For years we have wondered why Wells Fargo, America’s largest mortgage lender, is also Warren Buffett’s favorite bank. Now we know why.
On Thursday, Wells Fargo was fined $185 million, (including a $100 million penalty from the Consumer Financial Protection Bureau, the largest penalty the agency has ever issued) for engaging in pervasive fraud over the years which included opening credit cards secretly without a customer’s consent, creating fake email accounts to sign up customers for online banking services, and forcing customers to accumulate late fees on accounts they never even knew they had. Regulators said such illegal sales practices had been going on since at least 2011.
In all, Wells opened 1.5 million bank accounts and “applied” for 565,000 credit cards that were not authorized by their customers.
Wells Fargo told to CNN that it had fired 5,300 employees related to the shady behavior over the last few years. The firings represent about 1% of its workforce and took place over several years. The fired workers went to far as to create phony PIN numbers and fake email addresses to enroll customers in online banking services, the CFPB said.
How Wells perpetrated fraud is that its employees moved funds from customers’ existing accounts into newly-created accounts without their knowledge or consent, regulators say. The CFPB described this practice as “widespread” and led to customers being charged for insufficient funds or overdraft fees, because the money was not in their original accounts. Additionally, Wells Fargo employees also submitted applications for 565,443 credit card accounts without their knowledge or consent, the CFPB said the analysis found. Many customers who had unauthorized credit cards opened in their names were hit by annual fees, interest charges and other fees.
According to the NYT, regulators said the bank’s employees had been motivated to open the unauthorized accounts by compensation policies that rewarded them for drumming up new business. Many current and former Wells employees told regulators they had felt extreme pressure to expand the number of new accounts at the bank.
And, since it is US government policy never to send a banker to prison, they thought that engaging in criminal behavior was not such a bad idea.
Federal banking regulators said the practices reflected serious flaws in the internal culture and oversight at Wells Fargo, one of the nation’s largest banks.
“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,” said CFPB Director Richard Cordray. He added that “unchecked incentives can lead to serious consumer harm, and that is what happened here.”
“Consumers must be able to trust their banks. They should never be taken advantage of,” said Mike Feuer, the Los Angeles City Attorney who joined the settlement.
On its behalf Wells fargo issued a statement saying 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,” the bank said in a statement adding that “at Wells Fargo, when we make mistakes, we are open about it, we take responsibility, and we take action.”
As the NYT puts it, “this is an ugly moment for Wells Fargo, one of the few large American banks that have managed to produce consistent profit increases since the financial crisis.” Now we know one of the reasons why.
As CNN redundantly adds, “the scope of the scandal is shocking.”
And since nobody will go to prison, in a few months we will read another such “shocking scandal” perpetrated by another bailed-out bank.
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