All You Need to Know About the Wells Fargo Account Scandal
Although Wells Fargo is one of the largest and most respected banks in the world, its reputation faces an uncertain future. In September, the Consumer Financial Protection Bureau fined Wells Fargo for the widespread and illegal practice of opening unauthorized accounts — more than 2 million of them. The revelations have led to the oust of Wells Fargo CEO John Stumpf.
Here’s a breakdown of how the scandal has played out.
Wells Fargo Scandal: An Overview
On Sept. 8 2016, the CFPB rocked the financial industry when it announced that, since 2011, Wells Fargo employees have opened more than 2 million deposit and credit card accounts without customer knowledge. The illegal practice resulted in extra fees and charges to customers and was carried out by Wells Fargo employees trying to hit aggressive sales targets and compensation incentives set by the company.
The CFPB charged Wells Fargo with violations of the Dodd-Frank Wall Street Reform and Consumer Protection act, including:
- Opening unauthorized deposit accounts and transferring funds without permission
- Issuing and activating debit cards without permission
- Applying for credit cards without permission
- Enrolling customers in online banking services using fake email addresses
Wells Fargo Pays Fines, Fires Over 5,300 Workers
Beyond forcing the bank to issue full refunds to all impacted customers, the CPB ordered Wells Fargo to hire an independent contractor to conduct a comprehensive review of its procedures and fined the financial institution $100 million. On top of this penalty, Wells Fargo is required to pay $35 million to the Office of the Comptroller of the Currency and $50 million to the city and county of Los Angeles.
While this fine is large enough to take out many businesses, it’s just a slap on the wrist for Wells Fargo — a bank that brought in $23 billion in net income for 2015.
After the Wells Fargo scandal was made public, the bank admitted to firing 5,300 workers over the past five years over the opening of fraudulent customer accounts. All of these employees worked in the community banking division overseen by Carrie Tolstedt — an executive who has been with the company for 27 years and is set to receive a compensation package worth approximately $125 million when she retires this year, reported Fortune.
The impact of the breach rippled through Wells Fargo, causing the company’s stock to take a nosedive. On Sept. 26, Wells Fargo stock plummeted to below $45 per share — its lowest level since February 2014. As of mid-October, it was still struggling to perform.
Wells Fargo CEO John Stumpf Retires
On Oct. 12 2016, Wells Fargo Chairman and CEO John Stumpf announced his retirement, effective immediately. He is replaced by 29-year company veteran Tim Sloan, the bank’s president and chief operating officer.
Prior to his departure from Wells Fargo, Stumpf spent the last few weeks on the job doing damage control. On Sept. 20, he met with Congress where he faced intense scrutiny — especially from Sen. Elizabeth Warren, who encouraged him to resign amid the scandal. In addition to calling for a criminal investigation, the Massachusetts senator accused the former Wells Fargo CEO of “gutless leadership.”
After Stumpf’s retirement was made public, Warren reaffirmed her belief over Twitter that he should face investigation. She added that he should return all the money he earned during the scandal.
While he didn’t reach into his bank account and return the paychecks he received since 2011, Stumpf’s finances did take a hit. In 2015, he earned $19.3 million, but the embattled former CEO agreed to surrender much of his 2016 earnings, including his bonus and $41 million in stock.
Although stepping down from his role as CEO didn’t earn him severance pay, he walked away from Wells Fargo with more than $100 million in vested stock and more than $24 million in pension and 401k benefits, reported the Los Angeles Times.
Wells Fargo Suffers Backlash
As expected, the controversy has proven to be a public relations nightmare for the bank, as consumers question the security of Wells Fargo accounts. On Sept. 28, California State Treasurer John Chiang announced plans to sever some business ties to the bank for the next year. In a letter addressed to Stumpf and Wells Fargo’s board of directors, Chiang said he would not invest in Wells Fargo securities, use the bank to buy stocks or bonds, or select the financial institution to underwrite select bond offerings.
Chicago, Seattle and Ohio have also stopped depositing money with Wells Fargo and hiring it to sell bonds.
Major Wells Fargo investor Warren Buffett has remained largely silent amid the revelations, but the inherent dishonesty of the situation has rattled others. A group of religious investors — including nuns — has filed a shareholder resolution urging the bank to share the underlying cause of the scandal.
The negative impact has also trickled down to the Wells Fargo branch business. In September, customer meetings with branch bankers dropped 10 percent, consumer checking account openings tumbled 25 percent and credit card applications fell 20 percent from the level reached during the same time period in 2015.
In addition to the public outcry, Wells Fargo is also facing criticism from former employees who have felt compelled to speak about the toxic work environment. Some have offered insights into a highly competitive sales culture that drove staffers to engage in deceptive practices just to meet sales goals.
Former Wells Fargo banker Bill Bado told CNNMoney he rebuffed orders to open fraudulent bank and credit accounts in September 2013, and reported the request to the company’s ethics hotline and human resources. Eight days later he was fired for tardiness. Other former and current employees have reported similar instances of retaliation for reporting unethical behavior.
It’s too soon to know the extent of the damage this scandal will have on Wells Fargo, but the financial institution’s fourth quarter results will offer more insight. Recovery will be a slow process for the bank, and only time will tell if it can bounce back from its fall from grace.
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(Source: Laura Woods, go banking rates)