Wells Fargo cross-selling scandal
News of the fraud became widely known in late 2016 after various regulatory bodies, including the Consumer Financial Protection Bureau (CFPB), fined the company a combined US$185 million as a result of the illegal activity.
[1] The creation of these fake accounts continues to have legal, financial, and reputational ramifications for Wells Fargo and former bank executives as recently as September 2023.
The results of this revelation include the resignation of CEO John Stumpf, an investigation of the company's bank-led model, a number of settlements between Wells Fargo and various parties, and pledges from new management to reform the bank.
Wells Fargo's sales culture and cross-selling strategy, and their impact on customers, were documented by the Wall Street Journal as early as 2011.
[5] In 2013, a Los Angeles Times investigation revealed intense pressure on bank managers and individual bankers to produce sales against extremely aggressive and even mathematically impossible[7] quotas.
In an article from the American Bankruptcy Institute Journal, Wells Fargo employees reportedly "opened as many as 1.5 million checking and savings accounts, and more than 500,000 credit cards, without customers' authorization.
"[9] The employees received bonuses for opening new credit cards and checking accounts and enrolling customers in products such as online banking.
California Treasurer John Chiang[10] stated: "Wells Fargo's fleecing of its customers ... demonstrates, at best, a reckless lack of institutional control and, at worst, a culture which actively promotes wanton greed."
Verschoor explains the findings of the Wells Fargo investigation show that employees also opened online banking services and ordered debit cards without customer consent.
"[10] In 2010, New York Department of Financial Services (NY DFS) issued the Interagency Guidance on Sound Incentive Compensation Policies.
[17] Despite the earlier coverage in the Los Angeles Times, the controversy achieved national attention only in September 2016, with the announcement by the Consumer Financial Protection Bureau that the bank would be fined $185 million for the illegal activity.
[26] Sloan indicated there had not been internal pressure for Stumpf's resignation, and that he had chosen to do so after "...deciding that the best thing for Wells Fargo to move forward was for him to retire...".
[32] The CFPB fined Wells Fargo $100 million on September 8, 2016, for the "widespread illegal practice of secretly opening unauthorized accounts."
The order also required Wells Fargo to pay an estimated $2.5 million in refunds to customers and hire an independent consultant to review its procedures.
[40] Wells Fargo issued defamatory U5 documents to bankers who reported branch-level malfeasance, indicating that they had been complicit in the creation of unwanted accounts,[40] a practice that received media attention as early as 2011.
[43] Patrick Toomey expressed doubt that the 5300 employees fired by Wells Fargo had acted independently and without orders from supervisors or management.
In October 2018, Warren urged the Fed Chairman to restrict any additional growth by Wells Fargo until Sloan is replaced as CEO.
[44] Prosecutors including Preet Bharara in New York City, and others in San Francisco and North Carolina, opened their own investigations into the fraud.
[47][48] Former Wells Fargo Chairwoman Elizabeth "Betsy" Duke and James Quigley resigned on March 9, 2020, three days before House Committee on Financial Services hearings on the fraud scandal.
[50] In November 2020, the SEC filed civil charges against two former senior executives, Stumpf and Tolstead, accusing them of misrepresentation to investors of key performance metrics.
[62][63] In a fall 2019 article, management professor William Tayler and doctoral student Michael Harris analyzed the scandal as an example of the surrogation phenomenon.
[71] A growth cap, placed on Wells Fargo by the Federal Reserve, complemented by low interest rates, has made recovery difficult.
[72] To reduce costs, executives under Scharf began reevaluating the bank's lines of business in an effort to trim or dispose of those outside its core offerings.
[73] The first major implication of this refocus was the sale of the bank's student loan business in December 2020 to private equity firms Apollo and Blackstone.
[73] As early as October 2020, Wells Fargo was reported to be pursuing a sale of its asset management business, hoping to sell the entire division in a single transaction.
[75] To better address its issues with compliance after news of the fraud broke, Wells Fargo's management teams relied on external consultants and law firms.
[76] Firms hired by the bank to oversee compliance initially included McKinsey and Promontory Financial Group; these were later replaced by Oliver Wyman and PricewaterhouseCoopers.
In mid-2020, CEO Charlie Scharf announced commitments to reducing the amount of authority conceded to these firms, in part to trim spending on external counsel as high as $758 million a quarter.
[85] In April 2018, new allegations against Wells Fargo were reported, including signing unwitting customers up for unnecessary auto insurance policies, with the possibility of an additional $1 billion fine.
