Regulator found 20,000 bad accounts at major banks. We still don't know which ones

June 13, 2018 1:40 PM PT

The nation’s top bank regulator told members of Congress on Wednesday that his agency found about 20,000 accounts that may have been opened without customers’ authorization or had other problems during a review of the nation’s largest financial institutions prompted by the Wells Fargo & Co. scandal.

Facing questions from members of the House Financial Services Committee on Wednesday, Joseph Otting, head of the Office of the Comptroller of the Currency, said fewer than half of those accounts were potentially unauthorized.

He also told members of the committee that it would be inappropriate for him to name the banks where unauthorized accounts were found because the results of bank exams are private — reiterating a stance his agency took publicly last week.

The agency, which regulates federally chartered banks, said it reviewed practices at more than 40 institutions, which it has not explicitly identified.

However, the OCC previously said it was requesting information from banks with assets of $10 billion or more, a list that would include national players such as JPMorgan Chase and Bank of America, as well as midsize and regional banks such as Los Angeles’ City National.

Otting also reiterated that though the OCC found some instances in which banks could not show that customers had authorized accounts, the agency “did not find pervasive or systemic issues.”

The review, which wrapped up at the end of last year, looked at accounts created over three years. Otting estimated that the banks opened a total of more than 500 million accounts over that period.

OCC spokesman Bryan Hubbard declined to comment on how the review was conducted but said the 20,000 figure includes accounts for which banks could not show proof of customer authorization or may not have provided proper disclosures.

Bank analyst Bert Ely speculated that the regulator must have reviewed a small number of accounts and made an estimate based on that. He called the number of accounts surprisingly low.

“It’s such a minuscule number. The question is, how good a number is it?” Ely said, noting that he’d expect some number of problem accounts at any sizable institution. “There are always screw-ups of one kind or another. I bet there are some errors in the L.A. Times’ subscription database.”

Ed Mierzwinski of consumer advocacy organization U.S. Public Interest Research Group said he would like more information about how the OCC reviewed accounts — for instance, whether examiners looked at paper documents or how many individual accounts were reviewed. He said he hopes senators will push Otting for more answers on Thursday.

“I think you’re still looking at smoke, and where there’s smoke there’s fire,” he said. “I don’t know what we’re going to get out of him without sunlight.”

The OCC started its review of accounts and sales practices in 2016 after regulators fined Wells Fargo $185 million for opening accounts without customers’ authorization. Later reviews found that as many as 3.5 million such accounts may have been opened by employees trying to meet aggressive sales goals.

In a letter to lawmakers on Monday, Otting said that some banks were giving employees credit for opening accounts even if those accounts were never fully activated or used by the customer, and even if accounts were funded with money transferred from another account at the same bank rather than with “new money.”

That’s how the incentive system worked at Wells Fargo, allowing workers to get credit for creating unauthorized accounts that were never used and funding those accounts by transferring money from a customer’s real account. The Los Angeles Times first reported on Wells Fargo’s practices in a 2013 investigation.

The letter noted that banks have since tightened their procedures and some are now contacting customers after a new account is opened to make sure they know about the account — something Wells Fargo started doing only after its 2016 settlement with regulators.

Still, Democratic lawmakers were not satisfied with Otting’s refusal to publicly name the institutions, especially since his letter noted that the OCC flagged more than 250 specific problems it wants individual banks to address.

Rep. Carolyn Maloney (D-N.Y.) called that a “staggering” number of issues and said Otting should make public the names of banks where unauthorized accounts were found.

“Your examiners found evidence that there were banks that had opened accounts for customers without their consent, and you decided not to take any public enforcement actions against them?” Maloney asked. “I find that deeply disturbing.”

Rep. Stephen Lynch (D-Mass.) also pushed Otting to name names, saying the agency should punish bad actors and reward good ones.

“Doing the investigation and then not holding people accountable publicly is creating a moral hazard,” he said.

Otting said 250 issues is a small number compared with the roughly 4,000 his agency is tracking at any given time.

Hubbard said that if those matters are not handled in a timely manner, “that may result in additional supervisory or enforcement action, which may include public enforcement actions.”

Otting will likely face similar questions Thursday when he testifies before the Senate Banking Committee.

That panel’s ranking Democrat, Sen. Sherrod Brown of Ohio, said Tuesday that he believes the OCC should not only name the banks where unauthorized accounts were found but also provide information about how those banks plan to correct any consumer harm caused by their practices.

“The public deserves more information on the prevalence of fake account abuses and other sales misconduct at the big banks the OCC reviewed,” Brown said.

Otting, a former Los Angeles bank executive appointed by President Trump last year to lead the OCC, is one of the key players in the administration’s plan to roll back financial regulations that were put in place after the financial crisis — and that critics say have stifled economic growth.

In prepared testimony submitted to the House panel, Otting said he wants to “promote economic growth and opportunity by reducing unnecessary regulatory burden on national banks.”

At a banking industry conference in April, Otting said banks are the OCC’s “customers” and that he wants the agency to be more responsive to their needs, the Wall Street Journal reported.

During Wednesday’s hearing, Otting discussed a few specific goals, including easing or streamlining banks’ reporting requirements for anti-money laundering laws and giving banks a clearer set of goals under the Community Reinvestment Act, a law consumer advocates see as a bulwark against redlining and other discriminatory lending practices.

Otting had a tense exchange with Rep. Michael Capuano (D-Mass.) over the issue of discrimination. Capuano asked Otting if he believes discrimination exists.

Otting replied, “I have personally never observed it, but many of my friends from the inner cities across America will tell me that it is evident today…. I trust those people when they tell me that.”

“So you believe it exists?” Capuano pressed.

“I believe the people who tell me that it exists,” Otting said.

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UPDATES:

1:40 p.m.: This article was updated with hearing details, comments from bank analyst Bert Ely and consumer advocate Ed Mierzwinski, and background on Joseph Otting’s regulatory agenda.

This article was originally published at 11:05 a.m.