Wells Fargo Penalized for Illegal Sales Practices

On September 8, 2016, federal regulators fined Wells Fargo $185 million for illegal sales practices; these fines included a record $100 million paid to the Consumer Financial Protection Bureau, $35 million to the Office of Comptroller of the Currency, and $50 million to city and county of Los Angeles. The fines were imposed after employees falsely opened about 1.5 million bank accounts and applied for 565,443 credit cards without customer knowledge or consistent, according to federal regulators.

These practices have been alleged to reflect Wells Fargo’s cross-selling culture and compensation model of incentivizing the opening of new accounts. Employees told regulators that they felt intense pressure from management to open as many accounts as possible. Thousands of employees allegedly opened sham accounts without customer authorization and moved small amounts of money to them in order to meet sales goals, then closed the accounts and moved money back. Additionally, staffers created fake email addresses to enroll in online banking. As a result of the scandal, Wells Fargo has fired over 5,300 employees and has announced it will drop sales goals for retail bankers. Also, the bank has agreed to refund $5 million in fees it improperly charged customers as a result of these sham accounts, of which it has already paid $2.6 million. Though the financial harm to individual customers was not great, as it only averaged $25 per account, these practices demonstrate a lack of control and a negative internal culture.

In addition to these actions by regulators, federal prosecutors in New York and San Francisco have launched investigations to determine what role senior officials within the bank played in directing employees to falsify documents. Though U.S. attorneys have not decided to pursue a case, a criminal prosecution would be a serious escalation. A criminal prosecution by the Justice Department could lead to more severe penalties and charges against individual employees.

Attribution of image: Xnatedawgx (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons

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Jake Steele is a sophomore at Georgetown University studying finance and management. During his time at Consumers’ Research, he has examined developing trends in finance and technology.

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