Wells Fargo Illegal Accounts Scandal
Banks have worked long and hard to re-establish their reputations after the financial meltdown of nearly a decade ago. Some banks had less to do with it than others and many of the worst offenders are no longer around, but there is no doubt that the entire financial system was shaken by bad decisions made by a handful of financial institutions.
At the core, we want to trust the companies we bank with. We want to feel good about depositing money with them and feel good about our overall relationship. I used to work for a bank writing mortgage loans and know how personal that process is. When people would feel good about the bank and the loan then everything would go smoothly. If they began to feel uneasy, then things became more complicated.
Over 2 Million Phony Accounts
Well, what if you were to find out that employees at your bank opened up unauthorized accounts in your name? That is what happened millions of times at Wells Fargo. Today a settlement was announced where the bank is being fined $185 million for infractions that include, “Opening up roughly 1.5 million deposit accounts that may not have been authorized by consumers.”
The Consumer Financial Protection Bureau states in their release that employees would transfer money from a consumer’s legitimate account in order to receive credit for opening the new account. This helped the bank meet sales goals, but often consumers would get hit with fees since the money wasn’t in the original account where it was supposed to be.
In addition to the 1.5 million deposit accounts, employees opened up about 565,000 credit card accounts that may not have been authorized by consumers. As you may have guessed, consumers unknowingly accrued finance and interest charges on these accounts and yes employees received compensation for opening them.
The CFPB also found that employees issued debit cards and even created PINs without consumers having any knowledge of what was going on. Employees also created fake email addresses to enroll consumers in online banking. My guess is there was some sort of bonus for that as well?!?
The Penalty
According to the Los Angeles Times, Wells Fargo has agreed to pay up to $185 million in fines. $100 million goes to the CFPB (their largest fine issued to date), with $35 million going to the Office of the Comptroller and another $50 million going to local officials. The company is also expected to pay up to $5 million in restitution to consumers who were harmed by these practices.
In addition to monetary penalties, Wells Fargo has been ordered by the CFPB to hire an independent consultant to review its procedures. According to the CFPB, “Recommendations may include requiring employees to undergo ethical-sales training and reviewing the bank’s performance measurements and sales goals to make sure they are consistent with preventing improper sales practices.”
Wells Fargo Fires 1% of Workforce
Finally, while the company has not admitted fault and has said this practice was not widespread, they did issue an apology to consumers. Additionally, they have fired 5,300 employees for engaging in shady behavior according to CNN Money. To put that into perspective, the firings represent about 1% of Wells Fargo’s entire workforce. I would call that fairly widespread.
Conclusion
When companies push their employees to perform and don’t implement safeguards to protect customers, you get results like this. Remember, while the higher ups at Wells Fargo most likely didn’t know what was going on, they benefited from these inflated sales numbers which is why they pushed for them in the first place. This is just my opinion, but if I had my personal or business accounts with Wells Fargo, I would probably be considering a new place to move my money.
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[…] to the settlement they made. This class action lawsuit was in response to Wells Fargo fraudulently opening accounts in their customer’s names, without their knowledge, to pad their new account stats. I […]
So what restitution is there from this? My wife’s business was signed up for a CC against her will. A year later, we received a notice of annual fee and late charges. Very annoying.
The 1% firing statistic gives Wells-Fargo an imputed total of more than 500,000 employees. GM has fewer than 225,000 US workers. No wonder banks are in trouble.
I doubt the impact to the consumer was that big at all if only $5 million or like 3% of the total fines were restitution. This seems more like a political ploy because we all know that opening a Wells Fargo CC without a banking relationship is no walk in the park.
The managers and supervisory staff will be promoted or shuffled around until this scandal blows over. The only ones getting fired are the front line staff who were pushed to make these quotas by the managers and supervisory staff. Anyone that matters already made their money off of this scam – fire the lowly 1% and then on to the next scam. Business as usual.
Few points of clarification:
1. The firings of over 5K employees happened over 5 years, not one big firing as headlines are implying
2. The pushing of additional products (cross-selling) to current clients was the core business strategy of senior managers on which they built their reputation, compensation and investor fan base like Warren Buffett. The number of products per client was the number one metric senior managers highlighted to the investor community on an ongoing basis.
3. Over 2 million fraudulent account openings and multiples of that in actual transactions indicates management negligence or deliberately turning a blind eye.
4. Of course, the management has indicated this event is not material to the company, and no senior manager is suffering any consequences. Business as usual!
What does this have yo do with points?
It has to do with a major bank that many people do business with. This blog isn’t just about points. It is about miles, points, travel, family, credit cards, credit, life, technology and probably much more that I forgot to mention. Oh and Wells Fargo does have points. They are called Go Far Rewards.
Lets do the math 1.5 M fake checking accounts and 565k fake credit card accounts totalling 2.065 M accounts. The company is expected to pay up to $5 million in restitution to consumers who were harmed by these practices.
That translates to $2.42 on average of losses for customers. So at the end of the day Wells Fargo didn’t really make much money from this scam. But it did hand out bonuses and I bet the bonus increase over the 5 year period was more than 5M.
So if Martians arrived on earth and they saw what is going on they will be quite perplexed.
Bank employees faked 2M accounts.
Bank earned (and customers lost) less than 5M in fees from these accounts.
Bank gave 10’s or 100’s of millions in incentive bonuses to its employees faking the account.
Bank paid 185M to various government institutions and lawyers.
Bank gave back the 5M to its customers.
Some obvious questions….
WHY WOULD WELLS FARGO GIVE 10’S OR 100’S OF MILLIONS IN BONUSES TO OPEN ACCOUNTS WHICH NETTED ONLY 5M IN INCREMENTAL FEE REVENUE ?
WHY WOULD GOVERNMENT INSTITUTIONS KEEP 97.4% OF THE PENALTY THEY GOT FROM WELLS AND ONLY GIVE 2.6% TO THE CUSTOMERS WHO ACTUALLY SUFFERED ?
THE WORLD IS FULL OF SURPRISES
This story is hilarious.
My wife worked in the banking industry briefly and was always at a loss as to why management at her bank and the competing WellsFargo were always shoving new account opening quotas on their tellers. Wife mainly worked drive-through as a entry-level teller and was berated for not selling enough new accounts through the glass window or through the speaker/tubes to 2nd & 3rd stalls.
When her 2 immediate supervisors were failing at making their store quotas, they actually fired my wife (and the next 2 people that replaced her) for not meeting this impossible demand.
We promptly found a new bank, but this happened already back in 2009. Surprising it took this long to surface in the form of a ‘scandal’. We could see the writing on the wall way back then with the greed and pushing of un-needed accounts. Wondering when the competing banks with a similar quota system will be brought to light as well.
And these banks then moan about regulation? Please.
Good thing there’s no mention of WF firing thousands of customers for making a living off of 5x cards haha.
Just a wild guess but this investigation may be what lead them to find the 5X stuff.
probably. I bet many people were getting bonuses for all the $200k+ per month spenders.
One question: where was the supervision of these employees?
They were making huge bonuses.