Wells Fargo CEO John Stumpf apologizes to Senate Banking Committee
Wells Fargo will pay $185 million to settle allegations of “widespread illegal practices” in which employees secretly opened accounts to meet sales targets and receive bonuses, federal regulators announced Thursday.
Employees for the San Francisco-based bank opened more than 2 million deposit and credit card accounts that may not have been authorized by consumers, regulators said, citing the bank’s own analysis. The civil settlement is a black eye for a company that has long touted its corporate values as well as its ability to sell more products to its customer base.
Wells Fargo’s violations resulted in the Consumer Financial Protection Bureau imposing a $100 million fine, the regulator’s largest penalty ever. Wells will also pay a $35 million penalty to the U.S. Office of the Comptroller of the Currency, which regulates national banks, and another $50 million to the City and County of Los Angeles, which had filed suit over the practices.
The nation’s third-largest bank by assets created an incentive program for employees that allowed them to carry out “underhanded sales practices,” and then apparently did a poor job of monitoring its staff, CFPB Director Richard Cordray said in a call with reporters.
“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 said.
The conduct at Wells, which affected hundreds of thousands of customers, was not confined to one state or region, Jeff Ehrlich, deputy enforcement director at the CFPB, said.
During the agency’s examination, the bank fired about 5,300 employees for such conduct, he said.
Under the settlement, Wells must provide $5 million to customers to cover any unnecessary charges or fees they incurred.
Los Angeles City Attorney Mike Feuer said his office began investigating Wells Fargo after a 2013 Los Angeles Times story on the bank’s sales practices. That probe led to a lawsuit accusing the bank of high-pressure sales goals that encouraged unfair, illegal and fraudulent conduct, such as issuing unwanted credit cards to customers.
The case centered on cross-selling, a practice used by Wells Fargo and some other banks to get existing customers to buy more products.
“It’s a major breach of trust if a bank transfers funds without the consent of consumers from an existing account to an unauthorized one,” Feuer said. “Any consumer should be outraged by that conduct.”
In reaching Thursday’s accord, Wells Fargo did not admit or deny allegations.
In a statement Thursday, the bank said it “reached these agreements consistent with our commitment to customers and in the interest of putting this matter behind us.”
The bank also said it is “committed to putting our customers’ interests first 100 percent of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request.”
Wells Fargo said it has taken steps to address the regulators’ concerns, including undertaking an extensive review going back to 2011 of consumer and small-business retail banking deposit accounts and unsecured credit cards opened during that period. A third-party consulting firm completed the review prior to the settlements, the bank said.
As a result of the review, the bank said it has refunded $2.6 million to customers for fees associated with products they may not have requested. Refunds averaged $25.
The CFPB’s action Thursday was the latest against Wells Fargo. Last month, the agency fined the bank about $4 million in relief and civil penalties for illegal fees and other practices tied to the bank’s servicing of private student loans.
Incentives face scrutiny
Wells Fargo entered eastern U.S. markets in 2008, when it bought Charlotte-based Wachovia. It has its largest employee base in Charlotte, with more than 23,000 employees, and it’s the second largest bank in the metro area by deposits.
In July, the bank named Mary Mack, a Charlotte-based former Wachovia executive, to lead its community banking group, succeeding Carrie Tolstedt. The bank said Tolstedt had decided to retire at the end of the year.
In recent years, Wells Fargo has sought to distinguish itself in the marketplace as a leader in cross-selling, regulators said Thursday. The bank, unlike some of its peers, highlights its cross-selling prowess by disclosing each quarter how many products its customers have per household. The bank has also used slogans like “Eight is Great” to further emphasize its cross-selling push.
On Thursday, regulators said cross-selling is a common and accepted business practice, when based on strong customer satisfaction and excellent customer service. But, they said, Wells Fargo failed to monitor implementation of its compensation incentive programs with adequate care.
Cordray said the agency has seen similar problems spurred by incentive compensations programs in debt collection and in credit card add-on products in the banking industry.
“This is something that we will continue to look very carefully at,” he said.