Another Wells Fargo Scandal Proves Our Financial System Is Still Broken

Conservatives & libertarians who are against government regulation as interfering with a business being able to make money will be glad about this.

https://www.thefiscaltimes.com/Columns/2016/12/12/Another-Wells-Fargo-Scam-Proves-Our-Financial-System-Still-Broken

By David Dayen
December 12, 2016

The prospect of a president who made a career out of scamming consumers has led to understandable fears that the next four years will present a bonanza of tricks, con games and deceptions unrestrained by federal regulators. But before we hyperventilate too much, we should recognize how this already describes our current reality to an uncomfortable degree.

Perhaps the best example of this recently has been the appalling Wells Fargo scandal, which you’ll be thrilled to know has not ended. Over the weekend The New York Times reported on a similar fraud involving allegedly unauthorized life insurance accounts arising from a partnership between Wells Fargo and Prudential.

The situation resembles a popular scam during the mortgage crisis known as force-placed insurance. Loan servicing companies would automatically issue homeowner’s insurance policies to any of their customers who allowed their insurance to lapse. However, in many cases the homeowner had a current policy; the servicer just overlaid their force-placed insurance on top of it. This insurance was typically so substandard as to be unusable, and the only real beneficiary was the servicer, which got a kickback from the insurance company for every plan it issued.

These types of insurance scams proliferate because there’s no real oversight of that industry at the federal level. Dodd-Frank put in place a small Federal Insurance Office inside the Treasury Department, but it serves no regulatory function, leaving that to the fragmented rules of the states.

The partnership between Wells Fargo and Prudential involved selling life insurance policies inside bank branches. An internal Prudential investigation revealed that Wells Fargo sales representatives signed up customers for the Prudential policies without their permission, even setting up automatic debits from their accounts, according to former Prudential employees.

These abuses would be separate from the 2 million fake Wells Fargo accounts we know about, since they are ultimately Prudential policies. Unfortunately we don’t have the whole story, because the three corporate investigators at Prudential who uncovered the scandal were all fired. They’ve since filed a lawsuit over wrongful termination; Prudential claims the firings were unrelated.

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The goal was less to scam people out of money than to meet sales goals. The Prudential whistleblowers found that reps would routinely open and close MyTerm accounts, taking credit for each re-opening. This bolstered Wells Fargo’s overall sales figures, eventually presented to investors to boost the stock price. Nevertheless, some of the 15,000 MyTerm account premiums were paid through automatic debits to checking and savings accounts.

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