Wells Fargo says it will cut its aggressive product sales goals for retail bankers, as it seeks to earn back the trust of its customers.
Last week the banking giant (the world's largest bank, with a market capitalization of over $250 billion) was fined $185 million for allegedly opening up at least 2 million unauthorized accounts to meet those sales goals.
Wells Fargo will eliminate its product sales targets by Jan. 1, it said in a brief statement Tuesday. The bank also plans to spend $50 million each year for “enhanced training, monitoring, and controls,” as well explore more disciplinary actions over these abuses, Chief Financial Officer John Shrewsberry said at an investor conference the same day.
Tuesday's announcements are part of a series of actions by the bank to implement change throughout its organizations. Wells Fargo has also fired 5,300 employees for improper sales practices dating back as far as 2011. The announcements come as the Consumer Financial Protection Bureau (CFPB), formed in the wake of the subprime mortgage crisis, said it wants the rest of the banking industry to take heed, as CFPB Director Richard Cordray said this past Thursday, when the agency announced it will fine Wells Fargo $100 million.
“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 Mr. Cordray. “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.”
The fine is the largest the agency has levied against a financial institution since it was formed five years ago. The bank will also pay $35 million to the Office of the Comptroller of the Currency, and $50 million to the city and county of Los Angeles. It will also pay restitution to affected customers, of which it has already paid $5 million.
Wells Fargo has $1.85 trillion in assets, according to Forbes.
The settlement agreement with Wells Fargo was reached following allegations bank employees opened more than 2 million unauthorized deposit and credit-card accounts, according to CFPB. They transferred money from customers’ preexisting accounts to these new ones, and issued and activated debit cards, and created PIN numbers, all without customers’ permission. Some employees even created fake email addresses to sign up customers for banking services, according to the agency.
Employees allegedly committed these practices in a bank known for its aggressive sales goals, with every customer of Wells Fargo having, on average, six different types of products with the bank. Executives highlight this so-called cross-sale ratio every quarter, according to the Associated Press. Wells Fargo also had a program called “Gr-Eight" for households to purchase eight products.
“We are eliminating product sales goals because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers,” said chief executive John Stumpf, in the statement Tuesday. “Our objective has always been and continues to be to meet our customers’ financial needs and drive customer satisfaction.”
Among the monitoring and training programs Wells Fargo CFO Shrewsberry mentioned will be allowing a third party to go to different branches of the bank to root out bad behavior, according to The Wall Street Journal. Shrewsberry also said Wells Fargo would "take a big wide fresh look at who knew what and when and what else might have been done,” indicating the bank may take additional disciplinary action.
Carrie Tolstedt, who ran Wells Fargo’s consumer banking division, also stepped down in July.
Uncovered by the Los Angeles Times in 2013, the newspapers’ investigations first led the Los Angeles city attorney to sue Wells Fargo. The fines come 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.
In an interview with CNBC Tuesday, US Treasury Secretary Jack Lew said the fines highlighted “bad behavior,” but "how that flows through in terms of next consequences is going to depend on the facts of the case."
This report contains material from the Associated Press and Reuters.