The ” Rinse-Repeat Cycle ”
CFPB Director Rohit Chopra has coined this phenomenon of long-term regulatory violations a “ rinse-repeat cycle .” It makes sense — Wells Fargo has more than 10 years of history with regulatory violations , with quite a few of them being the same issues over and over . Despite actions against the bank , Wells Fargo continues to find themselves in predicaments where there are millions of dollars in fines hanging over their head .
This vicious cycle feeds itself , like most regulatory compliance violations . What often happens is a financial institution begins to offer a new product or service , but does not expand its compliance measures fast enough to match the growth of the new product or service . Sometimes the financial institution has other incentives leading to violations . For example , spreading out insufficient loan payments between a consumer ’ s different loans to maximize late fees , rather than paying off a single loan in one payment , simply because one payment couldn ’ t cover the total amount of all loans .
No matter the cause of the violation , the financial institution then is cited for non-compliance and is fined or penalized , which can be costly . Suddenly , the financial institution not only has inadequate training and compliance programs for some products and services , but also now owes potentially millions of dollars in penalties for the violation . For large financial institutions like Wells Fargo , like Director Chopra previously stated , requiring such a large amount in redress payments and penalties is an initial step for “ accountability and longterm reform .”
Large penalties impact the way financial institutions view their products and services , and can alter the importance of certain types of training and management . If a product or service is especially costly to implement and is further implemented in a way that violates the law , the financial institution may be incentivized to begin offering additional products and services to “ make up ” for any lost revenue . Like the first non-compliant program , there is the likelihood the new product or service will also have inadequate training and management , leading to not only one , but two programs which are in violation of the law . This may have been what happened to Wells Fargo in fall 2016 , when the bank began an employee incentive program to hit sales targets and figures after the CFPB uncovered an illegal kickback scheme earlier in the year , costing them a total of $ 35.7 million and dropping their share price from about $ 45 to $ 37 until early 2017 .
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