The independent newspaper of the University of Iowa community since 1868

The Daily Iowan

The independent newspaper of the University of Iowa community since 1868

The Daily Iowan

The independent newspaper of the University of Iowa community since 1868

The Daily Iowan

Cloudy days for financial giants

Cloudy+days+for+financial+giants

Maintaining transparency seems to be a big issue among those organizations for which it is most important to be transparent. Universities, the federal government, banks — all of these entities often fall far short of the expected (and necessary) level of transparency.

The lack of transparency in powerful institutions reared its ugly head again in the past few weeks as Wells Fargo came under fire for its “cross-selling” scandal. The bank — one of the largest in the country — was fined by the Consumer Financial Protection Bureau $185 million plus an additional $5 million to be paid to customers. This is the largest penalty issued by the organization since its conception in 2011, according to CNN.

Why is it that an organization responsible for the welfare of so many in this country is able to get away with such a crime for so long? According to a number of sources, Wells Fargo employees may have created as many as 2 million fake accounts and some say even more. But why create the fake accounts in the first place?

Wells Fargo employees, according to The New Yorker, were instructed for some time to engage in a practice called cross-selling. In cross-selling, bankers do their best to make customers purchase accounts outside the traditional checking or savings accounts. The products these bankers are selling are usually those that incur greater fees such as mortgages and the shifting of 401(k) accounts.

But as pressure to sell more mounted in Wells Fargo, thousands of employees began cross-selling without the account owners’ consent. In other words, account holders were being charged for fees on accounts they had never opened. The issue goes deeper than this, though.

As The New Yorker explains, it isn’t happenstance when 5,300 employees in a company do the same illegal thing; there had to have been some sort of codification for consumer deception in the company for this to happen on such a large scale.

Yet as thousands of employees are fired, the organization is fined, and low-level managers are let go, no senior managers or leader has any risk to her or his job. This has to change.

The same New Yorker article noted that banks are tasked with self-policing. Because the budget of the banks themselves are far larger than any organization that could be put in charge of that task, banks monitor themselves. And while this could work in theory, the only way to force strict monitoring is to threaten large fines.

While this large fine against Wells Fargo will send small shockwaves through the banking industry, it will not alone change the trend of fraud and illegal activity that is so prevalent.

The Consumer Bureau is a relatively new organization that stems from the the Great Recession; its purpose is to protect consumers from unlawful actions of companies such as banks. As the largest banks in the country have clearly learned very little from the past decade of financial activity, there clearly needs to be some increased regulation and perhaps the best route to that regulation is to increase the power attributed to this relatively young government organization.

Frankly, it’s hard to imagine why an organization such as the Consumer Bureau wasn’t created during FDR’s alphabet soup — not because it would have created jobs but because it would have tightened the attention paid to the private-sector financial institutions that have such a huge effect on the success of the country.

Now that the American public has the bureau, however, it’s time to understand its importance.

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