Wells Fargo Scandal – Fraud with Fictitious Accounts
by BL Schultz
September 25, 2016
The Wells Fargo scandal includes more than 5300 Wells Fargo employees fired since 2011. The company owes $185 million in fines. What exactly is the Wells Fargo scandal? Wells Fargo employees committed fraud by opening fictitious accounts in the name of customers to meet sales targets. The Consumer Financial Protection Bureau (CFPB) claims as many as two million deposit and credit card accounts were opened without customer consent. Allegations were originally published by the Los Angeles Times in 2013. Wells Fargo began reimbursing customers in February, 2016. Chairman and CEO John Stumpf testified before a congressional committee. He blamed rogue employees acting inconsistent with company culture. Recall The Money Skinny™ mission is to save you time and money. Let’s take a closer look at the Wells Fargo scandal and how to protect yourself.
Cross Selling
The goal of cross selling is to increase the number of products per retail household. It’s a common selling technique. It is not inherently bad. Similar to Do you want fries with that? At Wells Fargo, employees created fictitious accounts using existing customer information. In other words, employees of a U.S. bank elbowed past Nigerian Scammers to create a credit card in the name of a grandma from Pasadena. Outrageous. Illegal.
Sales Goals at Wells Fargo
The number of products per household at Wells Fargo went from 5.5 in 2009 to 6.3 in 2015. The goal of a Wells Fargo sales campaign was to push the products per household number to 8. Eight? Think about how many bank accounts you have. Probably a checking and savings account, a credit card. Perhaps an investment account. Maybe a mortgage. That’s a long way from eight accounts. The banking relationship is based upon trust. We don’t expect the bank to have altruistic motivations. A bank isn’t a charity. But doesn’t the Hippocratic Oath’s First do no harm apply?
How the Wells Fargo Scandal Festered
Results from the incentive system weren’t monitored. Couldn’t have been. Employees didn’t create the incentive system. It was management. Furthermore, management’s role was to evaluate the results of that system. Basic quality control. Setting goals that can’t be good for the customer is a breach of trust. Why eight products per retail household? Why not ten? How about twelve? There is a natural limit to the number of accounts. In summary, an incentive system and appropriate goal setting are management’s role. Not the job of a bank teller. Unachievable sales goals with unmonitored results creates a toxic stew.
My Mortgage Example
More than a decade ago I reviewed closing documents from a bank that is not Wells Fargo for a home purchase. Surprised to find a Home Equity Line of Credit (HELOC) in the paperwork pile. The mortgage broker said to obtain a low interest rate the mortgage package included a HELOC. I didn’t want a HELOC. Just a mortgage. The broker said the mortgage was approved as a package. The HELOC was required to receive that interest rate. Recommended closing the HELOC after the house purchase. No-harm-no-foul. This was two days before the scheduled closing. I went along with it. But didn’t like the last minute curveball. I closed the HELOC a few months later.
What was that?
Perhaps my broker was actually the type of employee referenced by Mr. Stumpf. Going rogue. Sliding the HELOC under the wire to meet a sales incentive. Or was this a bank-wide sales campaign that turned new mortgages into a two-for-one mortgage plus HELOC? Who knows. But it does point to industry pressure to increase the number of customer accounts.
Too Big To Care
Let’s put the Wells Fargo scandal numbers in perspective. 5300 employees were fired during five years. About 1% of the annual number of employees in retail branches. Of the 82 million deposit accounts opened at Wells Fargo from 2011 to 2015, 1.5 million of those accounts were fraudulent. Even a $185 million fine may seem small as compared to a Wells Fargo market capitalization of $236 billion. There is no London Whale on the hook. Maybe Pasadena Grandma will be overlooked.
Protect Yourself
- Scour bank account activity.
- Request a free credit report at annualcreditreport.com. Each of the large credit reporting agencies (Experian, TransUnion and Equifax) provide one free credit report annually. Stagger the three requests throughout the year.
- Use a credit freeze to stop the creation of new accounts.
- Contact your local police to report fake accounts opened in your name. Visit identitytheft.gov for more information.
The Skinny
- The Wells Fargo scandal centered on banking practices that led to employees opening fictitious accounts in the name of customers. Wells Fargo fired 5300 employees. The company paid $185 million in fines.
- Protect yourself by scouring bank activity, requesting free annual credit reports, freezing credit. Report identify theft to your local police.
Thanks for the Wells Fargo breakdown & tip for keeping myself protected from unwanted bank accounts.
You’re welcome. Appreciate the feedback.
Wells Fargo gave me an equity line of credit in 2006. When they gave me the loan they fell to contact my niece who also was on title. I didn’t know this at the time until 8 years later, when someone filed a short sale with Wells Fargo to sell my home which was attached to the equity line. My niece was notified 8 years later that they needed her to sign off so they could move forward with the short sale. My niece refused to do so. Four months later Wells Fargo sold my property to a bona fide crook and forger. I have made Wells Fargo aware of this over the last 5years I’with no result.They continue to give me the run around.