It sounds like a Hollywood script. Thousands of employees at a major financial institution create false accounts in their customers’ names and shuttle money around temporarily to cover their tracks, all to gain larger bonuses and meet sales goals. These employees even go so far as to create fake PINs and contact information for these unauthorized accounts. Meanwhile, after the scam is discovered, the boss retires with a $125 million golden parachute and the CEO defends the bank, blaming employees.
Unfortunately, we do not need Hollywood to think up this scenario. It was recently revealed that employees at Wells Fargo created over 2 million unauthorized credit card accounts and bank deposit/debit card accounts. Carrie Tolstedt, the head of Wells Fargo’s community banking group, retired in July with a compensation package reported to be as high as $125 million. The March proxy statement praised Tolstedt for record deposit levels and success in increasing the online and mobile banking. Now we know why — and how.
Since the scandal came to light, the Wells Fargo board of directors has announced that Tolstedt will forfeit $19 million in unvested equity awards, while CEO and Chairman John Stumpf will forfeit $41 million – roughly a quarter of the total compensation he received from the bank over the past 35 years. This is one of the biggest penalties ever issued to executives of a financial institution in the US. Neither Tolstedt nor Stumpf will receive a 2016 bonus, and Stumpf will forgo his salary while the board conducts an independent investigation into these sales practices.
Why would fraud be perpetrated on such a large scale? The primary culprit is “cross-selling,” the practice of selling multiple banking products to existing customers, and the pressure that managers and employees felt to reach unrealistic sales goals.
For example, the “Gr-eight” program pushed to increase the average number of Wells Fargo financial products that each customer held from six to eight — a daunting number, especially if your bonuses and potentially keeping your job depend on it. How many people do you know that hold eight financial products with any one financial institution?
Approximately 5,300 Wells Fargo workers lost their jobs as a result of the scam, with 10% of those let go being at branch manager rank or higher. Aside from restitution to customers, Wells Fargo was also ordered to pay fines of $180 million — $100 million to the Consumer Financial Protection Bureau (CFPB), $35 million to the Office of the Comptroller of the Currency, and $50 million to Los Angeles City and County. Meanwhile, a class action lawsuit has been filed in Utah by Wells Fargo customers, and both Congress and the Justice Department plan to launch investigations.
Wells Fargo and their investors have suffered financial damage from the market as well. Around $15 billion in market value had been erased within three days — far more consequential than the fine. In addition, California, the bank’s home state, suspended Wells Fargo’s “most highly profitable business relationships” with the state for at least a year, including the lucrative business of underwriting certain municipal bonds.
Wells Fargo had maintained a reasonably solid image among big banks, but this episode tarnishes it considerably — not to mention handing bank regulating advocates a huge boost going into election season. Republicans attempting to dismantle Dodd-Frank and the CFPB are likely to have an even larger hill to climb in enacting deregulation.
Fortunately, damage to consumers appears to be limited. Wells Fargo has already refunded affected customers to the tune of $2.6 million, with an average refund of approximately $25. However, if you are a Wells Fargo customer, it is best to verify that any fraudulent account opened in your name has been closed and that there are no lingering fees or after-effects.
Check with your nearest Wells Fargo branch, but verify by reviewing your credit report using Credit Manager by MoneyTips to see without charge if an unauthorized account was ever opened in your name — and if it was, whether it is still active. Look for any erroneous late charges that may have damaged your credit score, and whether any past rejections could be traced to that damage. Address any unauthorized accounts that are still open immediately, and use these as evidence in case you must resolve any further conflicts with Wells Fargo and the credit bureaus.
Someday Hollywood probably will make a movie about the Wells Fargo scandal. Hopefully there will be more heroes to root for in the Hollywood version — perhaps Ben Affleck at the CFPB?
If you would like to monitor your credit to prevent identity theft and see your credit reports and scores, check out our credit monitoring service.