Wells Fargo Bank

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Wells Fargo Faces Penalties in
Wake of Banking Scandal

| published September 9, 2016 |

By Thursday Review staff writers

It may have become the biggest internal scandal ever to have impacted a major U.S. bank. On Thursday, in a settlement with federal and California prosecutors, banking giant Wells Fargo agreed to pay more than $185 million in fines and another $5 million back to its customers—past and current—for deliberately creating credit card accounts and cost-generating products for its customers without informing customers.

The cards and products often generated hidden fees and charges which were passed along to the very customers who had not asked for the credit cards. According to prosecutors in Washington and Sacramento, internal sales pressure drove thousands of managers and employees to foster a culture in which the phony accounts could be created in return for bonuses, commissions or simply positive performance reviews.

Also according to prosecutors, customers were rarely informed that credit card accounts had been opened in their names, but fees were nevertheless passed along—often carefully and craftily hidden in quarterly or annual statements. According to banking regulators in California, shadow accounts were created for more than two million customers. Those hidden fees channeled tens of millions in profits back to the San Francisco-based Wells Fargo.

Wells Fargo released a statement saying that in order to put the issue behind it, as well as to bolster customer confidence in its company, it is agreeing to the settlement. It also says that it has fired more than 5300 employees and managers as a result of the scandal, though the company acknowledged that the dismissals date back some five years—meaning that it is unclear that those firings were related to the recently-exposed scandal. Some banking analysts suggest that of those 5300 employees dismissed by Wells Fargo, a large percentage may have been let go for other reasons.

“Today’s action,” said Richard Cordray, chief of the Consumer Financial Protection Bureau, “should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences.”

Critics of the banking industry say that the scandal comes as no surprise as banks—like many businesses—face intense internal pressure to find ways to generate more profits and spur employees to generate new accounts and sell more products to existing customers.

According to prosecutors, Wells Fargo employees used the information provided by basic checking account customers to create phony accounts—credit cards accounts, online account, well management products—for which the customer had no knowledge. In most cases, the fake accounts were carefully bundled into the main checking account, with the costs of those phony accounts passed along in incremental charges to customers. In most cases, the shadow accounts came as a result of incentive programs within the company which pressured bank employees to upsell or “cross-sell” additional products to as many customers as possible.

Consumer groups say that the Wells Fargo case should also serve as a reminder to any bank customer to carefully monitor banks statements and credit card statements, paying extremely close attention to charges and fees passed along each month, quarter, or year.

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