- November 3, 2021
- Posted by: BlueAzurite
- Category: Financial Scandals
The Wells Fargo scandal is one that became public in 2016 and in 2021, it is still relevant. Why? Because it is still an ongoing scandal. Early during the year, new accounts of frauds have been discovered. This does not bid well for Wells Fargo, right? Let’s not forget that the financial institution is the third largest bank in the United States and the scandal is so huge that its reputation has taken a serious fall.
The discovery of the fake accounts
Everything was disclosed in 2016 when people woke up to the news that Wells Fargo has committed a serious crime. Its employees had been creating millions of fake accounts on behalf of clients to satisfy quotas and meet sales goals that were realistically not just possible. The general concept underpinning the fraud is cross-selling.
Things started well before that. According to media reports, this practice began as early as 2002, which is when cross-selling was taken to another level and employees started using fraud to meet sales goals. What did they do specifically? Well, they opened online banking services and ordered debit cards without customer consent. According to the American Bankruptcy Institute Journal, the employees “opened as many as 1.5 million checking and savings accounts, and more than 500,000 credit cards, without customers’ authorisation”. When ordering credit cards for pre-approved customers, employees used their own personal information to fill out the necessary details. They also created fraudulent checking and savings accounts, which means that movement of money out of legitimate accounts took place, creating fake personal identification numbers and even forging signatures. They even used the pinning process which involves setting customers’ PIN number to 0000 to be able to control their account without their knowledge.
However, this scam could not have lasted forever. With time, clients started to discover that something was wrong. This was only a matter of time since they were being charged unanticipated fees or receiving unexpected credit or debit cards or lines of credit. Naturally, they started questioning charges for accounts they did not own or request. So many complaints were filed that authorities started to look into the matter and the fraud began to gain the attention of the wider public.
A culture of employee abuse
So who was to be blamed? While at first individual branch workers and managers were considered to be at fault, it was soon discovered that matters were much more complicated than that. In fact, there was a culture of employee abuse going on at the institution. It was found out that there was pressure from higher management to open as many accounts as possible and they were in fact, encouraged for these actions. Many advanced that they did this out of desperation, for fear of termination.
In court papers, there are reports of a pressure cooker environment in which employees were mentally abused and harassed to meet goals set by the management. Every year, low-level workers were squeezed tighter and tighter since senior executives keep ignoring the signs that the goals were unrealistic and they kept raising them. Those who did meet sales goals, by hook or by crook, were held up as examples for the rest of the staff. They claim that they were warned that “if they did not achieve sales goals, they would be ‘transferred to a store where someone had been shot and killed’ or ‘forced to walk out in the hot sun around the block.’” One employee even said, “I had less stress in the 1991 Gulf War than working for Wells Fargo”.
According to the U.S. attorney for the Central District of California, this scandal demonstrate a failure of leadership at multiple levels within the bank.
FX transactions: the recent scandal
However, that is not the end of Wells Fargo’s scandals. More recently, it was found out that the bank defrauded 771 customers on FX transactions. FX refers to the international trade in currency. This is a complex market wherein money is made, and lost in a complex and constant shifting array of selling and buying. The firm defrauded customers by marking up the prices on currencies that it sold and market down those it bought. The FX sales group had agreements with customers for fixed spreads between buy and sell prices; however it systematically charged higher spreads, which allowed Wells Fargo to pocket millions. The group would cherry pick rates to get a greater advantage for the bank. Some of the personnel would make up rates and calculations as a pretence of meeting their obligations. They would also play with the number to inflate profits and some salespersons would take advantage of those they thought did not know much about FX. The employees would receive incentive for the money that they brought in. What happened when they got caught? Well in some cases, they would claim it was an honest mistake and in others, they would lie and create fake transaction data.
Repercussions of the scandals
It goes without saying that Wells Fargo had to face several repercussions for everything that have happened. The Federal Reserve has imposed bruising unprecedented sanctions on Wells Fargo and it is facing several lawsuits and legal actions from former and current employees. The bank has paid $72.6 million to settle a government lawsuit and just recently, CNN News revealed that as part of the total $3 billion settlement, the bank has agreed to pay restitution to customers. Additionally, it has had to face more fines with regards to delays in the process.
Let’s not forget the most important repercussion: the firm’s brand reputation has been tarnished, something that it has spent 20 years building. For many years, Wells Fargo has enjoyed the reputation for sound management but since 2016, both its business and image experienced a steady downfall. After the scandal broke, new credit card applications in the fourth quarter of 2016 decreased to 43% and checking account openings fell by 40%. The public simply refused to give its business to the bank…. Now, it remains to be seen whether the firm is able to build back its brand reputation.