When the news broke Thursday that Wells Fargo had defrauded its customers by opening millions of fake accounts in customers’ names to meet aggressive sales goals, it came as a blow to many.
The Consumer Financial Protection Bureau (CFPB) led the investigation and slapped the banking giant with a $100 million fine, the largest penalty since the CFPB was established in 2011. In addition to the fine, Wells Fargo will pay $35 million to the Office of the Comptroller of the Currency, as well as $50 million to the city of Los Angeles, whose lawsuit against the bank helped uncover the scope of the scam. The bank says it has already begun refunding customers the fees they were charged for “products they may not have requested,” totaling $2.6 million in aggregate.
My relationship with Wells Fargo is older than my marriage. But this latest scandal proves that even the biggest, most profitable banks are not above deceiving their own customers. This time, they’ve crossed a line. Yes, intentionally taking steps to defraud customers is where I say goodbye and take my banking business elsewhere. I’m breaking up with Wells Fargo.
What we know
In addition to the fines paid through the settlement, we know that Wells Fargo terminated more than 5,300 employees, who reportedly worked in an environment where incredible pressure existed to meet sales goals. Those employees opened secret accounts using the identities and funds of real customers to meet those goals, in an effort to be rewarded with bonuses. Sometimes, employees opened online banking accounts using fake email addresses and PIN numbers, all without the customer’s knowledge or consent. When Wells Fargo opened unauthorized accounts for its customers, these accounts often generated fees and penalties, so customers were being nickel and dimed for accounts they didn’t even know they had.
What we don’t know
When the news emerged, I contacted Wells Fargo’s corporate headquarters to seek comment on this situation. Specifically, I asked whether affected customers would be notified. I also wanted to know what measures would be taken to ensure something like this never happens again.
A Wells Fargo spokesperson provided a lengthy response attempting to downplay the scope of the problem, which has actually been going on for years. While Wells Fargo wants you to know that it hired a third party consulting firm to identify which accounts going back to 2011 were unauthorized, it has been reported that the outside audit didn’t begin until sometime after the bank was sued by the City of Los Angeles in May 2015.
Wells Fargo wants us to keep in mind that accounts receiving refunds represented less than one percent of the accounts audited, so when viewed as a percentage of its overall business, only a small fraction of its customers were affected. When viewed any other way, the opening of an estimated 1.5 million deposit accounts without consent and processing of an additional 525,000 credit card applications by employees is significant.
In other words, knowing that many more customers were unaffected than affected doesn’t give me any comfort. In reality, the lack of rhyme or reason to which customers were selected means that any one of its customers was a potential target at any given time. The behavior is egregious and contemptible.
The bank announced that customers entitled to refunds have already received them, and that most refunds average $25. A spokesperson told me customers receiving refunds were informed either by letter or on their statement.
That’s right — the bank said “or,” not “and.” That means if you’re like me, a customer who has opted out of paper statements and reviews her account information online, you’d have to actually click on the statement PDF each month and detect a refund, somehow putting two and two together about what the refund signifies.
“If we learn of any additional customers that require refunds,” the spokesperson added, “we will make those refunds promptly.”
That statement implies that the bank may not have identified all the dummy accounts that “may not have been requested” by customers.
Taken in its entirety, the bank has shifted the burden back to the customer to ensure that you have no unwanted accounts, or that you never had any unwanted accounts. I’m as thorough as the next person, but taking the time to go back through 60 months of statements for multiple accounts is more time than I’m willing to spend investigating the matter. I’ll simply ask the question when I visit Wells Fargo for the last time — to close all accounts.
A relentless sales culture
The response from Wells Fargo’s spokesperson placed a strong emphasis on the new training programs the company has instituted to address both ethics and transparency in customer service. That’s good. They should do that.
But let’s consider the likelihood of successfully changing corporate culture. There’s no way 5,300 employees came up with the idea to open fake accounts in isolation. Tellers and their managers had to collude to pull this off, and had to train newcomers in the dark art of deception.
As a Wells Fargo customer, for years I made twice-monthly deposits at the drive up window of a branch near my office. And for years, tellers frequently offered a credit card or money market account through the drive up speaker, which I politely declined every time. Being offered a credit card was so common that if an offer wasn’t extended, I felt like I had gotten away with something.
Then one day in March 2013, an intruder broke into my home while I was at work. Although I was 20 minutes away at my office, suspicious online activity alerted me to the fact that someone was using my home computer. The sheriff’s department confirmed that there was a break-in at my house and told me to come home immediately.
During that long drive home, my mind was racing, not knowing what to expect when I got there. I wanted some sense of control in a frightening and uncertain situation, so I called Wells Fargo to let them know what was going on. I imagined they would surely know what to do and could freeze my accounts, protecting my money.
When I dialed the toll-free number on the back of my debit card, the Wells Fargo representative reviewed the balances on my accounts, which thankfully were as expected. She told me she could cancel my debit card number, but that any additional changes to the accounts would have to take place in a branch the next morning.
Without missing a beat, the representative then asked me if she could take a moment of my time to review products and services that I qualify for. “Um … No … Now’s not a good time,” was likely my polite reaction to her request. But now that I’ve recovered from the traumatic burglary, and in today’s current context, I’d like to once and for all loudly proclaim how inappropriate and insensitive the proposed sales pitch was. Suffice it to say, crisis management is not one of the company’s strengths.
When I went to the branch the next morning to close all accounts and transfer funds to new accounts, the banker was sympathetic and caring. In fact, she even offered me identity theft protection, which I declined. I didn’t turn down identity theft protection because I didn’t think it was needed, but because at the time all South Carolina residents were covered by state-financed identity theft protection following a data breach at the Department of Revenue. In truth, Wells Fargo was offering me a product I didn’t need. Besides, Wells Fargo’s identity theft protection now appears to be something akin to the fox guarding the hen house.
The CFPB is needed more than ever
The CFPB, created in 2011 to protect consumers from unfair practices by banks, lenders and other financial companies, has been met with strong criticism from Republicans. Just last year, Sen. Ted Cruz (R-TX) publicly shared his desire to shut down the CFPB, calling it a “runaway agency that does little to protect consumers.” Republican presidential candidate Donald Trump agrees with Cruz, saying he would “abolish” the agency, allowing the free market to reign. Democratic presidential candidate Hillary Clinton applauded the CFPB’s action, saying in a statement that the case is “a stark reminder of why we need a strong consumer watchdog to safeguard against unfair and deceptive practices.”
For its part, when speaking of the record $100 million fine levied against Wells Fargo, CFPB Director Richard Cordray says it “reflects the severity of these violations, the breadth of the unfair and abusive practices, and how seriously we take them.”
Wells Fargo can do what it will to try to minimize the fallout from its own actions. The same banks that caused the economic crash eight years ago and received billions in government bailouts are now bigger than ever before. Unchecked, Wells Fargo scammed its customers in an outrageous fashion until the CFPB investigated the bank’s practices and put an end to it.
Despite engaging in practices that are shockingly deceptive, fraudulent, unfair and illegal, there have been no arrests made in connection with this investigation. Although no senior leadership has been fired, Wells Fargo’s head of community banking, Carrie Tolstedt, stepped down in July citing “personal” reasons, taking $125 million with her. The bank will pay its $185 million in fines. While $185 million is a big number, for a bank with $1.9 trillion in assets, this fine is small enough to be considered the cost of doing business.
I wish them well. From now on, they simply won’t have my business to chase after.