Feds levy $185 million fine on Wells Fargo, send message to entire industry
A federal consumer protection agency says that Wells Fargo employees opened more than 2 million deposit and credit card accounts that may not have been authorized.
Wells Fargo was fined $185 million by California and federal regulators on Thursday, for going too far in the pursuit of sales goals by cheating customers into costly financial products that they didn't request.
It is the largest fine levied by the five-year-old Consumer Financial Protection Bureau (CFPB) against a financial institution.
The CFPB said Thursday that employees at Wells Fargo, the largest US bank by market capitalization, opened more than two million deposit and credit-card accounts that may not have been authorized. They transferred money from customers’ accounts to these new ones without permission. They also issued and activated debit cards, and created PIN numbers, without telling customers. Some bank employees even created fake email addresses to sign up customers for online banking services, according to the agency.
"Wells Fargo built an incentive-compensation program that made it possible for its employees to pursue underhanded sales practices, and it appears that the bank did not monitor the program carefully," said CFPB Director Richard Cordray.
"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," he said.
The aggressive sales tactics were uncovered by The Los Angeles Times in 2013. Its investigation led the Los Angeles city attorney office to sue Wells Fargo.
The bank has fired 5,300 employees – roughly five percent of its entire workforce – over "inappropriate sales conduct," according to the company’s spokeswoman Mary Eshet. The firings happened over five years, starting in 2011.
"We regret and take responsibility for any instances where customers may have received a product that they did not request," Wells Fargo said in a statement. It also reported that it has refunded $2.6 million in fees from the accounts that were opened without authorization.
Even after the L.A. Times investigation, Wells Fargo had aggressive sales goals for its employees, CFPB found. It required them to sell as many products – such as savings accounts, credit cards, or loans – to each customer as possible. On average, each Wells Fargo customer has six products with the bank.
These aggressive money-making tactics appear to spill over into other parts of the bank’s business. Today’s fine comes just weeks after Wells Fargo agreed to pay a separate $4.1 million settlement on CFPB allegations that it charged illegal fees and misled student-loan borrowers.
The bank processed payments in a way that maximized fees for many consumers, said the CFPB. It also misled borrowers about repayment options in a way that could have led to an increase in the cost of their loans. Additionally, Wells Fargo failed to update inaccurate information passed along to credit-report companies, and charged illegal fees.
“Because of the breakdowns throughout Wells Fargo’s servicing process, thousands of student loan borrowers encountered problems with their loans or received misinformation about their payment options,” CFPB said in an announcement of the settlement in August.
This report uses material from the Associated Press and Reuters.