denying the findings of facts and conclusions of law.”
And it wasn’t just the CFPB.
The Comptroller of the Currency settled with Wells Fargo for $35 million.
And the Los Angeles City Attorney settled with Wells Fargo for $50 million.
And all of them allowed Wells Fargo to “neither admit nor deny.”
This despite the egregious behavior documented by the CFPB.
The CFPB found, for example, that Wells Fargo opened more than 1.5 million deposit accounts without client consent, transferred funds between client accounts without client consent, applied for almost 600,000 client credit cards without client consent, issued client debit cards without client consent, and enrolled clients in on-line banking services without client consent.
As a result, Wells Fargo charged customers approximately $2 million in fraudulent deposit-account fees and more than $400,000 in fraudulent credit-card related fees.
Yet, Wells Fargo neither admitted nor denied that it had violated the law.
Daniel Alter wants to know.
Alter is a Senior Fellow in residence with the Program on Corporate Compliance and Enforcement at NYU Law School.
Alter recently served as the General Counsel and Chief Compliance Officer of itBit, a financial services company.
Previously he was the served as the General Counsel of the New York State Department of Financial Services.
Alter says that in allowing Wells Fargo to “neither admit nor deny the charges, the authorities blinked.”
“This was a case of serious, systemic misconduct towards consumers by a major financial institution, and it warranted a public confession,” Alter writes at the NYU Law Compliance and Enforcement Blog. “By failing to exact any such acknowledgment of culpability, the regulators missed an important opportunity. This case presented a chance to foster an ethos of ethical responsibility, both within the banking industry at large and within a single institution in dire need of cultural reform. And that ethos is the bedrock foundation of every effective compliance regime.”
Alter says that the neither admit nor deny clause, when used to settle serious regulatory violations, “suggests that the authorities either lack the power or commitment to hold violators legally and publicly accountable – that is, to shame them.”
“Surely, there are circumstances where, on balance, it is in the public interest for regulators to settle charges without requiring an alleged violator to admit liability,” Alter writes. “The infraction may not be serious enough to warrant the expenditure of prosecutorial resources, or the available resources are needed elsewhere. As the U.S. Court of Appeals for the Second Circuit recently underscored: ‘Trials are primarily about truth. Consent decrees are primarily about pragmatism.’ But, as this case makes evident, sometimes it is pragmatic for regulators to insist upon the truth.”
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