Wells Fargo Fined for Opening Unauthorized Accounts
One of the reasons financial experts recommend checking your credit report regularly is to make sure that nothing unusual, suspicious or false is on it. Sadly, this advice rings true, as the Consumer Financial Protection Bureau (CFPB) is fining Wells Fargo for doing just this.
Last week, the CFPB imposed its largest penalty ever, assessing a $100 million fine to Wells Fargo for "unlawful sales practices." These practices could be tied to the bank's employee compensation program that included having specific sales targets for selling current bank customers on other Wells Fargo products, including deposit accounts, debit cards, online banking and credit cards.
According to the CFPB's charge, thousands of employees decided that the way they'd meet their sales goals for cross-selling product was to illegally enroll customers for these services or products without telling the customers or getting their consent. This inadvertently made Wells Fargo a leader in the industry for cross-selling products.
This scheme went on for at least five years, as Wells Fargo didn't have any monitoring system in place to make sure the new accounts were legitimate. During this time, Wells Fargo estimates that its employees opened over two million deposit and credit card accounts without customers' knowledge.
"Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses,” said CFPB Director Richard Cordray, in a statement. "Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed. 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."
While the majority of these unauthorized accounts were deposit accounts, around 565,000 of them were credit card accounts that Wells Fargo employees opened, not necessarily with the account holder's permission. The accounts weren't all for the same type of card. Some of them had annual fees, finance charges and interest rate charges that were levied unbeknownst to the customer.
The CFPB is ordering Wells Fargo to pay back customers in full for any charges and fees that accrued from these accounts, dating back to January 1, 2011. This is estimated to be $2.5 million. Wells Fargo also has to pay a $100 million penalty and hire an independent consultant to review its procedures and ensure its employees are acting ethically and abiding by proper sales practices. On top of that, other government agencies and offices are imposing $85 million in other penalties that the bank must pay.
Wells Fargo has responded by eliminating the product sales goals program that encouraged this behavior. This measure will take effect January 1, 2017. "Our objective has always been and continues to be to meet our customers’ financial needs and drive customer satisfaction," said CEO John Stumpf, in a statement. "We are eliminating product sales goals because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers."
Although that's Stumpf's line, the Senate Banking Committee will hold a hearing next week to learn more about Wells Fargo's scheme and how to prevent it in the future. Senator Bob Menendez of New Jersey along with other members of the committee requested the hearing.
"The magnitude of this situation warrants thorough and comprehensive review,” the Senators wrote in a letter to Banking Committee Chairman Richard Shelby. "Specifically, the committee should thoroughly examine this issue, including: how it is possible that more than 5,000 employees could bilk customers over the course of five years; the timing, extent, and disposition of customer complaints; whether Wells Fargo’s sales and compensation structure incentivized employees to engage in deceptive and abusive practices; and what additional safeguards may be needed to prevent this type of behavior."
The senators are requesting testimony from Stumpf, Los Angeles County Attorney Mike Feuer, CFPB Director Richard Cordray and Comptroller of the Currency Thomas J. Curry.