Sizzle/Fizzle: In Banking, Truth as Currency

If you were in the market for a credit card or looking to sell a house, this past week was a good one, as rewards points on the former, and prices for the latter were both up. If you were a bank, on the other hand, finding a silver lining to the news that data was fudged and settlements were in the offing proved a bit harder.

Sizzle

Housing: The wealth effect, with stocks at new highs and with wages on the upswing, may be responsible for pending home sales at multi-month highs. The growth has been significant in most areas, at mid-single digit increases year over year. And, in addition, home prices themselves are up more than five percent even in the face of rising interest rates.

Samsung: Looking to reinvent the smartphone — no small feat. Samsung this past week debuted the S8 and now spans the gamut between more biometrics, and Bixby is designed to streamline the experience of interacting with the phone itself. Oh, and Samsung Pay is up to 240 million users and nearly 900 banks across the globe.

Consumers: The end user is the one that benefits from the burgeoning war over loyalty and rewards points. American Express is boosting its points bonus by a few tens of thousands of points — with an attendant spending boost, of course, from consumers. This comes in the face of JPMorgan slashing its own points offer on Sapphire cards.

Fizzle

Citizens Bank: Data deluges mean that “bad” data or falsified data is rather quickly outed. In the case of Citizens Bank, false data about appointments tied to the firm’s “Citizens Checkup” program surfaced, and losses are likely to continue at the bank. The stock dropped right alongside the news, down a few percentage points, outpacing losses seen in the KBW Banking Index year to date.

Big Banks and Brexit: A roadmap is needed as reality begins to take shape and Britain exits the EU. Big banks are not quite sure, it seems, what will happen to their positions — physical and otherwise — in London. The jury is also still out as to whether London will remain Europe’s banking capital. That might impact not just office space, but lending activities and even FinTech. The future is hazy at best.

Fraud At Non-Bank ATMs: We all know that fraud of all stripes is on the rise. But at non-bank ATMs, fraud is on a stratospheric ascent. You know non-bank ATMs — the ones at the convenience store or the drug store that are sometimes a little suspicious. FICO estimates that that type of malfeasance has helped compromised debit cards rise 70 percent in 2016.

Fizzle Of The Week: A Bad Run For Big Banks

It’s been a rough — and expensive — week for some of the world’s biggest banks. Between the legal settlements with customers, settlements with states’ attorneys general and the loss of share value, the lesson of the week has been pretty clear.

“Alternative Facts” is not a good business practice if you are in financial services.

The team at Wells Fargo already knows this of course — since the revelation in late 2016 that employees, responding to a toxic sales culture, had opened millions of fraudulent bank and credit card accounts for customers who didn’t actually want them.

Since that revelation, Wells Fargo has enjoyed a six-month lesson in why fraudulently using customer information doesn’t pay. Learning experiences have included $185 million in fines and penalties from regulators (including the CFPB) and a few rounds of public excoriation for its executives on Capitol Hill. Some heads even rolled: The five main players who had served as senior managers in the consumer business were either fired or demoted, and John Stumpf, the CEO of Wells Fargo at the time the scandal broke, was forced to resign from the board.

Unsurprisingly, the bank has also made some changes to prevent future incidents of this kind. Its sales incentive structure has been modified so that creating fake accounts is no longer the best way to get ahead.

And this week, Wells announced that it has come to a settlement agreement with customers whose personal information their staff used to set up fake bank and credit card accounts.

“We want to ensure that each customer impacted by our sales practices issue has every opportunity for remediation, and this agreement presents an additional option,” Wells Fargo Chief Executive Officer Tim Sloan said in a statement. “We continue to encourage customers to contact us directly so that we can act quickly to refund fees and address any concerns.”

Federal officials, notably, are still taking shots at Wells.

The settlement of the consumer class-action case comes after Wells Fargo faced a near total meltdown from legislators when it tried to avoid the courts entirely — and instead tried to push individual litigants in the case into closed-door arbitration.

“The $110 million settlement, if approved, will require Wells Fargo to repay the fees charged to class members by Wells Fargo for unauthorized accounts and provide millions of dollars of additional monetary relief to the class,” Derek Loeser, a lawyer for the plaintiffs, said in the statement. “We believe this is an outstanding result obtained for the benefit of a proposed nationwide class, notwithstanding Wells Fargo’s effort to block the class action with an arbitration clause.”

A federal panel of jurists is slated on Thursday to consider whether all consumer cases against the bank should be consolidated before a single judge.

And while Wells had the most expensive week last week, they weren’t the only major banking player writing big checks.

Santander Consumer USA Holdings, Inc. will pay nearly $25 million to two U.S. states — $22 million to Massachusetts and $2.87 million to Delaware — to resolve predatory subprime auto loan allegations. Santander was accused of abusive practices and rate charging. Massachusetts Attorney General Maura Healey in her press conference on the settlement referenced the story of a family who ended up owing $10,000 on a $750 loan.

“I think the scope of the settlement and the kind of relief we’re getting could be used as a model for other jurisdictions,” Healey told Bloomberg News, adding that $16 million of the total will go to consumers.

Auto lending is big business for Santander — it is $38.5 billion of the bank holding company’s $137 billion in assets, and it has recently caught the eye of several regulators.

Last week, the Federal Reserve told Santander to increase oversight of its subprime auto lending, giving the bank two months to put together a plan ensuring that all levels of the bank’s staff are instructed to improve the bank’s compliance with federal consumer protection laws.

Santander has recently created an Officer of Consumer Practices to ensure that customers are treated fairly, and Santander spokesperson Ann Davis believes that necessary changes have been made — or are on their way to being made.

“The work necessary to address the new agreement is well under way and will not require a significant change to our plans,” she said.

And finally, rounding out the Hall of Shame this week is Citizens Bank and why it is not a great thing when employees start telling the press they lied about an important internal program.

The tempest in Citizens’ tea kettle started when some branch workers told a newspaper reporter that they had provided false information to Citizens Bank about the company’s “Citizens Checkup” program.

And just in case you wondered how much damage a little employee gossip can do : Citizens saw its stock price drop 1.5 percent overnight — bringing the year’s losses to 3.2 percent.

A spokesperson for Citizens issued a statement following this news breaking to the public: “We believe that the program is effectively managed and our data is accurate. Nevertheless, we take every allegation seriously, and we’ll conduct a thorough review.”

So the lesson of the week, for those who want to avoid such fizzles? Stick to the real facts.

‘Til next week.