In the wake of Wells Fargo’s customer accounts scandal, the state of California Treasurer’s office this week slammed the bank with 1-year sanctions.
The state will immediately halt investments in all Wells Fargo securities, suspend use of Wells Fargo as a broker/dealer to purchase investments and stop using the bank to underwrite sales of California state bonds where the Treasurer appoints the underwriter.
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State Treasurer John Chiang called the bank’s unauthorized opening of 2 million bank and credit card accounts “a legal and ethical outrage that cannot go unpunished.”
While the temporary loss of municipal underwriting business may not have a direct impact on banking customers, Venoo Kakar, an assistant professor of economics at San Francisco State University, says she is struck by a couple things.
First, “when it blows up on the internet it affects everyone who’s a Wells Fargo customer,” Kakar says. “They lose the trust, and it remains to be seen what Wells Fargo will do to get that trust back.”
Longer term, Kakar says, it’s not possible to tell if customers will move away from the bank or stick with them.
Changing your bank accounts from one institution to another is always inconvenient. People have direct deposit for their paychecks, and they might have credit cards and other accounts as well, she points out.
Another striking feature is Chiang’s intention to appoint or seek to appoint a consumer ombudsman person. That’s unusual, according to Kakar.
What it could mean for customers: If they have a problem with a bank, there will be some sort of reporting system for ethics or whistleblower protection.
Wells Fargo is a big employer in California, and residents are customers as well as employees of the banks.
The state is sending a strong signal to Wells Fargo’s client base, Kakar believes, that says the state thinks Wells Fargo’s actions are not OK.
The message is, “We are trying to protect you, and we have got your back.”