Wells Fargo Has Banned Staff From Investing in P2P Lending

Businessman with his hand raised in signal to stop, isolated on black background, Studio shot

[Update March 14, 2014: Wells Fargo decided to reverse this ban on employee involvement in p2p lending.]

Really interesting news story today from the Financial Times (free registration required). Their journalists, Tracy Alloway and Arash Massoudi, have discovered that Wells Fargo has put in a policy that bans its employees from investing their own money in p2p lending platforms. Here is the crux of the article:

Wells Fargo has banned its employees from lending their own money through peer-to-peer loan platforms, in a sign of growing tensions between new “P2P” lenders and the largest US bank by market value.

“Ethics administrators” at Wells Fargo decided to forbid staff from P2P lending after concluding “that for-profit peer-to-peer lending is a competitive activity that poses a conflict of interest”.

What does this all mean? If you are a Wells Fargo employee it is very clear. No more new money is allowed to be invested into Lending Club, Prosper or any other online lending platform. For the rest of us it means the first acknowledgement of the impact that this industry could have on traditional banking.

I think this marks another step in the coming of age for p2p lending. It is no longer too small to be ignored. I would love to hear your thoughts on this.


  1. Andrew Johansen (Randawl) says

    Are those same employees also banned from putting their money in BB&T or any other bank? By definition that would be a competitive activity as they are competitors, too. What about that conflict of interest?

    Although Wells Fargo is the first, I suspect they will not be the last. . .

  2. says

    How will WFC detect whether an employee has a P2P account? Just don’t use their network or computers to do your investing. This is a silly policy, in my opinion, but I’m glad to see that a giant bank is afraid of LC. Makes me want to buy their IPO even more.

    • says

      This is going to be very hard to police – I imagine it is somewhat of an honor system. It would be an invasion of privacy to go through employee tax returns and even then you wouldn’t catch IRA investments.

      • Dennis DeGreef says

        There are federal regulations that prohibit employees of security firms to hold accounts outside of the broker/dealer without prior compliance approval, and major banks have agreements with one another to exchange lists of employee information for the purpose of checking if anyone is holding equity trading accounts outside the firm. Generally I don’t think this apply to OTC investments like Member Dependent Notes but is really more of a equity trading concern. I think this is an interesting development, more so because I don’t think it directly stems from a regulator requirement. Banks do typically try to force employees to use their own products, it’s an easy way for them to get a customer because they can literally require in their “policies” that you use their products. I once worked for a major bank that actually required me to open a checking account there just in order to get my paycheck!

      • says

        It may be bold by Wells Fargo but it is also hypocritical and stupid if you ask me. They can’t tell employees not to invest in Lending Club and at the same time have them as a client. I see an ethical issue there.

        And putting your head in the sand never really works well – the publicity generated by a move like this only damages the Wells Fargo brand.

        • GS says

          Yeah, I was going to mention this. I thought I had read in the past that LC used Wells Fargo to hold our idle cash …. “interest free”. Thanks for pointing that out.

          • RawRaw says

            Anyone who has worked in finance knows these type of rules are not uncommon. I bet P2P would’ve already been indirectly covered in their ethics agreements, but now it is front and center. Having staff “steal” loans is always a concern of a bank.

  3. says

    This is extremely exciting, I am presenting to 170 investors tomorrow, and I will be asking the question, “is this fair?” UK banks are equally nervous and we are hearing of restrictions being put on bank customers use of Peer to Peer platforms, never mind employees!

    • says

      Interesting – I am a Wells Fargo customer (my business checking account is there) but I am afraid if they want me to stop my p2p lending investments I will be closing that account down. I don’t think they will be that stupid.

  4. Aimee says

    Lending Club has their trust account at Wells Fargo, according to the prospectus. I would think Wells Fargo could pretty easily find out who was investing by looking at their own accounts. Ironic that they hold LC’s accounts to their advantage yet forbid their employees from taking any advantage of p2p lending. More reason to dislike mega banks.

    • says

      It is indeed ironic that they are happy to make money from LC on the one hand but ban their employees from participating on the other hand. If they really want to take the high road they should recuse themselves from all dealings with the platforms.

  5. CJ says

    Since Folio is a member of FINRA they would be held under Rule 407, and if WFC requested it they would have to report all statements and trading activity of WFC employees to WFC. Any WFC employees looking to circumvent the rules would have to be very careful not to use Folio for any reason or run the risk of being “found out”.

