Wells Fargo yesterday agreed to pay a total of $185 in fines for scams perpetrated by employees who — “spurred by sales target and incentives” — covertly opened thousands of accounts without customers’ consent and transferred money into them from their existing accounts, “often racking up fees and other charges.”
The settlement, which was announced by the federal Consumer Financial Protection Bureau, breaks out into a record $100 million fine payable to the CFPB’s Civil Penalty Fund, a $35 million penalty to the Office of the Comptroller of the Currency, the primary regulator of savings banks, and another $50 million to the City and County of Los Angeles, which had filed a civil lawsuit against the Sioux Falls, S.D.-based bank last year.
The Los Angeles Times’ E. Scott Reckard published an investigative report about the bank’s “pressure-cooker sales culture” in December 2013. The activities covered in the settlement date back to Jan. 1, 2011.
“It’s outrageous for a bank to use a customer’s private information without permission to open an unwanted account,” Los Angeles City Atty. Mike Feuer said yesterday. “Customers must be able to trust their banks.” He credited the LAT’s story with spurring his investigation, the LAT’s James Rufus Koren reports.
The bank must also “refund all affected consumers the sum of all monthly maintenance fees, nonsufficient fund fees, overdraft charges, and other fees they paid because of the creation of the unauthorized accounts,” according to the CFPB statement. Those refunds are estimated to be “at least $2.5 million.”
“Wells Fargo built an incentive-compensation program that made it possible for its employees to pursue underhanded sales practices, and it appears that the bank did not monitor the program carefully,” CFPB director Richard Cordray charged, Kevin McCoy reports for USA Today.
But “the bank agreed to the filing of a CFPB consent order without admitting or denying legal conclusions reached by federal investigators,” he also points out.
“Analysts have marveled at the bank’s ability to cross-sell mortgages, credit cards and auto loans to customers. The strategy is at the core of modern-day banking: Rather than spend too much time and money recruiting new customers, sell existing customers on new products,” writes Michael Corkery for the New York Times.
“Wells Fargo markets itself as the quintessential Main Street lender, stressing the value of creating long-term relationships with customers over earning a quick buck. But that apple-pie approach was undercut, regulators say, by a compensation program that encouraged employees to push the limits,” Corkery continues.
“It is way out of character for one of the cleanest banks around,” CLSA analyst Mike Mayo, tells him. “It’s a head-scratcher why so many employees felt comfortable crossing the line.”
About 5,300 of them may be asking themselves the same question after receiving termination notices over the past few years for their roles in the scam. But that number “represents about one percent of this workforce over the five year period” when the transgressions took place, a Well Fargo spokesperson pointed out in a statement cited by UPI’s Doug C. Ware.
“At Wells Fargo, when we make mistakes, we are open about it, we take responsibility, and we take action,” CEO John Stumpf said Thursday in a letter emailed to its employees, Ware also reports.
“In 2016, Wells Fargo ranked 7th on the Forbes Magazine Global 2000 list of largest public companies in the world and ranked 27th on the Forbes 500 list of largest companies in the United States, according to Fortune 500 (2016). In 2015, the company was ranked the 22nd most admired company in the world, and the 7th most respected company in the world,” according to Wikipedia.
“It is not unusual for banks to attempt to persuade customers to sign up for multiple products. The industry has been under pressure amid historically low interest rates and tighter banking industry regulations following the 2008 financial crisis and ‘cross selling’ can be profit driver,” points out Renae Merle for the Washington Post. “But, according to regulators, Wells Fargo’s program went much further and the bank did not monitor it closely.”
A headshot of Wells Fargo chairman and CEO Stumpf sits at the top of its “Leadership and Governance” page, accompanied by the following pull quote: “"Integrity is not a commodity. It’s the most rare and precious of personal attributes. It is the core of a person’s — and a company’s — reputation.”