Illegal sales practices: Wells Fargo To Settle
Wells Fargo & Co. has agreed to pay $185 million to settle federal regulators’ investigation for illegal sales practices. The bank acknowledged that it pushed employees to open as many as 2 million accounts without customers’ approval. As a result of the scandal, Wells Fargo said, effective January 1, 2017, it would eliminate any sales goals for credit cards, checking accounts and other retail banking products.
The bank’s CEO, John Stumpf, who is set to testify before the Senate Banking Committee on September 19, said he takes responsibility for the improper sales tactics. He indicated that the bank now has improved its training programs and supervision. The bank also indicated that the employees involved in the improper sales practices were low-level employees and the practices were not intended to increase bank profits.
U.S. Treasury Secretary Jacob Lew said federal regulators appropriately took action against the bank and that this should be a “wake-up call” for Wells Fargo and the banking industry. He commented that creating incentives and a work culture that encourage aggressive sales tactics often will generate that product.
After the Los Angeles City Attorney sued Wells Fargo, the U.S. Consumer Financial Protection Bureau (created as part of the federal Dodd-Frank law in 2010), and Office of the Comptroller of the Currency initiated investigations. These agencies ultimately determined that Wells Fargo’s bankers opened accounts that customers did not authorize and transferred funds from authorized accounts into unauthorized accounts to generate commissions.
Bank representatives acknowledge they will provide the Senate Banking Committee with necessary information and describe the measures taken to re-instill their customers’ confidence.
From a consumer perspective, the sales tactics are highly troubling and indicative of corporate America’s desire to put profits over ethics, often to the detriment of consumers. Without the federal agencies’ investigations, the bank’s customers would have been defrauded with little remedy. One thing is clear that is that the bank’s settlement with regulators and the Senate hearings are the beginning of the fallout, not the end. Undoubtedly, consumer class actions will follow.