As a result of stricter rules passed in the aftermath of its fake accounts scandal, the city of Los Angeles is set to replace Wells Fargo as its main banking partner with Bank of America and JPMorgan Chase, according to a report approved by a City Council committee Monday
Los Angeles Mayor Eric Garcetti in July 2018 signed an amended Responsible Banking Ordinance that requires any bank that bids for the city’s contracts to disclose its sales goals and other potentially predatory business practices, and the City Council in December 2017 also approved new language for a request for proposals for banks.
Both moves were in response to 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, and the recommended change to Bank of America and JPMC was outlined in a report by the Office of Finance and approved by the Budget and Finance Committee.
“It’s a long time coming and we are finally getting to this spot, and I think it’s a good place to be,” Councilman Bob Blumenfield said.
The city is contracted with Wells Fargo through June but the Office of Finance recommended extending the agreement through June 2020 so it would have more time to work out details with the new banking partners.
The amended ordinance requires 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.
The new request for proposal includes “social responsibility” factors that are weighed when the city considers proposals from banks and includes things like a bank’s commitment to environmental causes and its 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.
Eight financial institutions responded last year to the city’s new request for proposals, the Office of Finance said, but Wells Fargo was not one of them.
Bank of America and JPMC consistently ranked either first or second in many service categories outlined in the request, according to the Office of Finance.
In order to be considered for the contract, respondents to the RFP needed a minimum overall CRA rating of at least “Satisfactory,” both nationally and in California. Bank of America and JPMC both have a national CRA rating of “Satisfactory,” and a rating of “Outstanding” in California, the Office of Finance said.
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.
Union Bank was recommended to continue handing the city’s Neighborhood Council Funding Program.
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