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Stop the next Wells Fargo scandal before it happens

What’s the biggest criminal enterprise in California? MS-13? The remnants or successors to the Crips and the Bloods? The Mexican Mafia? If we’re talking about the sheer volume of offenses, the answer is clear: Wells Fargo.

It’s no easy task to keep track of the San Francisco-based megabank’s misdeeds, but here’s a rough tally: Wells has admitted that, beginning in 2011, it opened approximately 2 million bank and credit card accounts for customers who did not need, seek or even know about them, plunging a number of these unknowing customers into default. Earlier this month, the bank announced it may have “significantly” undercounted the number of unauthorized accounts. Goldman Sachs estimated last year that more than half-a-million of the customers who’d been saddled with these accounts may have had to pay an extra $50 million to borrow money as a result of their damaged credit.

This July, Wells also acknowledged that, starting in 2012, it had charged a further 570,000 customers for auto insurance that they neither needed nor sought, pushing 274,000 of them into delinquency on their combined car-and-insurance payments, which led to nearly 25,000 wrongful vehicle repossessions.

Just last Thursday, attorneys for the bank argued in an Atlanta federal appellate court that the judges should toss a lower-court ruling enabling customers to file a class-action suit against Wells for altering the sequence of its customers’ deposits, withdrawals and payments so that it could charge them higher overdraft fees. While other major banks have settled such claims, Wells contends that its bilked customers have no right to sue as a group, and that they must go through an individual arbitration process that will likely cost them more in legal fees than any reward they may receive.

Not all of these acts necessarily violated criminal statutes. But if a single individual devised a way to compel a client, without her knowledge or consent, to pay him more money or to suffer a loss of credit or her car, that individual could well face charges of theft, fraud or forgery. Confronted with exposés that began with a Los Angeles Times story in 2013, Wells has admitted to being party to such deeds on a massive basis.

Yes, Wells has had to pay penalties. The Times article led Los Angeles City Atty. Michael Feuer to file suit against Wells for its unauthorized accounts, and joined by the Consumer Financial Protection Bureau, that suit compelled Wells last September to pay $185 million to its defrauded customers. The bank also discharged 5,100 of its low-level employees who’d been encouraged or compelled by superiors to open the fraudulent accounts. Under pressure from Sen. Elizabeth Warren and other progressives, it dropped its CEO, John Stumpf and, more recently, a couple of its longtime board members.

Some public policy reforms may soon be in the offing as well, at least in Los Angeles. For the past nine years, the city has had a contract with Wells to handle its basic banking services — payrolls, payments to vendors, the works. With that contract expiring next year, a coalition of bank reformers has asked the city council to put some teeth into the city’s Responsible Banking Ordinance so it will never again give its business to a bank like Wells. Their suggested amendments include a ban on doing business with banks that place unreasonably high sales demands on their employees, and with banks that don’t explicitly protect whistle-blowers. These amendments will likely come before the council soon after Labor Day.

These are clearly necessary changes, but they don’t go far enough. A good case can be made that Wells should be prosecuted under federal and state racketeering (RICO) laws — under which, we should remember, not just organized crime groups but also Michael Milken was prosecuted (he pleaded to lesser counts) and his bank, Drexel Burnham Lambert, was threatened (it, too, pleaded to a lesser count).

President Trump’s administration is hardly likely to consider, much less lodge, such charges against a major bank. But California, under its own anti-racketeering and fraud laws, certainly could. The effects of such an action and its attendant disclosures could result not only in convictions and some forfeiture of assets, but also deter such future mischief. They might even lead to the establishment of a state-run bank here in California — a way to ensure that at least one financial institution in the state views the public as its master, not as sheep waiting to be fleeced.

Harold Meyerson is executive editor of the American Prospect. He is a contributing writer to Opinion.

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