Wells Fargo has been in business for nearly a century. That’s a lot of time for the banking giant to grow its influence. Unfortunately, it’s also a lot of time to make serious mistakes. The following Wells Fargo scandals timeline highlights some of the company’s biggest blunders – some intentional and some unintentional – over just the last decade.
Wells Fargo Fake Accounts Scandal
Wells Fargo employees face enormous pressure to meet the company’s goals. What do you do when faced with an impossible task? For more than 5,000 low-level employees at Wells Fargo, the answer is to open fake accounts.
In 2016, investigators discovered that Wells Fargo had about 1.5 million deposit accounts and more than half a million fake credit card accounts. Employees had opened the accounts under the names of real customers. No one from the bank, however, bothered to contact the customers to ask their permission.
When the farce came to light, Wells Fargo fired about 5,300 employees for participating in the scandal. While the employees certainly have some responsibility, the company was also to blame. Setting unreasonably high sales goals has been shown to encourage fraud. When Wells Fargo gave low-level employees unreachable goals, it might as well have told them to commit fraud.
Surprisingly, only one executive has suffered from the scandal so far. CEO John Stumpf lost his position. He also lost $41 million in compensation. In 2020, authorities determined that he had intentionally misled investigators. As a result, he was fined $17.5 million and banned from any position within the banking industry. (The U.S. government says that it may target other Wells Fargo executives in the near future.)
Don’t shed too many tears for Stumpf. He still has a net worth of about $50 million.
After the 2016 investigation, Wells Fargo said that it would stop giving its employees such demanding metrics. The bank also had to pay $142 million to affected customers.
Despite all of this, a 2017 review found 3.5 million more fake accounts.
Member Car Repo Scandal
Lenders can charge consumers just about any interest rates they want. That changes, though, when the borrower is a member of the U.S. military. Federal law says that lenders cannot charge active-duty members of the military interest rates over 6 percent. That didn’t stop Wells Fargo from charging higher rates for car loans in 2016.
To make matters much worse, the company misled courts when seeking papers to repossess vehicles from borrowers. Wells Fargo simply didn’t tell the court that the borrowers were in the military, which would have changed the decisions significantly.
Yes, it gets even worse than that. In some cases, Wells Fargo did not even try to get authorization from courts before repossessing vehicles. Plenty of soldiers probably believed that their cars had been stolen by street-level criminals. In reality, their lenders had stolen their vehicles.
The Department of Justice punished Wells Fargo with a $20 million fine. The company also paid $10 million in restitution to service members. That seemed like more of a slap on the wrist and didn’t affect Wells Fargo’s bottom line much.
Community Lending Test Fail
Community lending tests evaluate lenders to make sure they give equal access to all members of their geographic areas. For example, a bank that only approves the mortgage applications of people who make over $1 million per year would fail the community lending test.
In 2019, a test found gave Wells Fargo a “needs to improve” grade. That doesn’t sound so bad until you learn that regulators also cited the bank for “significant harm to customers” and “violations across multiple lines of business within the bank.”
Did falling short of the community lending test standard artificially boost Wells Fargo’s top line?
Whistleblowers make it much easier for authorities to identify organizations that commit crimes like fraudulently opened fake credit card accounts. For obvious reasons, companies tend to dislike whistleblowers, which is why federal law protects those who report unlawful activities.
In 2010, Wells Fargo fired one of its managers for calling a hotline and reporting the company. The manager didn’t receive compensation until 2017, when OSHA demanded that Wells Fargo pay the manager $5.4 million and give him his job back. It’s hard to imagine that he wants the position.
Overcharging Small Businesses
Everyone knows that the pages of legalese that come with credit card agreements aren’t intended to inform clients. Few people, including lawyers, understand what those contracts say.
Wells Fargo pushed well beyond the limits of decency when it gave small business account holders 63 pages of fine print that included ridiculously high fees.
The government believes that Wells Fargo only gave these accounts to small businesses because the organizations do not have legal teams able to go through every line of the agreements. The lawsuit started in 2017 and hasn’t reached a conclusion. The suit is a risk to Wells Fargo’s valuation.
Discrimination of Black & Latino Borrowers
Banks have the ability to deny loan applications when potential borrowers don’t meet financial criteria. They must, however, apply those standards to everyone.
