Wells Fargo Bank yesterday was hit with a massive enforcement action by federal and local regulators over “widespread unlawful sales practices” at the banking and finance giant, allegations that many of the company’s employees had for years established fake deposit and credit card accounts in customers’ names without their consent.
The civil charges, filed jointly by the Consumer Financial Protection Bureau, the City Attorney of Los Angeles and the Office of the Comptroller of the Currency, stems from a Los Angeles City Attorney suit filed in May 2015, which charged the banking and financial services holding company of pressuring employees to commit acts of fraud.
According to the CFPB, more than two million deposit and credit card accounts may have been created by thousands of Wells Fargo employees nationwide, allegedly signing up customers for financial services they never authorized in a bid to boost employees’ sales figures. This includes up to 1.5 million phony deposit accounts — where employees allegedly transferred customers’ funds without their consent, and in many cases, created fake customer PIN numbers and email addresses — as well as applications for more than 560,000 unauthorized credit cards, more than 10,000 of which allegedly incurred a number of fees.
Fines totaling $185 million were levied at the bank yesterday. This includes a $100 million penalty issued by the Consumer Financial Protection Bureau — the heftiest in that U.S. government agency’s history — as well as $50 million in fines from the City and County of Los Angeles and $35 million from the Office of Comptroller of the Currrency. Wells Fargo must also pay full remediation to all consumers who incurred fees associated with financial products that were sold to them without their knowledge. These refunds are expected to total “at least $2.5 million,” according to the CFPB.
A consulting firm hired by Wells Fargo in light of the Los Angeles City Attorney’s initial suit last year conducted an internal review that analyzed consumer and small business retail banking deposit accounts and credit cards going back to 2011. That internal review, which was completed prior to yesterday’s settlement announcement, resulted in Wells Fargo refunding $2.6 million to customers for fees associated with products “they may not have requested,” according to Wells Fargo in a statement. Accounts refunded represented “a fraction of one percent of the accounts reviewed,” according to Wells Fargo, with refunds averaging $25.
CNNMoney reported today that 5,300 Wells Fargo employees have been terminated over the last several years as a result of its findings. Wells Fargo would not confirm with the New York Times yesterday regarding whether any senior management had been fired as a result of the findings.
In a Thursday statement on the regulatory action, the CFPB cited a lack of internal oversight at Wells Fargo, coupled with a high-pressure sales culture, where employees were pushed or incentivized to cross-sell financial products to consumers — credit cards, loans, or additional accounts — as a means of meeting sales goals.
The CFPB statement read: “In recent years, the bank has sought to distinguish itself in the marketplace as a leader in ‘cross selling’ these products and services to existing customers who did not already have them. When cross selling is based on efforts to generate more business from existing customers based on strong customer satisfaction and excellent customer service, it is a common and accepted business practice. But here the bank had compensation incentive programs for its employees that encouraged them to sign up existing clients for deposit accounts, credit cards, debit cards, and online banking, and the bank failed to monitor the implementation of these programs with adequate care.”
The CFPB was established as a result of the 2010 passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which was signed into federal law in response to the 2008 financial crisis.
In a press statement, Wells Fargo confirmed its settlement agreement with regulators and asserted that it had refunded customers who incurred unnecessary fees. In a separate statement posted to its website, the bank said “we truly regret and take full responsibility for any such instances.” Both statements detailed new enforcement measures the bank is now taking to ensure such fraudulent incidents don’t happen again. Those steps include an enhanced retraining of employees and the implementation of new monitoring protocols. The bank will also now begin sendig automated emails to Wells Fargo customers after a checking or savings account is opened, as well as application acknowledgements and decision status letters when customers apply for a credit card.
Wells Fargo’s communications department did not respond to repeated requests by O’Dwyer’s for a comment on this story.
San Francisco-headquartered Wells Fargo, which had 8,700 retail branches as of December and about 40 million retail customers, is currently the largest U.S. bank by market value, with nearly two trillion in assets. It was founded in 1852.