Wednesday, September 14, 2016

Wells Fargo Fined $185 Million for Creating 2 Million Fake Accounts

Since 2011 Wells Fargo employees opened over 2 million fake accounts using data from existing customers. This state of affairs has led the Consumer Financial Protection Bureau (CFPB) to punish Wells Fargo with a $185 million fine.

Sales figures
This massive scandal was perpetrated by employees to drive up their sales figures. The employees opened multiple bank accounts for unsuspecting customers then proceeded to fund the accounts by making unauthorized withdrawals. They opened about 1.5 million deposit accounts and another 565,000 credit card accounts.

The scandal was widely executed with the employees going as far as applying for debit cards with PINs for these accounts. They also created fake email addresses to apply for online banking to go with these accounts.

The Wells Fargo scandal enabled the bank to reach its sales objectives, and the employees earn unwarranted rewards. The losers were the existing customers whose accounts were raided to fund the new accounts. Many of these accounts incurred overdraft charges and insufficient funds penalties. The bank is estimated to have collected $400,000 in fees from 14,000 accounts.

Massive fines
A third party consulting firm discovered the Wells Fargo fake accounts after noting that consent for account creation was lacking. Further investigation lead to the discovery that the new accounts were funded with unauthorized withdrawals. An internal investigation by the bank unearthed the full extent of the scandal.

The bank acted by firing over 5,300 employees involved in the scandal, totaling about 1% of the employees on its payroll. The CFPB moved in to slap Wells Fargo with a $100 million fine, the largest it has ever imposed. The bank avoided massive lawsuits by consenting to the CFPB order without denying or agreeing to the charges. In addition, Wells Fargo will also pay a penalty of $35 million to the Office of the Comptroller of Currency. The bank will also pay $50 million to the County and the City of Los Angeles. Another $5 million will be spent on customer remediation. Customer reimbursements averaged $25 per account.

To calm the market, Wells Fargo put out a statement claiming, “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.”

Affected employees have blamed the Well Fargo scandal on the massive pressure to make sales. As one of them told the LA Times they were always reminded that they could always resort to working McDonald’s if their performance did not impress.

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