According to the City of Sacramento, Wells Fargo targets Black and Latino borrowers. The lawsuit is ongoing, but the city claims that Wells Fargo is three times more likely to give Black and Latino borrowers high-interest loans even when they have similar FICO scores as White borrowers.
Billion Dollar Mortgage Settlement
Wells Fargo rarely admits to wrongdoing, but it does occasionally reach agreements that cost it quite a bit of money.
In 2018, the bank agreed to pay a $1 billion mortgage settlement. The lawsuit made several claims about Wells Fargo’s lending practices.
Perhaps the most absurd is that the bank charged customers for extending mortgage-rate locks. What’s wrong with that? The bank was responsible for delays that led to the additional charges.
Modifying Client Information Without Approval
While rushing to meet a deadline to prevent money laundering, Wells Fargo (allegedly) changed the Social Security numbers, birth dates, and other information about clients.
The bank never contacted the clients to let them know. Instead, The Wall Street Journal uncovered the event.
Securities Fraud Settlement
In further fallout from the 2016 fake account scandal, Wells Fargo settled a charge that its actions misled investors.
The bank paid $480 million.
SEC Fine For Misleading Investors
This fine actually isn’t connected to the fake accounts scandal. Instead, the SEC discovered that Wells Fargo was misleading investors using services from Wells Fargo Advisors.
Wells Fargo Advisors might have offered some good advice, but it also steered small investors to choose high-fee debt products.
The bank paid a $4 million fine and returned more than $1 million to clients. It made changes to its business model but did not admit any wrongdoing.
Inappropriate Add-On Services
Add-on services can help companies generate millions of dollars in revenue. Typically, you need to make sure that your customers understand that they’re paying for additional services, though.
Wells Fargo didn’t do that, so it had to return tens of millions of dollars to customers for add-on services like pet insurance.
Wells Fargo stopped offering add-on services in 2017. That was probably a wise move.
Housing Bubble Billion Dollar Fine
Justice doesn’t always work as swiftly as expected. The U.S. housing bubble started in the mid-2000s and had officially popped by 2012 when housing values reached extreme lows. Several things contributed to the housing bubble. One of the biggest problems, though, was banks pushing mortgages on people who could not afford them. As payments ballooned and values fell, millions of people found themselves “underwater.”
Wells Fargo continued to misrepresent opportunities to investors during the housing bubble. Anyone paying close attention to the situation would have seen that the mortgages and housing prices were irrational. In fact, investor Michael Burry became famous for betting against the system. (His story is told in the 2015 movie The Big Short.)
After facing several allegations, Wells Fargo agreed to pay a $2.1 billion fine. Not surprisingly, the company did not admit to any wrongdoing. Still, $2.1 billion sounds like a pretty strong admission of guilt.
Foreclosure Glitch Error
In 2018, Wells Fargo closed on the homes of 400 households.
It later determined that the foreclosures happened because of a computer glitch. The glitch affected about 225 additional people who were seeking loan modifications.
Wells Fargo paid $8 million in restitution.
When investors go to advisors, they expect to get objective information that will lead to more wealth.
Unfortunately, a lot of people seem to overestimate the objectivity that advisors offer. In 2019, the SEC sanctioned 79 firms, including Wells Fargo, for having their advisors direct clients to more expensive mutual funds. By doing so, the companies generated more wealth for themselves, not their clients.
Luckily, the SEC found out what was happening. Still, take what your advisor says with an entire shaker of salt. Apparently, one grain isn’t enough.
Can You Trust Wells Fargo?
After reading this list of misdeeds, you probably wonder whether you can trust Wells Fargo to perform even the simplest task for you. Should you even open a checking account at one of the company’s branches?
You must decide for yourself whether you trust Wells Fargo or any other banking institution. Unfortunately, the odds are not in your favor that you will choose a trustworthy bank. A recent report finds that banks around the world were fined $15 billion in 2020.
You might innocently believe that the U.S. has a system that prevents banks from committing the kind of questionable actions that would lead to fines. The problem is that 73% of those fines were directed at U.S. banks.
There are at least two ways to interpret this. One perspective says that the U.S. system works quite well. Without impressive oversight, the government never would have discovered or pursued the misdeeds that led to so many fines. A different perspective says that the U.S. has a shamefully corrupt banking system that puts corporate profits above client services. If banks were fined that much money, who knows what they managed to get away with?
It’s impossible for individuals to know which institutions take financial ethics seriously. The best you can do is research banks and credit unions to find an option that seems trustworthy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.