Wells Fargo Scammed 2-Million Customers, Rewards “Head Of Scam” $124.6 Million



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Sep 16 2016
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Wells Fargo, the biggest U.S. bank by stock market value, was supposed to be one of very few American banks that people can trust. That’s because when the mortgage crisis hit in 2008, Wells Fargo was viewed as one of the good guys. After all, Oracle of Omaha – Warren Buffett – is Wells Fargo’s largest shareholder.

 

The public’s perception is the bank’s conservative lending policies had helped it weather the worst of the housing bust, giving it the financial strength and stability to orchestrate the merger (or rescue) with Wachovia in a deal worth US$15.1 billion, although Fargo itself had incurred losses to the tune of US$2.9 billion. Turns out, the bank is one of those wolves in sheep’s clothing.

Wells Fargo Outlet Branch

It’s a public knowledge that Wells Fargo’s US$12 checking account fee is one of the highest, which the bank conveniently justifies was worthwhile as it offers the convenience of 16,1000 ATMs scattered across the country. The bank’s latest scandal was, however, so serious that besides US$185 million in punishment, U.S. federal prosecutors are now launching probe into the financial institution.

 

The US$185 million in fine – the largest penalty the CFPB (Consumer Financial Protection Bureau) has ever imposed – was due to a jaw-dropping scandal where thousands of Wells Fargo employees “covertly” opened “more than 2-million fake deposit and credit card accounts” in what is known internally as “sandbagging”.

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Here’s how the scam works. After a client walked into a branch and opened a checking account, the bank employees, presumably with permission from their heads, opened unauthorized accounts and transferred money from customer accounts without their consent or knowledge. In some cases, Fargo employees would use a fake e-mail address to open an online banking account.

 

Subsequently, the banker would transfer money for a certain amount of time – as little as US$25 for perhaps a week or two – which would qualify the bogus account for the sales quota. Then, the money would be transferred back to the legit account – but not before a monthly maintenance fee was charged.

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Victims of the scam were forced to pay ghost charges of about US$50 in fees they were not responsible for creating. Some customers were also hit with US$35 overdraft charges. After the scam was exposed, Wells Fargo conveniently paid back customers hit with the bogus fees, and has allocated US$5 million to compensate any customers it hasn’t already paid back.

 

Wells Fargo is believed to have collected an estimated US$2.6 million in fees from customers through the scam, which has been in existence since at least 2011. It was part of standard operating procedure so that the bank employees could reach sales quotas that would count towards bonuses. So far, 5,300 employees, or about 1% of the bank’s payroll, have been axed.

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The bank, in settling the allegations, didn’t admit or deny any wrongdoing. Wells Fargo had actually created “clawback” provisions shortly after the 2008 financial crisis to hold employees accountable for this type of misconduct. Amusingly, not only the bank refuses to use such provision to punish its executives but on the contrary, is rewarding them handsomely.

 

Apparently, despite overseeing the department accused of scamming millions of customers and incurring hundreds of millions in fines, Wells Fargo executive Carrie Tolstedt will receive a whopping $124.6 million in stock and Wells Fargo shares, on top of $1.7 million salary, when she retires at the end of this year. Heck, she was even praised by CEO John Stumpf.

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CEO Stumpf said – “She was a standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership.” Of course, 56-year-old Tolstedt has been quiet about the practice of sandbagging in Wells Fargo. And it’s unlikely that she’ll ever speak up about the matter, considering the generous rewards she’s getting.

 

Had Tolstedt been fired instead of allowed to retire, Wells Fargo could have recouped at least US$45 million of the jackpot she’s set to receive. Somehow, the bank was proud of its executives’ ability in scamming customers and didn’t think creating phony PIN numbers and fake email addresses to enroll customers in online banking services, debit cards and credit cards were such a big deal.

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The insult didn’t stop. The bank released its statement – “Wells Fargo is committed to putting our customers’ interests first 100% of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request.” Obviously, the US$185 million fine is like loose change considering Wells Fargo’s US$230 billion in market capitalization.

 

However, the scandal was too humiliating to the U.S. financial system that the U.S. attorney’s offices for the Southern District of New York and the Northern District of California were forced into action. The federal prosecutors are in the early stages of an investigation into sales practices at Wells Fargo & Co, having issued a subpoena to the bank for documents and materials.

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Should there be no prosecution, either civil or criminal, the U.S. Department of Justice would certainly be slapped with accusations of incompetency or worse – a cover up – after Warren Buffett, the largest shareholder of Wells Fargo through Berkshire Hathaway, has openly declared his undying support to Democrats candidate Hillary Clinton, whom in turns is endorsed by President Barack Obama.

 

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