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.

Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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Andrew Johansen (Randawl)
Andrew Johansen (Randawl)
Jan. 20, 2014 11:13 pm

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. . .

B. Mason
Jan. 21, 2014 12:01 am

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.

Dennis DeGreef
Dennis DeGreef
Jan. 25, 2014 10:08 am
Reply to  Peter Renton

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!

B. Mason
Jan. 21, 2014 12:05 am

Maybe I’ll open a checking account solely for the purpose of sending and receiving funds to LC just to irritate them.

writing2reality
Jan. 21, 2014 9:56 am
Reply to  B. Mason

Brilliant Bryce! Time to reopen my old account there just for the sport of annoying them.

On a serious note, this is tremendously surprising and quite bold of Wells Fargo.

GS
GS
Jan. 21, 2014 11:26 am
Reply to  Peter Renton

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
RawRaw
Jan. 22, 2014 9:30 am
Reply to  GS

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.

Simon Cunningham
Jan. 21, 2014 1:32 am

This is what things look like before they get really really interesting.

Bo Brustkern
Bo Brustkern
Jan. 21, 2014 10:10 am

Touche. I think the RIAA tried to take the same position with respect to music. In the end, the consumer won.

Lee Birkett
Jan. 21, 2014 1:47 am

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!

Jayson
Jayson
Jan. 21, 2014 6:04 am

Excellent idea B.Mason

Aimee
Aimee
Jan. 21, 2014 8:39 am

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.

Bryce M.
Jan. 21, 2014 10:59 am
Reply to  Aimee

That’s true. The trust account is there. I wonder if using that data for any other purpose than for banking would be illegal.

CJ
CJ
Jan. 21, 2014 9:44 am

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.

Tyrel
Tyrel
Jan. 21, 2014 10:29 am

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
larry ventura
Jan. 22, 2014 4:47 pm
Reply to  Tyrel

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.

GS
GS
Jan. 21, 2014 11:30 am

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
CJ
Jan. 21, 2014 11:53 am
Reply to  GS

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.

Danny S
Danny S
Jan. 21, 2014 1:27 pm

I predict a legal challenge coming to this policy.

Emmanuel
Jan. 21, 2014 1:38 pm

Pretty smart move… if they wanted to give some publicity to Lending Club!

Rob L
Rob L
Jan. 21, 2014 5:32 pm

The guy in the photo looks like he’s a member of the Supremes (“Stop in the Name of Love”) …

Fred
Fred
Jan. 21, 2014 11:11 pm

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.

Sean Murray
Jan. 23, 2014 8:03 am

Wells Fargo is just the first of many that will follow suit.

Phillip McFarland
Phillip McFarland
Jan. 23, 2014 5:18 pm

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.

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

Keltset
Jan. 24, 2014 1:28 pm

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’

David Weinstein
David Weinstein
Feb. 7, 2014 12:14 pm

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?

Jairr
Jairr
Feb. 7, 2014 10:32 pm

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?

Kevin
Kevin
Feb. 11, 2014 1:09 pm

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.

Celine DeCaprio
Celine DeCaprio
Mar. 9, 2014 8:54 pm

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!!

James Wood
James Wood
Apr. 2, 2014 2:03 pm

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.