Wells Fargo Shows Exactly How Structural Racism Works

The company’s history offers a glimpse into the gears of structural racism and the broader culture of corruption within the banking industry.

Theo Anderson September 21, 2016

Despite its good-guy reputation in some quarters and its professed commitment to building trust, however, Wells Fargo was a central player in the lending practices that contributed to the housing crisis of the late 2000s. (Mike Mozart/ Flickr)

At a Sen­ate Bank­ing Com­mit­tee hear­ing this week, Wells Far­go CEO John Stumpf argued that the company’s trou­bles didn’t reflect a cul­ture of cor­rup­tion but were caused by some 5,000 rogue team mem­bers.” Stumpf was try­ing to explain why his company’s employ­ees had cre­at­ed more than 2 mil­lion fake accounts for cus­tomers. He told a most­ly unsym­pa­thet­ic audi­ence, which includ­ed Sen. Eliz­a­beth War­ren, that wrong­ful sales prac­tice behav­ior goes entire­ly against our val­ues, ethics and cul­ture.” War­ren accused him of gut­less lead­er­ship” and urged him to resign.

"Cities are interested in recouping lost revenue from property taxes and the costs they incur in dealing with vacant properties. But there are costs that will never be quantified or recovered in court."

Wells Far­go is a curi­ous case. Often over­shad­owed by banks like Chase and Cit­i­group, it was, until it took a hit from the recent uproar, the biggest bank in the world by mar­ket cap­i­tal­iza­tion. It was also once viewed as one of the good guys,” as Bloomberg put it, because its con­ser­v­a­tive lend­ing poli­cies had helped it weath­er the worst of the hous­ing bust” in 2008. On the Vision and Val­ues” page of its web­site, Stumpf claims that every­thing we do is built on trust. It doesn’t hap­pen with one trans­ac­tion, in one day on the job or in one quar­ter. It’s earned rela­tion­ship by relationship.”

Despite its good-guy rep­u­ta­tion in some quar­ters and its pro­fessed com­mit­ment to build­ing trust, how­ev­er, Wells Far­go was a cen­tral play­er in the lend­ing prac­tices that con­tributed to the hous­ing cri­sis of the late 2000s. And it is still deal­ing with the fall­out from law­suits dat­ing back to that era — notably, a case to be heard by the Supreme Court in its com­ing term. The case involves a suit brought by Mia­mi for the finan­cial bur­den imposed on it by the lend­ing prac­tices of Bank of Amer­i­ca and Wells Far­go. The Court’s rul­ing in that case could deter­mine whether sim­i­lar suits in oth­er cities, includ­ing Chica­go, can move for­ward. Either way, the company’s recent his­to­ry offers a clear glimpse into the gears of struc­tur­al racism in the Unit­ed States and the broad­er cul­ture of cor­rup­tion with­in the bank­ing industry.

Wells Far­go has always denied that it engages in racial dis­crim­i­na­tion. But in 2012, star­ing down the bar­rel of a law­suit by the state of Illi­nois and a U.S. Depart­ment of Jus­tice inves­ti­ga­tion, it agreed to a set­tle­ment in which it paid more than $175 mil­lion. Accord­ing to a Depart­ment of Jus­tice state­ment, Wells Far­go was aware the fees and inter­est rates it was charg­ing dis­crim­i­nat­ed against African-Amer­i­can and His­pan­ic bor­row­ers, but the actions it took were insuf­fi­cient and inef­fec­tive in stop­ping it.”

In Cook Coun­ty, Illi­nois, between 2004 and 2007, Wells Far­go orig­i­nat­ed more than 61,000 mort­gage loans, more than 25,000 of which were made to minori­ties, or some 41 per­cent. Of the 61,000 total loans, at least 10,000 were high-cost loans, of which more than 6,500 — or 65 per­cent — were made to minori­ties. (Cook Coun­ty includes Chica­go.) Wells Fargo’s record was even worse at the nation­al lev­el, accord­ing to a judge in a case involv­ing the com­pa­ny, who not­ed that it gave three times more sub­prime loans to African-Amer­i­cans than sim­i­lar­ly sit­u­at­ed white bor­row­ers” from 2004 to 2008.

What’s at stake in the Supreme Court case is whether cities like Chica­go have legal stand­ing to sue banks for the dam­ages incurred by preda­to­ry lend­ing. The focus, in oth­er words, is on the hav­oc cre­at­ed by what The Chica­go Reporter called a vacan­cy epi­dem­ic.” Cities are inter­est­ed in recoup­ing lost rev­enue from prop­er­ty tax­es and the costs they incur in deal­ing with vacant properties.

But there are costs that will nev­er be quan­ti­fied or recov­ered in court. As the attor­ney gen­er­al of Illi­nois, Lisa Madi­gan, said in 2012, there’s an entire gen­er­a­tion of wealth in minor­i­ty com­mu­ni­ties that’s been tak­en away.” The impact of fore­closed homes isn’t lim­it­ed to the for­mer home­own­ers. The effects mul­ti­ply and spread out, depress­ing prop­er­ty val­ues in entire com­mu­ni­ties, which make them less attrac­tive to home­buy­ers, which hurts the qual­i­ty of schools and oth­er pub­lic insti­tu­tions, which depress­es home val­ues fur­ther and destroys local economies — in a rein­forc­ing cycle of dysfunction.

This week, in response to Wells Fargo’s lat­est scan­dal, Hillary Clin­ton pub­lished a state­ment say­ing there is sim­ply no place for this kind of out­ra­geous behav­ior in Amer­i­ca,” and that she has a plan to address it. The three-point plan includes pro­tect­ing the Con­sumer Finan­cial Pro­tec­tion Bureau from Repub­li­can attacks, impos­ing real con­se­quences” for Wall Street firms that break the law and cre­at­ing new safe­guards to address the risks that the big banks con­tin­ue to pose to our sys­tem. And if any bank can’t be man­aged effec­tive­ly, it should be bro­ken up.”

The last point was, of course, a major source of ten­sion between Bernie Sanders and Clin­ton dur­ing the Demo­c­ra­t­ic pri­ma­ry cam­paign, in which Clin­ton shied away from talk of break­ing up big banks and impos­ing fun­da­men­tal reforms. Her lat­est state­ment ges­tures toward a more aggres­sive stance. But it seems curi­ous that it was pro­voked by a scan­dal involv­ing fake accounts. Egre­gious as that behav­ior is, it pales next to the dev­as­ta­tion wrought by sev­er­al decades of struc­tur­al racism in the hous­ing mar­ket. If Clin­ton isn’t yet con­vinced by the evi­dence that the cul­prits in that cri­sis can’t be man­aged effec­tive­ly,” it seems doubt­ful she ever will be. 

Theo Ander­son is an In These Times con­tribut­ing writer. He has a Ph.D. in mod­ern U.S. his­to­ry from Yale and writes on the intel­lec­tu­al and reli­gious his­to­ry of con­ser­vatism and pro­gres­sivism in the Unit­ed States. Fol­low him on Twit­ter @Theoanderson7.
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