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Speaker 1: In September of last year, Wells Fargo agreed to pay

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Speaker 1: five million dollars to resolve federal claims that employees secretly

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Speaker 1: open millions of banking credit card accounts without approval from

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Speaker 1: the customers. That settlement was just the beginning of what

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Speaker 1: looks to be an expensive period of legal turmoil for

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Speaker 1: the bank. Last week, well said it's legal costs might

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Speaker 1: be as much as three point three billion dollars, more

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Speaker 1: than what the company had already set aside. To talk

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Speaker 1: more about Wells Fargo's legal woes, we have John Coffee,

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Speaker 1: a professor at Columbia Law School. Jack, thanks for joining us.

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Speaker 1: Always good to have you on the show. Um, let

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Speaker 1: me start with that fake account scandal. Um, how close

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Speaker 1: is Wells to putting that particular issue behind it? Well,

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Speaker 1: it's increasingly looking like they are less complete and the

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Speaker 1: story is more to go than we originally imagined. Uh.

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Speaker 1: You know, the conventional wisdom among public relations specialists and

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Speaker 1: lawyers is you want to get the bad new is

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Speaker 1: out in one big release and then say we're putting

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Speaker 1: this behind us, it will never happen again. Instead, bad

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Speaker 1: news is dribbling out from all corners at this firm UH.

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Speaker 1: And probably the most discouraging discouraging news, which you just mentioned,

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Speaker 1: is a mayor summary for the second quarter. They have

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Speaker 1: just said that the additional regulatory course maybe as much

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Speaker 1: as three point three billion. Now that's up from what

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Speaker 1: they estimated at the end of the first quarter. So

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Speaker 1: what happened between the end of March and the end

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Speaker 1: of June and July that's suddenly making you say it's

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Speaker 1: up six they're learning, they're still troubles out there, and

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Speaker 1: we've seen stories come out from all over suggesting that

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Speaker 1: some of the old problems are still continuing. Yeah, let's

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Speaker 1: talk a little bit about those those news stories of

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Speaker 1: you know, we we have the issue about UH getting

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Speaker 1: people to buy auto insurance they don't need. There's a

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Speaker 1: settlement involving overcharging veterans on mortgage and financing. There's an

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Speaker 1: issue of a lawsuit involving denying loans to UH immigrants.

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Speaker 1: Is there one of those that strikes you as as

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Speaker 1: the most significant and engage explained it well. Some suggest

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Speaker 1: that the old business model is still continuing wells Fargo's

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Speaker 1: basic problem was their model was built on cross selling,

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Speaker 1: opening additional accounts, charging additional services and that of course

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Speaker 1: could produced all those bogus accounts. But the auto insurance

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Speaker 1: story that's still continuing suggests that some five hundred thousand

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Speaker 1: customers that's not a small number, unwittingly purchased auto insurance

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Speaker 1: on cars when they sought mortgage loans for the cars.

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Speaker 1: Many of them already had insurance on the cars, and

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Speaker 1: most of them didn't know they were getting this insurance.

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Speaker 1: That sounds like the old cross selling pattern that still

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Speaker 1: hasn't stopped and needs to be clamped down on a

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Speaker 1: little bit more firmly. My Crack producer David Sutterman just

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Speaker 1: sent me a story saying that there's a new law

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Speaker 1: suits on that issue filed by California's insurance regulator Regulator

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Speaker 1: UH involving saying that that Wells Fargo charge company customers

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Speaker 1: for policies they didn't request, or should we expect to

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Speaker 1: see more of this sort of stuff states and well,

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Speaker 1: there's a variety of ways that you can sue over this.

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Speaker 1: In some cases, this may affect your credit rating. You'll

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Speaker 1: have a problem there and you may be responsible for

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Speaker 1: an impaired credit rating for the customer. The veterans loans

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Speaker 1: you were defrauding the government because the government picked up

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Speaker 1: and uh guaranteed the loans of these veterans. So you

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Speaker 1: have people going back several steps who have sort of

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Speaker 1: these contingent claims. We have a problem with the immigrants

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Speaker 1: because California law and federal law doesn't allow you just

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Speaker 1: qualify immigrants from any kind of service. Um. So again

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Speaker 1: they have possible standing, and the court just refused to

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Speaker 1: dismiss that claim. So I think those three claims are

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Speaker 1: the ones we know about. We do know that they

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Speaker 1: are massively refashioning their hierarchy. There's something like seventy senior

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Speaker 1: managers have been let go this year, people who were

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Speaker 1: had the title of president or vice president of various divisions.

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Speaker 1: So they are trying to change their structure to make

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Speaker 1: it a little bit more flattened. So bad news may

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Speaker 1: get to the top quicker, but there still is an

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Speaker 1: awful lot of information that may be lurking at the

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Speaker 1: lower levels that hasn't percolated up yet. So we're in

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Speaker 1: this era where there's an expectation, in perhaps the reality

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Speaker 1: that the Trump administration might have a lighter regulatory touch

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Speaker 1: than the Obama administration did. Would you anticipate that will

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Speaker 1: help Wells navigate through all these issues. I would expect

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Speaker 1: that they have a lot less concern about the SEC

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Speaker 1: imposing heavy penalties on them. The SEC, in fact, has

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Speaker 1: decreased its penalty levels over the first six months of

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Speaker 1: this year by a very substantial margin. But there is

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Speaker 1: the private legal system and the veterans sued federal court,

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Speaker 1: the auto insurance cases are getting a variety of lawsuits

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Speaker 1: being brought, maybe including the California Insurance Department, and the

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Speaker 1: immigrants have a civil rights suit. So I think the

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Speaker 1: private litigation can still continue. And something caused them to

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Speaker 1: raise by their projection of worst case scenario costs for

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Speaker 1: regulatory compliance is going up to additional three point three

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Speaker 1: billion at SI jump. Is the real surprise here, and

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Speaker 1: it's not fully explained. Jack only about thirty seconds, But

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Speaker 1: I wanted to ask you because Laura Laura Keller, Bloomberg

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Speaker 1: News banking reporter, just just said told us a moment

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Speaker 1: ago that of that three point three billion dollars, the

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Speaker 1: biggest chunk may actually be coming not from the consumer side,

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Speaker 1: but from mortgage related issues. Are we talking about the

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Speaker 1: wrong things here? Is there is there much bigger threat

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Speaker 1: to Wells Front. I think mortgage relater issues can involve

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Speaker 1: the same practice of hidden fees. You've got the mortgage

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Speaker 1: or to take out a mortgage with you, and you

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Speaker 1: charge some fees. It weren't fully disclosed and we're hidden.

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Speaker 1: That's the cross selling problem that seems to have continued.

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Speaker 1: And again I think we are seeing a company that's

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Speaker 1: trying to change its ways. They are reorganizing themselves. They

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Speaker 1: did do a decent report and removed their CEO and

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Speaker 1: the executive vice president of the community bank. But I'm

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Speaker 1: afraid you have to get down to the lower levels

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Speaker 1: where there still maybe a variety of practices that no

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Speaker 1: one wants to confess to, and it will take a

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Speaker 1: more complete investigation. Okay, I wanna thank Jack Coffee Johnt Coffee,

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Speaker 1: professor at Columbia Law School talking to us about the

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Speaker 1: legal issues facing Wells Fargo. Still dealing with the fallout

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Speaker 1: from the creation of those fake accounts and uh now

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Speaker 1: apparently a number of other issues