User:MainlyTwelve/2016 Wells Fargo account fraud controversy

The 2016 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.

Due to 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.

Background

Wells Fargo's sales culture and cross-selling strategy, and its effect on customers, was documented as early as 2011. A 2013 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.

The bank made nominal efforts to reform the company's sales culture. Despite these efforts and the publicity received in 2013, the 2016 legal action and subsequent fine cited that some 1,534,280 unauthorized deposit accounts and 565,433 credit-card accounts were created by Wells Fargo employees. The creation of fake deposit accounts was made possible 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.

Reaction

Response from Wells Fargo

• responded by removing sales goals
• 5300 fired

References

• Ross Sorkin, Andrew (12 September 2016). "Pervasive Sham Deals at Wells Fargo, and No One Noticed?". The New York Times. Retrieved 6 May 2017.
• Levine, Matt (9 September 2016). "Wells Fargo Opened a Couple Million Fake Accounts". Bloomberg. Retrieved 6 May 2017.
• Davidson, Adam (12 September 2016). "How Regulation Failed with Wells Fargo". The New Yorker. Retrieved 6 May 2017.
• Merle, Renae (14 September 2016). "Federal prosecutors launch probe into Wells Fargo's sales tactics". The Washington Post. Retrieved 6 May 2017.
• Corkery, Michael (8 September 2016). "Wells Fargo Fined $185 Million for Fraudulently Opening Accounts". The New York Times. Retrieved 6 May 2017.
• Roberts, Deon (17 September 2016). "What's next for Wells Fargo after 'image has been shattered'?". Charlotte Observer. Retrieved 6 May 2017.
• Olen, Helaine (8 September 2016). "Wells Fargo Must Pay $185 Million After Opening Customer Accounts Without Asking. That's Not Enough". Slate. Retrieved 6 May 2017.
• Cowley, Stacey (16 September 2016). "Wells Fargo Warned Workers Against Sham Accounts, but 'They Needed a Paycheck'". The New York Times. Retrieved 6 May 2017.
• Reckard, E. Scott (21 December 2013). "Wells Fargo's pressure-cooker sales culture comes at a cost". The Los Angeles Times. Retrieved 6 May 2017.
• Smith, Randall (28 February 2011). "Copying Wells Fargo, Banks Try Hard Sell". The Wall Street Journal. Retrieved 6 May 2017.

Consumer Financial Protection Bureau fines

In September 2016, Wells Fargo was issued a combined total of $185 million in fines for creating over 1.5 million checking and savings accounts and 500,000 credit cards that its customers never authorized. The Consumer Financial Protection Bureau issued $100 million in fines, the largest in the agency's five-year history, along with $50 million in fines from the City and County of Los Angeles, and $35 million in fines from the Office of Comptroller of the Currency. The scandal was caused by an incentive-compensation program for employees to create new accounts. It led to the firing of nearly 5,300 employees and $5 million being set aside for customer refunds on fees for accounts the customers never wanted. Carrie Tolstedt, who headed the department, retired in July 2016 and received $124.6 million in stock, options, and restricted Wells Fargo shares as a retirement package. On October 12, 2016, John Stumpf, the then Chairman and CEO, announced that he would be retiring amidst the controversies involving his company. It was announced by Wells Fargo that President and Chief Operating Officer Timothy J. Sloan would succeed, effective immediately. Following the scandal, applications for credit cards and checking accounts at the bank plummeted dramatically. In response to the event, the Better Business Bureau dropped accreditation of the bank, S&P Global Ratings lowered its outlook for Wells Fargo to negative from stable, and several states and cities across the US ended business relations with the company. An investigation by the Wells Fargo board of directors, the report of which was released in April 2017, primarily blamed Stumpf, whom it said had not responded to evidence of wrongdoing in the consumer services division, and Tolstedt, who was said to have knowingly set impossible sales goals and refused to respond when subordinates disagreed with them. The board chose to use a clawback clause in the retirement contracts of Stumpf and Tolstedt to recover $75 million worth of cash and stock from the former executives.

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