Wells Fargo fined for opening millions of fake accounts
Wells Fargo (WFC) has long touted its commitment to customers, with CEO John Stumpf noting a few years ago that it wants people to “see us as trusted financial advisers.” But that reputation could be in jeopardy given the bank’s recent financial penalties for abusive business practices.
On Thursday, Wells was hit with a record fine for covertly opening some 2 million unauthorized customer credit card and deposit accounts, draining real accounts to fund them, and charging fees for services the customers didn’t request.
“Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses,” said Richard Cordray, Director of the Consumer Financial Protection Bureau. “Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed.”
The CFPB’s action comes hard on the heels of revelations that the bank misapplied student loan payments to maximize fee income. Last month, the federal agency slapped a $3.6 million fine on the bank and demanded that it pay $410,000 in restitution to student loan borrowers who allegedly paid inflated fees and charges as the result of the bank’s improper actions. Wells Fargo settled the student loan action without admitting or denying guilt, saying that it disagreed with the CFPB but settled “to put the matter behind us.”
Thursday’s action demands that Wells pay full restitution to all victims and a $100 million fine to the CFPB’s Civil Penalty Fund. The bank will also pay an additional $35 million penalty to the Office of the Comptroller of the Currency, and another $50 million to the City and County of Los Angeles.
Wells said in a statement that the bank has reserved $190 million for the fines and restitution. Prior to entering the settlement agreement, the bank said it hired a third-party consulting firm to review consumer and small business accounts opened since 2011 and found that the improper activity affected “a fraction of one percent” of its customers. It has enhanced employee training and monitoring and took disciplinary actions against “managers and team members who acted counter to our values.”
A bank spokeswoman said 5,000 employees had been terminated as a result of the improper actions, but said she could not comment about whether employee bonuses, which were apparently at the heart of the improper activity, would be rescinded. It was also unclear whether their conduct had any impact on the bonuses earned by Stumpf. The executive was paid $155 million in performance-based compensation between 2012 and 2015, according to the Institute for Policy Studies, a left-leaning think tank.
The CFPB confirmed that thousands of employees were involved.
“Thousands of bank employees found ways to game the system by secretly signing up existing clients for new services that were never requested,” Cordray said. “Money that belonged to customers was moved around without consent, sometimes generating overdraft fees, new account fees and other costs.”
Specifically, the CFPB said Wells employees opened roughly 1.5 million deposit accounts that “may not have been authorized” by customers. The employees then transferred funds from consumers’ authorized accounts to temporarily fund the new, unauthorized accounts.
This widespread practice gave the employees credit for opening the new accounts, allowing them to earn additional compensation and to meet the bank’s sales goals. In the meantime, customers got slapped with overdraft fees and other charges because the money was not in their original accounts.
Additionally, the bank’s own account review found Wells employees applied for roughly 565,000 credit card accounts that also may not have been authorized, triggering annual fees, finance and interest charges. These workers also requested and issued debit cards without consumers’ knowledge or consent, going so far as to fabricate personal identification numbers and phony email addresses, to enroll unsuspecting customers in online banking services without their knowledge or consent.
“Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences,” Cordray added.
In a message emailed to Wells employees Thursday, the company said: “Our entire culture is centered on doing what is right for our customers. However, at Wells Fargo, when we make mistakes, we are open about it, we take responsibility and we take action. Today’s agreements are consistent with these beliefs.”
