New rules requiring banks wanting to partner with Los Angeles to disclose information on their business practices and sales goals were approved Tuesday by the City Council.
The Wells Fargo fake accounts scandal triggered the move to amend the city’s Responsible Banking Ordinance by requiring commercial and investment banks that seek city business to disclose any pending government investigations into their practices and to certify that they have written whistleblower protection policies for their employees.
The amended ordinance, which still needs to be signed by Mayor Eric Garcetti to become official, would also require banks to certify whether they are in compliance with all applicable consumer protection laws; whether they set or allow individual or branch-level goals or requirements for the sale of a consumer financial service; whether they consider the quantity of an employee’s sales of consumer financial products and services as a basis for the employee’s advancement, discipline, termination or compensation; and whether they have policies, protocols and training in place at both the employee and management levels to help prevent the abuse of sales of consumer financial services and products.
Councilman Paul Koretz co-introduced the motion that led to the draft ordinance.
“While I’m still a bit disappointed that we haven’t been able to draw a brighter red line between the good actors and the bad actors for the purpose of this city’s banking business, I think… these amendments provide us with tools that are likely to weed out the industry’s worst offenders,” he said last week when the council’s Budget and Finance Committee signed off on the amended ordinance.
Koretz and some other council members had originally sought to ban banks with which the city does business from having sales goals, but had to accept only requiring disclosure of sales goals after being told by city staff last year that the rule would be too difficult to monitor and could eliminate all bidders.
“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 last year.
The city’s efforts to change the information it gets from 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. The city does the majority of its banking with Wells Fargo through roughly 800 different accounts.
The council in December also approved new language for a request for proposals for banks. The new RFP rules include “social responsibility” factors that will be weighed heavily when the city considers proposals from banks.
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.
In a 2016 settlement 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 amended ordinance was approved on a 12-0 vote.