Give Wells Fargo the Corporate Death Penalty

In fact, we have a recent example. In May, when mortgage servicing corporation Ocwen Financial was found to have no ability to actually complete the tasks of mortgage servicing, Massachusetts barred the company from doing so in the state. Ocwen is fighting the order in court, arguing that it will “cause significant harm” to consumers. But Ocwen supplied the harm for years in Massachusetts by failing to process escrow payments, imposing unnecessary charges and fees, and forcing borrowers into delinquency and foreclosure. Massachusetts’ Division of Banks simply rejected the notion that the state was held hostage to a company that failed in its basic bargain to citizens.

The most frequent argument against the corporate death penalty is that the pain will come down on relatively innocent employees and shareholders, who did nothing to facilitate the mismanagement but will lose their jobs or their fortunes as a result. The business lobby always invokes the example of Arthur Andersen, the auditing firm that imploded after a series of accounting scandals involving Enron and WorldCom in the early 2000s.

But the work of auditing public companies didn’t disappear when Andersen went out of business, and the new auditors needed experienced professionals to manage those services. Many Andersen employees took those jobs. As for shareholders, the risk of a corporate death penalty should inspire active governance practices to protect their investments. If investors know they could lose everything if the company they’re funding violates the law, maybe they’ll hire board members who will actually watch over the business. That would serve everybody better.

Furthermore, the idea that collateral damage should govern whether criminals are convicted breaks with all concepts of justice in other contexts. We don’t send a murderer home because his family relies on his salary.

There’s a hitch to making Wells Fargo the lead example of banning corporate recidivists. Big banks that are members of the Federal Reserve System are chartered at the federal level. In 2003, California actually tried to revoke Wells’ licenses for mortgage lending, due to a dispute over charging excessive interest. But Wells argued that federal law trumped state law, and they could not be kicked out of any state due to that federal charter. In 2005, a federal appeals court agreed.

While this may inoculate Wells Fargo from losing state privileges, it doesn’t mean that blue states shouldn’t take up the effort. First of all, a new challenge could raise new issues and find legal success. Second, Wells Fargo and the agency that grants federal bank charters, the Office of the Comptroller of the Currency, should have to defend why the banks deserve the untrammeled right to screw over checking account customers, mortgage customers, and now auto-loan customers. And finally, we desperately need to expose the public to the reasonable concept that a serial corporate criminal should be barred from continued abuse.

Revealing the virtual shield over Wells Fargo could generate the public outcry necessary to alter how states grant charters, and build support for more corporate accountability. When the people hear that a company engaged in demonstrable, widespread theft is protected from justice, when they hear that a corporation using our roads, our electrical wires, and our publicly educated workers can illegally profit with effective impunity, perhaps then they will demand change. Forcing this conversation into the public sphere might be the only spur available to broadly re-think our relationship to corporations, and the need to protect the integrity of the law by putting bad ones out of business.