Wells Fargo is facing a fine of $185 million courtesy of the Consumer Finance Protection Bureau. For the past five years, thousands of Wells Fargo employees collectively participated in a scam to systemically defraud and abuse its customers. Bank employees created new accounts for customers using fake email addresses, issued credit cards without customer consent, and set up sham accounts. In many cases, customers only became aware of the scheme when they received credit or debit cards they hadn’t applied for, or were hit by overage charges on an account they didn’t know existed.
The problems at Wells Fargo are tied to a company culture that values cross-selling products across the entire range of services that the bank offers. Already have a checking account? Wells Fargo wants to sell you a credit card or a home mortgage. Need a car? Wells Fargo wants to handle your auto loan. This strategy has been widely described as key to the bank’s success and a major component of its earning strategy. Unfortunately, these strengths were kept afloat by internal reward programs and quota targets that pressured sales associates to “find” new sign-ups and accounts whether the customers in question knew what they were being signed up for or not.
Currently, it’s estimated Wells Fargo employees created 565,000 false credit cards, and at least some people may have been damaged by overage charges they didn’t know existed. Shahriar Jabbari sued Wells Fargo last year, according to the New York Times, after seven accounts were created in his name and without his consent. Monthly fees associated with those accounts were assessed, which resulted in unpaid overage charges that were then reported to financial institutions as unpaid debts. The end result was that Mr. Jabbari ended up being chased by debt collectors for debts he had not agreed to incur.
The plan, as practiced by several thousand Wells Fargo employees, seems to have been to sign up new customers for an account, move a small amount of money into that account, and then close the account and transfer funds back several days later. This way, the rep gets to count the account opening towards their own goals and the consumer, theoretically, is none the wiser.
Wells Fargo has let go of a staggering 5,300 employees related to the scheme and will pay $35 million to the Office of the Comptroller of the Currency and $50 million to Los Angeles (LA city attorneys worked on the case). The stock has only moved minimally since news of the scandal broke — despite its size, the fine amount is basically a rounding error for the bank.
This last point underscores the difficulty of holding huge corporations accountable for their actions. Wells Fargo’s aggressive cross-selling strategy led to this problem, but it’s also credited with earning the bank billions in revenue. For a company like Wells Fargo, an occasional fine for blatant fraud and abuse is nothing more than a cost of doing business — easily outweighed by the tremendous profits the bank has earned from its cross-selling strategy.