According to the US Consumer Finance Protection Bureau (CEPB), hundreds of thousands of accounts secretly created by Wells Fargo Bank employees has led to an historic $100 million fine.
Today we fined Wells Fargo Bank $100 million for widespread unlawful sales practices. The Bank’s employees secretly opened accounts and shifted funds from consumers’ existing accounts into these new accounts without their knowledge or permission to do so, often racking up fees or other charges.
The Bank had compensation programs for its employees that encouraged them to sign up existing clients for deposit accounts, credit cards, debit cards, and online banking. According to today’s enforcement action, thousands of Wells Fargo employees illegally enrolled consumers in these products and services without their knowledge or consent in order to obtain financial compensation for meeting sales targets.
Bank employees temporarily funded newly-opened accounts by transferring funds from consumers’ existing accounts in order to obtain financial compensation for meeting sales targets. These illegal sales practices date back at least five years and include using consumer names and personal information to create hundreds of thousands of unauthorized deposit and credit card accounts.
The law prohibits these types of unfair and abusive practices.
Violations covered in today’s CFPB order include:
- Opening deposit accounts and transferring funds without authorization, sometimes resulting in insufficient funds fees.
- Applying for credit-card accounts without consumers’ knowledge or consent, leading to annual fees, as well as associated finance or interest charges and other late fees for some consumers.
- Issuing and activating debit cards, going so far as to create PINs, without consent.
- Creating phony email addresses to enroll consumers in online-banking services.
Enforcement Action
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, we have the authority to take action against institutions that violate consumer financial laws. Today’s order goes back to Jan. 1, 2011. Among the things the CFPB’s order requires of Wells Fargo:
- Pay full refunds to consumers.
- Ensure proper sales practices.
- Pay a $100 million fine.
Today’s penalty is the largest we have imposed. Other offices or agencies are also taking actions requiring Wells Fargo to pay an additional $85 million in penalties.
In a discussion on the Knoweldge@Wharton site, they highlight this may not be a one off. The “cross sell” business model underpinning banking is to blame.
More Banks May Be Involved: “It’s not just Wells Fargo,” says Cook. “Fees are a critical part of the profit model for banks in the U.S.” Conti-Brown agrees, and says the practice of cross-selling brings in the fee income that banks badly want. “Cross-selling is one of the reasons Wells Fargo is said to be so successful,” he says of the bank, which along with its parent of the same name, controls some $1.9 trillion in assets. “The [bank’s] incentive structure is flawed,” he says, explaining that deviant practices could occur if top management ties employee rewards to signing up existing customers to more products and services.
