The Wells Fargo account fraud scandal was a controversy brought about by the creation of millions of fraudulent savings and checkings accounts on behalf of Wells Fargo clients without their consent. Various regulatory bodies, including the Consumer Financial Protection Bureau fined the company a combined $185 million dollars as a result of the illegal activity.
Wells Fargo clients began to notice the fraud after being charged unanticipated fees and other pay notices and receiving unexpected credit or debit cards. Initial reports blamed individual Wells Fargo branch workers and managers for the problem, and sales incentives associated with selling multiple "solutions" or financial products. This blame was later shifted to a top-down pressure from higher-level management to open as many accounts as possible through cross-selling.
A lack of risk-taking on the bank's part leading up to the 2008 Financial Crisis led to an image of stability on Wall Street and in the financial world, which was tarnished by the widespread fraud perpetrated by the company. The controversy resulted in the resignation of CEO John Stumpf, and an investigation into the bank led by U.S. Senator Elizabeth Warren.
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Background
Cross-selling
Cross-selling, the practice underpinning the fraud, is the concept of attempting to sell multiple products to consumers. For instance, a consumer with a checking account might be pushed to take out a mortgage, or set up credit card or online banking account. Success by retail banks was measured in part by the average number of products held by a customer; Wells Fargo was considered the most successful cross-seller.
Fraud and coverage
Wells Fargo's sales culture and cross-selling strategy, and its effect on customers, were documented by the Wall Street Journal as early as 2011. In 2013, a Los Angeles Times investigation revealed intense pressure on bank managers and individual bankers to produce sales against extremely aggressive quotas. Employees were encouraged to order credit cards for customers who had been pre-approved without their consent, and to use their own contact information when filling out requests to prevent customers from discovering the fraud. Measures taken by employees to satisfy quotas included the enrollment of the homeless in fee-accruing financial products. Reports of inappropriate conduct by employees to supervisors did not result in changes to expectations. In the 2013 article, CFO Timothy Sloan was quoted stating he was unaware of any "...overbearing sales culture". Sloan would later replace John Stumpf as CEO.
After the Los Angeles Times article, the bank made nominal efforts to reform the company's sales culture. Despite alleged reforms, the bank was fined $185 million in early September of 2016 due to the creation of some 1,534,280 unauthorized deposit accounts and 565,433 credit-card accounts between 2011 and 2016. The creation of these additional products was made possible in part through a process known as "pinning". By setting the client's pin to "0000", bankers were able able to control client accounts and were able to enroll them in programs such as online banking. As with fraud revealed in 2014, these efforts were hidden from consumers through the invention or misuse of contact information.
Wells Fargo Online Banking Account Sign In Video
Effects
On consumers
Approximately 85,000 of the accounts opened incurred fees, totaling $2 million. Customers' credit scores were also likely hurt by the fake accounts.
On branch-level employees
Employees who worked at Wells Fargo described intense pressure, with expectations of sales as high as 20 products a day. Others described frequent crying, levels of stress that led to vomiting, and severe panic attacks. At least one employee consumed hand sanitizer to cope with the pressure.
Fines
Wells Fargo was fined $185 million for the illegal activity. The Consumer Financial Protection Bureau received $100 million, the Los Angeles City Attorney received $50 million, and the Office of the Comptroller of the Currency received the last $35 million.
Reaction by Wells Fargo
The bank fired approximately 5300 employees between 2011 and 2016 as a result of fraudulent sales, and discontinued sales quotas at its individual branches. John Shrewsberry, the bank's CFO, said the bank had invested $50 million to improve oversight in individual branches. Stumpf accepted responsibility for the problems, but in September of 2016, when the story broke, indicated he had no plans to resign. Many reacted with surprise both to Stumpf's initial unwillingness to resign and the bank's laying the blame for the problem at the feet of lower-level employees.
Source of the article : Wikipedia
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