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Wells Fargo corruption illustrates need for tougher oversight

The stunning Wells Fargo scandal is the latest example of a long history of bad behavior by the company, leaving little doubt that a toxic culture has seeped its way from the top through many tentacles of the financial giant.

To meet sales goals and earn incentives, Wells Fargo employees created millions of unauthorized, fake accounts, potentially hurting customers’ credit scores, or charging them extra fees and interest.

It took too long, but finally, Wells Fargo chief executive John Stumpf retired Wednesday. Taking over for Stumpf is long-time Wells Fargo executive Timothy Sloan, who is part of the corporate culture and executive team, and will have to prove he won’t be more of the same. The U.S. Department of Justice should continue its investigation and determine whether top executives, including Stumpf, should face civil penalties or criminal charges.

Wells Fargo has been accused repeatedly of bad business practices, only to move on with few consequences, except to customers and employees. There are claims the company made predatory mortgage loans to homeowners in precarious financial positions. There are claims it fined student-loan borrowers illegally, that it certified loans were federally insured when they weren’t, and that it charged African-Americans and Hispanics higher mortgage rates and fees regardless of qualifications, in what is known as reverse red-lining, which has lasting impacts across neighborhoods. Many claims weren’t proven in court, or Wells Fargo settled without admitting fault. Each time, the firm kept growing, and little changed.

Wells Fargo is one of the largest banks in the country, with 265,000 employees and $1.8 trillion in assets. In the years before the 2008 crash, Wells Fargo issued thousands of mortgages annually for Long Island homeowners, including hundreds of the subprime, or high-cost, variety. Thousands of Long Islanders with Wells Fargo loans ended up in foreclosure. And it still has local bank branches, mortgage offices and a financial-services presence. This isn’t just an issue for a California bank. It affects us, here, too.

While Stumpf’s retirement is a good step, it’s mostly employees on bottom rungs, whistleblowers, stockholders and customers who have paid the price. In the latest scandal, Wells Fargo admitted no wrongdoing and paid a $185 million fine — barely a drop when considering its $23 billion profit. A spokesman said the company wants to regain customers’ trust and has ended retail bank sales goals. But that’s not enough. The consequences have to be greater. The company’s culture should be transformed, and truly new management put in place.

And while regulators did their jobs well here, reports indicating the practices dated to 2005 show a need for more oversight. Congress has to give the Office of the Comptroller of the Currency, the Consumer Finance Protection Bureau, and other regulators more teeth, money and personnel. Communication between them has to improve, too.

It’s been eight years since the financial crisis devastated Wall Street, the banking industry, and so many jobs and lives. Yet, absurdly, we are still talking about scandals in large firms. Without swift, sweeping change, it’ll happen again. This time has to be different. — The editorial board