Wells Fargo & Company, commonly known as Wells Fargo, is an American international banking and financial services holding company headquartered in San Francisco, CA. Today, Wells Fargo is the world’s second largest bank by market capitalization and the third largest bank in the US by assets. Wells Fargo is one of the “Big Four Banks” in the United States along with JPMorgan Chase, Bank of America, and Citigroup. In 2014, The Banker and Brand Finance named Wells Fargo the world’s most valuable bank brand for the second year in a row.
Given all of the above-mentioned exceptionally positive indicators, awards, and praises, one would think that Wells Fargo is not only one of the most financially successful banks in the world, but also one of the most ethically and responsibly sound firms globally. However, this past September, it was found that Wells Fargo committed a momentous theft. Since 2011, 5,300 Wells Fargo employees had secretly created about 2 million phony, unauthorized bank and credit card accounts. These counterfeit accounts netted the bank unwarranted fees and allowed Wells Fargo employees to fraudulently enhance their sales figures to make more money. Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), found that “Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses.” The bank confirmed to CNNMoney that employees even went so far as to make up fake PIN numbers and fake email addresses to enroll customers in banking services.
Additionally, Wells Fargo employees moved funds from customers’ existing accounts into new, fake accounts without their knowledge or approval. Apparently, this scandalous practice wasn’t concentrated to a particular bank or region; the CFPB described the illegal activity as “widespread”. To generate more revenue for the bank, Wells Fargo employees would charge these customers for insufficient funds or overdraft fees because there wasn’t enough money in their accounts. Finally, these employees submitted applications for 565,443 credit card accounts without their customer’s knowledge. About 14,000 of these accounts accrued over $400,000 in fees.
Wells Fargo claims they will pay full restitutions to all customers affected by the extensive scandal. The CFPB, founded in 2011, will issue its largest ever penalty to Wells Fargo: a $185 million fine, along with $5 million to victims of the crime. David Vladeck, a law professor at Georgetown University and former director of the Federal Trade Commission’s Bureau of Consumer Protection, said of the $185 million fine, “it sounds like a big number, but for a bank the size of Wells Fargo, it isn’t really.” Vladeck’s exactly right, that $185 million fine makes up just about 0.2% of Wells Fargo’s $86 billion 2015 revenue alone. Again, that fine only accounts for two-tenths of a percent of the bank’s revenue just from last year. Wells Fargo took home about $23 billion in profit from 2015, and the $185 million fine is only 0.8% of that figure.
On October 12, CEO John Stumpf retired effective immediately, and sources close to the matter confirmed that it was Stumpf’s decision to resign. After Stumpf appeared before a Senate hearing on September 20, Jeffrey Sonnenfield, an authority on corporate governance at Yale, observed that Stumpf was basically a “deer caught in the headlights with a tin ear in understanding, addressing, and communicating the problem.” This would surprise many because in a 2015 Fortune interview, Stumpf stated that he was the “keeper of our company’s culture.” Additionally, Stumpf was even named Morningstar’s CEO of the Year in 2015 for “shunning activities that put profits ahead of customers.” What makes this scandal worse is that all of the prominent accolades and praises that Stumpf received just last year couldn’t be farther from the truth. In fact, according to CNNMoney, “former Wells Fargo employees believe it was precisely the bank’s pressure-cooker sales environment that spurred staffers to open thousands of fake accounts.” For example, nearly a half dozen workers told CNNMoney they thought they were fired because they called the ethics line about inappropriate sales procedures. Bill Bado, who was fired in 2013 for “tardiness” after alerting HR about the fake accounts said, “They ruined my life.”
There is no excuse for not just Stumpf, but for any executive, senior manager, or any other leader in this massive corporation to not know or do something about the widespread scam that was occurring. Undoubtedly, people in this company knew exactly what was going on and while some tried to report it, others swept it under the rug or fired those that spoke out. Stumpf and his team of executives, board of directors, and other senior managers ruined the lives of not just their customers, but their own employees, and the sanctity of their company. They should all be punished severely for putting profits and sales numbers above formal laws, codes, and regulations, and unequivocally having no concern for customer service, respect for their employees, or any hint of corporate responsibility. Once again, the financial services industry disregards any consequence for their improper and illegal activities while chasing more and more wealth and power. Has anyone learned from the Great Recession of 2008? Certainly not Wells Fargo.