    I don’t know what the penalties would be, but to lose your job over a few thousand dollars in interest would make little sense. Also without the use of Folio it means your are effectively in a very strict 3-5 year lockup period on any newly invested funds.

  6. Tyrel says

    Really? Since when can your employer decide what you do with your own money? Once they’ve paid you, you can do whatever the heck you want with your money. I don’t see how this kind of policy would hold up in a court.

    • larry ventura says

      At least in the US, employees of financial services companies are under numerous investing restrictions. In some cases, traders have to pre-clear PERSONAL investment moves with the compliance dept. Other types of transactions are outright banned. At least in the US, your employer has all kinds of say in your life, even when you are home. Try badmouthing your employer during off hours and see how that works out.

  7. GS says

    Wells Fargo also offers tradition “stock and bond” investment accounts. I wonder if they have banned their employees from using etrade, scottrade, vangaurd, etc.

    • CJ says

      It’s not uncommon for financial firms to have “directed brokerage” policies where if you wanted to buy/sell exchange traded products you can only do so with specific brokers.

      It’s much easier to keep track of employee investment activity that way.

  8. Fred says

    One “reasonable” explanation that I can think of is if WFC is now working as an underwriter on LC IPO. This would not only be a conflict of interest, but also a potential insider-trading issue.

    • says

      That is certainly possible although I have heard any mention of their name as one of the underwriters of the IPO. But I hope you’re right.

      But as Emmanuel and Simon pointed out above the fact that this story has gone public has caused more publicity for Lending Club and Prosper than I have seen in several months.

  9. Phillip McFarland says

    This is a ridiculous policy but show’s that P2P Lending is here to stay and is becoming competitive with banks. Eventually I believe P2P Lending will offer even lower rates as to become the “go-to guys” for loans without having to think twice.

    Peter still doing great writings. Glad to be back from Korea and back in the stream of things.

  10. says

    This is a very logical move for them and I can understand it. In the video posted above it is accurate to indicate that most companies have non-compete type clauses in their employment policies. I must say that I was surprised by the clarification to specifically state P2P lending.

    Although I do think it is all a little silly in reality…. Does Wells Fargo not allow their employees to hold bank accounts at other banking institutions as well? This would be direct support of the competitor…. Just sayin’

  11. David Weinstein says

    For a long time, Lending Club had the name of the borrowers’s employer in their History File. I conducted analysis on the companies of borrowers and as a class, there were a sizable number of borrowers from big banks. And guess who was on the top of that list? Wells Fargo. Can they stop that also?

    • says

      Interesting. I think it would be much tougher for them to stop this on the borrower side because Wells does not offer an installment loan product. I am no lawyer but I think they could legally add that requirement for their employees if they chose to.

  12. Jairr says

    The fact that Wells can institute such a policy and will likely get away with this, certainly indicates to me that we are clearly emerging into late degenerative capitalism. If you work for Ford, does that give Ford the right to control the vehicle you buy?

    • says

      I am not sure what policies are at other companies but I think if you went to the parking lot at Ford headquarters you would see close to 100% Fords. While I am not defending Wells Fargo, personally I think this is a really dumb move, companies can and do put all kinds of strange rules in place for employees.

  13. Kevin says

    I find this horrible. It’s my money and I should have the right to choose how to invest it. I would never consider becoming a Wells Fargo employee because of this news.

    • says

      You are not alone Kevin. This is a bad move in so many ways I think not the least of which is that they have drawn far more attention towards p2p lending than if they had just taken a neutral stance.

  14. Celine DeCaprio says

    Is this any worse than their lenders secretly hired by other banks and working for both while stealing clients to follow them to their new bank??? Sounds like not many of the WF employees know what ethics are!!! Not surprising!!

  15. James Wood says

    How is what people do with their personal money, as long as it is legal, any of their employers business? Live and let live.

    Ironically I’ll be leaving Wells Fargo soon and moving to a Credit Union. I setup accounts with WF and was explicit that I wanted no fees, TWICE in the last 18 months they have changed conditions and started charging fees. I have 30k with them and they are charging me fees again on two accounts. The result is moving from a negative infglation adjusted rate to a negative absolute interest rate. Enough is enough.

    More and more of us are voting with our feet and dollars and moving away from traditional banking for both our day to day banking and investments.


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