Wells Fargo scandal prompts Los Angeles to crack down on banks that do business with city
When the city of Los Angeles shops around for a new bank next year, it will ask institutions to promise that they do not engage in sales practices that harm consumers, a move spurred by revelations of widespread sales abuses at Wells Fargo & Co.
The City Council on Tuesday approved a motion from Councilman Paul Koretz requesting that the city’s Office of Finance require banks bidding for the city’s business to certify that their practices are not predatory, though it’s not clear what specific practices might be banned.
It also voted to ask the city attorney’s office to draft an ordinance that would amend the city’s responsible banking ordinance to include more protections for whistle-blowers who report suspected illegal bank activity to authorities.
“It’s my hope and goal that the steps we’ve taken today will protect the financial health of our city and stop banks who receive large amounts of taxpayer dollars from ripping off Los Angeles residents,” Koretz said in an emailed statement.
Wells Fargo now provides the bulk of the city’s banking services under a 2008 contract, which is set to expire next year but can be extended until June 2018. The city next year will request bids from banks for a new contract and Koretz said he wants the new requirements to be part of the process.
The Committee for Better Banks, a labor-backed group that is trying to organize bank workers, supported Koretz’s initiative, but had wanted the city to go further by saying it would not sign a banking contract with any institution that uses sales goals.
The group has argued that all sales goals are harmful to bank workers and consumers. Sales goals are common in the banking business, but are under intense public scrutiny after the sales scandal at Wells Fargo.
Regulators in September reached a $185-million settlement with the San Francisco bank after finding that thousands of Wells Fargo employees opened as many as 2 million accounts for customers without authorization as they tried to meet unrealistic sales goals.
Maria Loya, the Los Angeles policy director for Committee for Better Banks, acknowledged that the group had wanted the city to take a firmer stand, but said Tuesday’s motion is a start.
“Before this, there was nothing — no conversation or any kind of process where predatory practices such as sales goals were even discussed,” she said. “So although we didn’t get an outright ban on sales goals, this is a step in the right direction.”
The City Council also approved a motion calling for the city’s finance office to investigate whether Wells Fargo created false or unauthorized accounts for the city.
Wells Fargo spokesman Gabriel Boehmer said the bank is in the process of reviewing the city’s accounts and activity going back to 2008.
“We value the city’s business and are doing everything in our power to demonstrate our commitment to the city,” he said.
The council’s actions, taken more than two months after the bank reached its settlement with regulators, show that the accounts scandal continues to dog Wells Fargo.
The bank remains under investigation by a raft of state officials and federal agencies, including the Securities and Exchange Commission and the Department of Labor.
And late last week, the Office of the Comptroller of the Currency, one of the regulators that Wells Fargo settled with in September, announced new sanctions, including requirements that the bank seek regulatory approval for hiring certain executives.
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