Wells Fargo Scandal: 5 Thing you Need to Know!

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We know money doesn’t grow on trees, but Wells Fargo customers have found that bank accounts do appear out of nowhere. Welcome to WatchMojo News, the weekly series where we break down news stories that might be on your radar. In this installment, we’re counting down 5 crucial facts you should know about the Wells Fargo accounts scandal.

<4>#5: What Is Wells Fargo?
The Bank
Wells Fargo is considered one of the ‘Big Four’ banks in the United States – along with JPMorgan Chase, Bank of America and Citigroup. According to Relbanks, Wells Fargo was the largest bank in the world in 2015 in terms of market cap, operating in 35 countries and serving over 70 million customers worldwide. In fact, Wells Fargo was ranked as the seventh largest public company on the planet by Forbes in 2016. The bank, which today is headquartered in San Francisco, has its origins in the mid-19th century ‘gold rush.’ It was founded by Henry Wells and William Fargo – who were also part-founders of American Express – in 1852. In its early years, Wells Fargo was one of few banks to survive the ‘Panic of 1857,’ which saw a collapse in the banking system. In recent years, a series of controversies has dogged the brand, including fines for overdraft issues administered in 2010, allegations of racial discrimination in 2011, inadequate risk disclosures in 2012 and violations of New York credit card rules in 2015, as well as high profile revelations in 2014 surrounding the earnings of executive figures.

<4>#4: How Was the Fraud Committed?
The Fake Accounts
In September 2016, it was revealed that employees at Wells Fargo had been covertly creating and operating extra bank accounts without customer authorization. An investigation found that at least 1.5 million bogus accounts and over 500,000 credit cards had been opened had been created since 2011, without customers’ knowledge or authorization. The fraud was committed as a means of not only making more money for the bank, but more importantly to boost sales figures so that employees involved could reach quotas and qualify for incentive bonuses. It is reported that in some instances fake PIN numbers and email addresses were used in order to sign customers up for services without their knowledge. Wells Fargo has taken responsibility for the problem, which has been blamed by some critics on the incentives given to employees, and also seemingly results from inadequate monitoring, checks and control procedures. The bank has been hit with $185 million in fines – $100 million of which goes to the Consumer Financial Protection Bureau’s Civil Penalty Fund – and it has been ordered to pay a further $5 million as compensation to the customers affected.

<4>#3: How Did the Scandal Affect Customers?
The Extra Payments
In many cases, the extra accounts initially went unnoticed or unquestioned by customers. Small amounts of money were typically transferred from an existing account when the fraudulent new one was opened; a transaction that didn’t always draw attention. As some phony accounts were then closed within weeks, customers remained unaware that an extra product had ever been added. However, many people found themselves receiving credit or debit cards in the mail which they hadn’t asked for, and being charged fees for accounts they had no idea existed. In some extreme circumstances, it’s reported that customers were contacted by debt collection agencies in relation to outstanding fees on unrecognized accounts. Analysts suggest that the dupe was made easier thanks to Wells Fargo’s long-established reputation for cross-selling to existing customers. The company looks after banking, loans, mortgages and credit cards, and reportedly places focus on selling additional services to customers they already have, rather than capturing brand new clients.

<4>#2: What Has Wells Fargo Done to Fix the Problem?
The Reparations
Though the bank has neither admitted nor denied the accusations, Wells Fargo has agreed to pay the fines and is expected to change sales practices and incentive structures as a result. At least 5,300 employees have been fired since 2011 for ‘inappropriate sales conduct’ in relation to the scandal, and Wells Fargo has promised to assume greater control over and monitoring of customer service. In a memo sent to employees on September 8th 2016, the firm said when it makes mistakes, it is “open about them,” and also confirmed that it would “take action.” Wells Fargo has also begun repaying all customers involved, reporting that $5 million is earmarked for remediation, with $2.6 million already paid out. The average payment per customer is $25. The bank also stressed that it has refunded, or will refund, any account where there is the slightest suggestion of foul play, implying that some repayments have been made for accounts that actually were properly authorized.

<4>#1: What’s Next for Wells Fargo and Banking in America?
The Future
As one of the world’s largest banks at the center of a high-profile scandal, Wells Fargo is set for a difficult period as trust in the company has waned. However, customers and analysts are already using it as a case study for problems with the U.S. banking system in general. In the wake of the accounts scandal, Wells Fargo employees have reportedly argued that mounting pressure to meet sales targets is reason for the false accounts. So, as long as the banks are expected to grow, it’s estimated that similar issues could continue to arise. On the one hand, banks face ever-increasing target figures; on the other, there are fewer and fewer people to sell to – which is why firms often look to make more money out of the customers they already have. This problem doesn’t excuse Wells Fargo’s underhanded tactics, but it does help explain the scandal. As individual refunds remain relatively low, perhaps the most shocking aspect of this story is that over 5,000 individual employees were prepared to con customers and participate in fraud. With some sources reporting that as many as 2 million fake accounts were created, what happened at Wells Fargo reflects company-wide malpractice and has industry-wide implications.

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