Burgess releases alternative bill to cut ties with Wells Fargo

Earlier this month, Council member Tim Burgess let it be known that he was working on an alternative version of a bill, introduced by Council member Kshama Sawant, that cuts the city’s ties with Wells Fargo and raises the bar for the “social responsible business practices” of the city’s banking services vendors. This morning he shared his version with his fellow Council members and the public. And in a surprise move, Sawant embraced it.

Here’s my previous summary of Sawant’s bill.

Many people — particularly Sawant’s allies and followers — generally expect Burgess to try to “water down” her bills, by softening provisions and adding what they see as “loopholes.” In this case, however, Burgess actually wrote a stronger, more ambitious bill; whereas Sawant’s focuses on banking and investment services under contract by the city, Burgess’s alternative bill raises the bar on business practices for all city contracts. To that end, where Sawant’s bill extends the definition of “socially responsible banking” (a term used in the existing ordinance to require the bank to make specific investments in community programs) to include refraining from unsavory business practices, Burgess wrote a whole new section of the city’s procurement laws to define “unfair business practices” and with a single line applied them broadly:

No contractor on a City Contract shall engage in unfair business practices.

Burgess’s bill empowers the Director of the city’s Finance and Administrative Services Department (FAS) to define the criteria for both how a bidder’s business practices would be evaluated, and the ongoing processes for ensuring that contractors do not engage in unfair business practices. FAS would also develop “contractual remedies” for transgressions; those might include termination of the contract and disqualification from bidding on future contracts for up to five years.

Burgess also pays respect to parts of Sawant’s bill by copying some provisions intact. That includes an update to the city’s statement of preference for contractors that seek to benefit the common good and not simply to maximize profit, by calling out fair business practices as another preference.

Burgess’s bill, like Sawant’s, directs the Mayor and FAS to give notice to Wells Fargo that the city will not be renewing its banking services contract when it expires in December 2018; Burgess’s version requires “immediate notice” while Sawant’s simply asks for “advance notice.”

Burgess’s bill takes a different approach in barring additional business with Wells Fargo: it bars cash investments in Wells Fargo securities for the term that the bank is under an enforcement order of the Consumer Financial Protection Bureau. Sawant’s bars that or “any other banking business with Wells Fargo or its subsidiaries.” Sawant’s also calls on the Mayor and FAS to negotiate a “voluntary debarment” agreement with Wells Fargo, and Burgess’s doesn’t contain that language. On the other hand, Burgess’s gives FAS much more independent authority to make rules that unilaterally do what Sawant is asking for, and potentially much more. And Burgess explicitly expands the grounds for debarment — again, for all city contracts, not just banking — to include failure to comply with fair business practices. That would allow FAS to move forward, unilaterally, with an Order of Debarment against Wells Fargo now; no need to negotiate it or make it voluntary.

Burgess’s bill isn’t perfect. FAS has enormous discretion — perhaps too much — in interpreting the restrictions it places on Wells Fargo and in how fair business practices should be enforced, including the ability to waive requirements if FAS determines that a restriction on a business practice for a specific contract is not in the best interest of the City of Seattle. That kind of discretion is great if you trust the people in FAS who are making those decisions; if you don’t, then it is an opportunity for abuse. Burgess’s bill also doesn’t specify an appeals process for FAS’s rulemaking or decisions related to fair business practices, and the combination of wide discretion and vague or nonexistent appeals is worrisome.

Burgess also rewrote the recitations and the findings of fact at the beginning of the ordinance. His version includes very specific references to the multitude of consent orders, enforcement orders, and legal judgments against Wells Fargo. It’s quite the rap sheet:

B. In September 2016, the Consumer Financial Protection Bureau issued a final Consent Order (File No. 2016-CFPB-0015), the Office of the Comptroller of the Currency issued final Cease and Desist, Civil Money Penalty and Restitution Orders (File Nos. 2016-077 and 2016-079) and the City and County of Los Angeles reached a stipulated final judgement in its lawsuit People v. Wells Fargo & Co., et al., Los Angeles Superior Court, Case No. BC580778, (collectively, the “Orders”) requiring Wells Fargo to pay restitution and a total of $185 million in civil penalties to all three enforcement agencies for fraudulently opening more than two million unauthorized consumer deposit and credit card accounts.

C. Wells Fargo has been the subject of additional enforcement orders during the last two years, including two more Consumer Financial Protection Bureau orders (File No. 2016- CFPB-0013 (August 2016) and Case No. 1:15-cv-00179-RDB (February 2015)), involving findings that Wells Fargo engaged in illegal private student loan servicing practices and an illegal marketing-services-kickback scheme with a title company, and one Office of the Comptroller of the Currency order (File No. 2016-082 (September 2016)) involving findings that Wells Fargo engaged in violations of the Servicemembers Civil Relief Act. These orders resulted in Wells Fargo paying approximately $48 million in civil penalties and restitution to students, servicemembers and other mortgage borrowers.

Sawant’s version of the bill mostly just refers to news reports — some vague — of Wells Fargo’s misdeeds, including their investment in the Dakota Access Pipeline project. Burgess instructed the Council’s staff to collect the actual legal documents related to Wells Fargo’s transgressions and include them in the clerk’s file for the bill so that the reasons for cutting ties with Wells Fargo are thoroughly substantiated and documented.

In a nod to pragmatism, neither version attempts to terminate the city’s current banking services agreement with Wells Fargo before its expiration at the end of 2018.  In past Council deliberations, it was made clear that switching the city over to a different banking services vendor is complicated business and will take months. Knowing that they will need to switch in December of 2018 means that they will start to plan for it (and issue an RFP) later this year.

Also, neither bill addresses whether the city should attempt to switch to a credit union rather than a large corporate bank, or to take the more ambitious step of setting up its own municipal bank. Sawant has made public statements that she would favor such an approach; Burgess has been quiet on the topic.  Currently state law places severe restrictions on the institutions that the city may contract with for banking services, and there are no credit unions that qualify; however, loosening those restrictions are apparently a topic of discussion in Olympia at the moment.

Overall, Burgess’s bill does essentially everything that Sawant’s does, and much more since it extends the fair business practices requirement to all city contracts. Technically it also seems better constructed. It does rely heavily on the discretion of the Director of FAS, and the Council may choose to make some changes there.

This morning in the Council Briefing, Sawant announced that she will be abandoning her own bill and co-sponsoring Burgess’s bill, in an effort to have a single draft bill to move forward. She thanked Burgess for “re-drafting” her bill, though she did note that she will be offering a few amendments on Wednesday, including:

• re-inserting language noting Wells Fargo’s investment in the Dakota Access pipeline. Sawant noted that the Trump administration is fast-tracking the pipelines, so the activists feel the need to fast-track the response. She said the activists are asking for the bill to be voted out of committee this Wednesday so it can be approved by the full Council next week. Given Burgess’ push to raise the bar on documenting allegations, it’s unclear how he will respond to Sawant’s effort to use this bill as a weapon in the fight against DAPL. Note: Burgess’s bill does reference the City Council’s resolution proclaiming its support for the Standing Rock Sioux Tribe and noting that Wells Fargo’s investment in the pipeline is “contrary to the City of Seattle’s values.”
• re-inserting a change in the evaluation of banking services bids such that socially responsible banking practices will be a factor worth at least 20% (it’s currently 15%).  Herbold noted that she supports this change.

Sawant’s amendments are still going through legislative review, but should be available before the committee hearing on Wednesday.