LA City Council Approves New Rules for Banks After Wells Fargo Scandal and Dakota Pipeline Access
Posted: Wednesday, December 13, 2017 – 2:42 PM
(CNS) – The Los Angeles City Council Wednesday approved more stringent rules for banks that want to do business with the city, which could result in Los Angeles divesting its funds from Wells Fargo over its fake accounts scandal and support of the Dakota Access Pipeline.
“We all realize that banks have done such bad things that we couldn’t have written it if it were fiction, or imagined that companies would be creating phony bank accounts and checking accounts and making phony loans and doing all kinds of things without even letting the customer know,” Councilman Paul Koretz said.
The city’s efforts to change the rules for its banking partners was undertaken as a result of the Wells Fargo fake accounts scandal, in which 3.4 million accounts were fraudulently created by employees given aggressive sales goals, and its support of the controversial pipeline. The city does the majority of its banking with Wells Fargo through roughly 800 different accounts.
Some of the rules were approved immediately in a 14-0 vote that drafted new language for a request for proposals for banks, and others were included in a 12-0 vote that directs the city attorney to amend the city’s Responsible Banking Ordinance. The city attorney would need to make the changes to the ordinance, and the council would have to approve of the updated language in a future vote.
The approved rules include “social responsibility” factors in the RFP that will be weighed heavily when the city considers proposals from banks.
Councilman Paul Krekorian said at a recent Budget and Finance Committee meeting that “the weight of the social responsibility component” in the new rules would “exceed what has been done by any other city.”
Wells Fargo’s financial support of the controversial Dakota Access Pipeline was also cited in a council motion as motivation for the city to explore divesting its funds from the bank while outlining criteria and standards the city would have in any future agreements with financial institutions.
“It’s time for us to endeavor to only do business with ethical financial institutions that have high standards and ethical standards. This is a very fiscally sound approach to looking at what divestment will mean, and it’s a very complicated and intricate matter,” Councilman Mitch O’Farrell said in June when he co-introduced the motion with Koretz.
In response to the fake accounts scandal, some council members expressed a desire to ban banks the city does business with from having individual or branch-level sales goals, but the Budget and Finance Committee was told several times by city staff that banning banks from having sales goals would be too difficult to monitor and could eliminate all possible bidders.
“Disallowance of sales goals may result in no or limited eligible bidders qualified to provide the city’s general banking services,” according to a report from the Office of Finance.
The committee then shifted to the idea of requiring banks to disclose sales goals practices in their bids, and an amending motion that was approved as part of the vote on the Responsible Banking Ordinance included a request for the city attorney to include the requirement that banks disclose their branch- level or individual sales goals and if they would promote or fire an employee based on them.
“The disclosure would solve a lot of the problems, because if they had a set of sales goals that were not humanly possible in the normal course of business, we would be able to spot that relatively easily, so if you had Wells Fargo-style sales goals it would be pretty obvious that no one could meet those without engaging in inappropriate behavior,” Koretz said at a previous committee meeting.
The new social responsibility score would include things like a bank’s Community Reinvestment Act score, which tracks its level of lending, investments and services in low- and moderate-income neighborhoods. Wells Fargo’s score took a significant hit due to the fake accounts scandal.
Under the new RFP guidelines, the first phase of a banking bid will focus on its financial and organizational capacity while giving it a total score up to 100. The second phase of scoring will include a possible 30 points for its social responsibility score on top of the first phase score, for a total possible score of 130.
The new rules in the RBO will also require that a bank disclose any recent regulatory action taken against it, and that it have whistleblower protections and certify that it is in compliance with all applicable consumer financial protection laws.
In a settlement last year stemming from the fake accounts scandal, Wells Fargo paid $50 million in civil penalties to the city of Los Angeles and $135 million to two federal agencies, and was ordered to provide restitution to affected customers.
The Dakota Access Pipeline that runs more than 1,100 miles from North Dakota to Illinois sparked a months-long protest near the Standing Rock Sioux Reservation. Members of the tribe opposed the project on grounds that it passed over a sacred burial ground and would threaten their water source.
Pipeline construction was halted in November 2016 by the Army Corps of Engineers, but President Donald Trump signed an executive order in January instructing the agency to finish the project. Oil has been flowing through the pipeline since March.
Wells Fargo executives said in a February statement that Wells Fargo is not the lead bank on the project but merely one of 17 financial institutions that made a loan to the developers of the pipeline. The company said it lent $120 million to the project.