Opinion

How to solve the Wells Fargo problem

If a bank can't stop abusing its customers, shouldn't it lose the right to exist?

Wells Fargo is in trouble ... again.

This time, the banking giant was caught failing to pay required insurance refunds for recent car buyers. It's just the latest in an ongoing series of alleged abuses of its customers.

The bank is once again promising to shape up. But it's long since time to consider more serious punishment: revoking Wells Fargo's corporate charter. If a corporation has proved time and again that it cannot behave in an ethical and legal fashion, then it should be put down.

Let's take a closer look at the latest scandal. When someone buys a new car, often they buy "GAP insurance" to cover the fact that the car will lose significant value simply by virtue of being purchased — meaning that an insurance claim on the market value of the car might not cover what the buyer owes on it. However, if the buyer then pays off the loan early, then he is generally owed a partial refund, because he now has the possibility of being underwater on the loan.

In potentially tens of thousands of cases, reports the New York Times, Wells Fargo didn't pay these refunds. (A spokesperson provided the following statement to the Times: "During an internal review, we discovered issues related to a lack of oversight and controls surrounding the administration of Guaranteed Asset Protection products. We are reviewing our practices and actively working with our dealers and have already begun making improvements to the GAP refund process. If we find customer impacts, we will make customers whole.")

But this is just the tip of the iceberg. Just last week the Times reported that Wells Fargo had forced unnecessary collision insurance on 800,000 people who financed their cars through the bank. As a result, over a quarter million of them ended up delinquent on their payments, and 25,000 cars were "wrongfully repossessed." David Dayen, the first to argue for de-chartering, has compiled a partial list of other abuses:

This comes as Wells tries to manage the fallout of its 2016 fake account scandal, where it generated 3.5 million unauthorized accounts to meet high sales goals. In the past month, Wells has also been accused of secretly changing the loan terms of mortgage borrowers in bankruptcy, falsifying records to charge mortgage applicants for its own delays in application processing, and stealing from mortgage bond investors to pay legal fees in lawsuits filed by those very same investors. [The New Republic]

Wells Fargo is the third-largest bank in the country, and as Dayen points out, its charter is at the federal level. It would thus be necessary to tread carefully when de-chartering them to avoid creating financial instability. But in principle, it ought to be easily possible to take the bank into receivership while preserving most all existing loans, assets, and deposits. Then you would fire all the top management, revoke the charter, create a number of smaller new chartered entities, divide the goodies up between them, and then sell them.

The FDIC does stuff like this all the time — and as long as we're at it, we might as well break up such a huge bank into many smaller parts. Indeed, its very size is probably a large reason why it keeps abusing its customers. As then-Attorney General Eric Holder once testified before Congress, worries about financial contagion have made very large banks "difficult to prosecute." Banks can hardly have failed to notice that.

It is, of course, inconceivable that most Democratic lawmakers — let alone corporation-worshiping Republicans — would even consider de-chartering Wells Fargo. Modern politicians have become so instinctively deferential to huge Wall Street firms that they generally don't prosecute banks or even individuals for white-collar crimes anymore. And de-chartering is so unthinkable that, as Dayen notes, nobody has even tried it for 60 years.

Indeed, for a perpetrator to be convicted of financial crimes these days, they need to be one of the most hated people in the country — someone like Martin Shkreli, during whose recent trial the court struggled mightily to find a panel of jurors who didn't already want to wring his neck (literally).

But the important thing to remember when considering a gigantic "private" entity like Wells Fargo is that all corporations are creations of the state. Corporate structures like limited liability were innovations of public policy; stock exchanges have had to be intensively regulated to prevent fraud and abuse. Most fundamentally, all private business cannot help but rely on a state-created legal system, state-backed money, and the state's monopoly of violence.

Bloated corporate behemoths have been around long enough that the ultimate wellspring of their power and legitimacy — the state — tends to be obscured. But when corporations simply will not stop abusing the populace, it's perfectly within the rights of the elected government to deny access to that wellspring.

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