Wells Fargo (NYSE: WFC) will be paying out over $185M in refunds and penalties due to employees who fraudulently opened up thousands of credit card and deposit accounts without first obtaining proper authorization from customers. The fine was ordered by the Consumer Financial Protection Bureau, a government regulatory agency formed in 2011. In the wake of an internal investigation, the bank fired over 5,000 employees, and has agreed to refund those affected by this misconduct.
Wells Fargo employees were given incentives to meet performance goals that included opening new accounts – experts belive this to be the root of the problem. The employees used fake email addresses and personal consumer information, like social security numbers, to create fake accounts. In doing so, they were able to meet their quotas. In some cases, these new accounts accumulated overdraft, interest and annual fees. These practices are believed to have started as early as 2011. In a prepared statement, CFPB Director Richard Cordray said that this was "the largest penalty the Bureau has ever imposed for violations of federal consumer financial law," adding that it "reflects the severity of these violations."
| Account Type | Number of Accounts Opened | Fees | Est. Refund Per Affected Consumer |
|---|---|---|---|
| Credit Card | ~14,000 | 403,145 | 28.8 |
| Deposit | 85,000* | ~$2,000,000 | 23.53 |
*A total of 1,534,280 deposit accounts are thought to have been opened without authorization, though just 85,000 incurred fees.
In response to the negative backlash, Wells Fargo announced that they would eliminate product sales goals for retail bankers, beginning January 2017. CEO John Stumpf explained the move by saying the bank wants to make certain “customers have full confidence that [their] retail bankers are always focused on the best interests of customers.”
According to Richele Messick, a spokeswoman for Wells Fargo, some of the consumers who were affected have already received refunds. The bank has already performed a third-party audit of their accounts. Earlier this year, they have refunded $2.6M to those affected, averaging around $25 per customer. Wells Fargo will pay a total of $100M to the CFPB, $85M to other regulatory bodies, and over $2.5M in refunds.
This wasn’t the first time Wells Fargo was fined for questionable practices. Last month, the bank was ordered to pay $3.6M for actions that allegedly misled student loan borrowers to pay excessive fees. In 2015, the bank had another brush with the CFPB. It was ordered to pay $34M for steering customers towards mortgages from another company, Genuine Title, in exchange for kickbacks.
Last year the CFPB ordered over 40 companies to pay out damages to consumers. Though they regulate most companies in the financial sector, banks appear to be the most frequent target. The penalties totaled over $2B, and included large names like Citibank, Chase and Verizon. The fines were imposed as a result of numerous infractions, including false advertisement and unauthorized billing. According to the agency's website, to-date they have lead to $11.4 billion in relief for over 25 million people.
Even though this is the largest penalty ever imposed, it's not the most a bank has ever had to pay out. For example, in 2015 Bank of America paid a total of $747M for a single violation. Out of that total, $727M was consumer relief, and only $20M was paid as a penalty to the CFPB.
| Bank | Total CFPB Penalties + Refunds | Number of CFPB Orders |
|---|---|---|
| Citibank | $786,690,000 | 3 |
| Bank of America | $747,000,000 | 1 |
| JPMorgan Chase | $515,900,000 | 3 |
| Discover | $232,500,000 | 2 |
| Wells Fargo | $223,400,000 | 3 |
| American Express | $168,200,000 | 2 |
| US Bancorp | $56,200,000 | 2 |
What Does This News Mean for Consumers?
The CFPB put the burden of reaching out to customers on Wells Fargo. Therefore, if an employee opened an account in your name without your authorization, the bank will contact you. Affected consumers don’t need to worry about a complicated claims process to get their money back.
Despite that, it may be a good idea for Wells Fargo customers to go through their statements and credit report. It is possible for the bank and regulatory agencies to miss certain consumers in their investigation. The only way a consumer can correct this error is by going over his or her records. The easiest way to catch unauthorized credit card accounts is by requesting a free credit report. Individuals can do so by visiting AnnualCreditReport.com, a government-operated website. A telltale sign of an unauthorized deposit account is typically strange transfers you don’t recognize or don’t remember making. In the event that you discover an error, but Wells Fargo hasn’t contacted you, it may be a good idea to reach out to file a complaint with the CFPB through their online system.
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