Wells Fargo Fake Accounts

20170929 11.26 arc2#16

20170929 03.22 p.18
Effects Causes Description
heightened & ongoing comprehensive review & scrutiny Cross-selling Auto lender
its structure, composition, and practices banc-assurance Home mortgage insurance
analyse, investigate, and correct potential problems Origination, servicing, collection
litigation Consumer-related scandal
challenge to evolve the organisation culture, operations, credit reports: AnnualCreditReport.com works with the 3
and governance. credit bureaus: TransUnion, Experian, and Equifax.
inappropriate and inconsistent with our values. emerged from the 2008 crisis relatively unscathed,
growing and becoming stronger than ever.
left the bank's once-sterling reputation in tatters.

Office of Ethics, Oversight and Integrity

2wfc Timothy J. Sloan

Damage control COO CEO, employees since late 1980s
CFPB Civil Penalty Fund fine: $100m, 20160904: Exculpatory report, PR minimise the scandal and
widespread unlawful sales practices, the largest fine disclaim any problem at all.
CFPB has ever imposed.
OCC fine: $35m.
City & County of LA: $50m.

More scandal, scandal-plagued, embroiled in scandal.
Reputational damage
October 2016 compared with the year-ago period (p.29)
44% drop in the number of new consumer checking
accounts opened.
a 50% decline in new credit card applications.
BIG NO: accountability, respects, internal control,
oversight of operations
strong track record of lending to, investing in, and
providing service to low- and moderate-income
communities.
2employees
5,300 terminated
Law firm: Shearman and Sterling
beyond reproach
Fines: 20160908: $185m (p.22)
Potential UDAAP concerns: unfair, deceptive, abusive
acts or practices (a ref to consumer protection laws)
Bank executives dont take complaints seriously enough,
before the scandal.
Root causes of repeated issues.
lack of proper notification when calls to customers are
being recorded and problems with how stop-payments are
processed, resulting in refunds to customers going
unclaimed.
Aggressive sales goals
Wells Fargo Fake Accounts
2x-employees:
>180m
$67m from Carrie Tolstedt, head of retail sales division
$69m from CEO John Stumpf
The board is clawing back executive compensation.
$124.6m, John Stumpfs compensation, salary & stocks.
$19.3m, JS, compensation in 2015 (incl. perf bonus 12.5)
2clients
Refunding insurance premium.
Collateral protection insurance (CPI).
Unneeded collision insurance after the purchase.
Guanranteed auto protection insurance (GAP)
Guanranteed asset protection insurance (GAP)
274,000 people were pushed into delinquency.
25,000 cars were repossessed.
The states of California and Illinois and the city of
Chicago have suspended parts of their business
relationships with the bank.
After Jacob Burns was killed, Stumpf and Tolstedt could
go on to reap millions in executive bonuses without
worrying about interference from whistleblowers.
soul-crushing culture of fear and daily intimidation by
managers
relentless pressure to sell has battered employee morale
and led to ethical breaches.
To meet quotas, employees have opened unneeded
accounts for customers, ordered credit cards without
customers' permission, and forged client signatures on
paperwork.
They had to open five or 10 or even 20 new credit card or
checking accounts for customers in a single day.
Employees: < 300,000 (source: p.13).
Customers: 800,000
Credit card accounts
Bank accounts
2.1 3.5 million fake accounts
+2/3 more fake accounts
>981,000 accounts were found in the expanded timeline.
450,000 accounts were found in the original window.
165m retail bank accounts opened between 2009-2016.
Accounts slapped with unnecessary fees:
130,000 190,000
Enroll customers in multiple products.
Enroll customers in programs without consent/knowledge
Enroll online bill pay without authorisation:
528,000 customers
Unneeded auto insurance: 570,000
Charge car loan insurance: 800,000
Charge mortgage borrowers when loan apps were
delayed.
Change the terms of mortgage loans for bankrupt
borrowers.
Sign up customers for unauthorised life insurance
policies.
Overcharge small businesses with credit- and debit-card
processing services.
Early withdrawal penalties for deceased.
Legally incompetent account holders.
Wells Fargo Fake Accounts

Fees paid by business account holders when they deposit

cash.
WFC closed bank accounts without warning or providing
an explanation.
frozen and overdrawn, fraudulent use of the account.
stone-walled customers.
publish the customer name to fraud warning site, denied/
rejected to open any bank accounts.

fraudulent accounts generated $2.4m in fees: overdraft

fees, monthly service fees, and other miscellaneous fees.
bogus e-mail addresses: 1234@wellsfargo.com,
noname@wellsfargo.com, or none@wellsfargo.com.

Review 1: May 2011 to mid-2015

Review 2: January 2009
Review 2: 2002

2b refunded:
201707: $80m (p.22) auto loan borrowers
$0.91m, SF, 528,000 A/C, paying bills online, w/o auth.
$3.3m (arc2#10)
+$2.8m (p.26) affected customers.

settlements:
$142m: class action, 10q, 201704
201505: $110m, class action over the bank's retail sales
practices (p.30).

refunds and settlements:

$414m (p.24)

Legal fees, consultants, other costs to scandal-related

>$100m (p.24)
Wells Fargo Fake Accounts

The Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits unfair, deceptive, and abusive acts and practices (UDAAP).
Wells Fargos violations include:
1. Opening deposit accounts and transferring funds without authorization: According to the banks own analysis, employees opened roughly 1.5 million
deposit accounts that may not have been authorized by consumers. Employees then transferred funds from consumers authorized accounts to
temporarily fund the new, unauthorized accounts. This widespread practice gave the employees credit for opening the new accounts, allowing them to
earn additional compensation and to meet the banks sales goals. Consumers, in turn, were sometimes harmed because the bank charged them for
insufficient funds or overdraft fees because the money was not in their original accounts.
2. Applying for credit card accounts without authorization: According to the banks own analysis, Wells Fargo employees applied for roughly 565,000
credit card accounts that may not have been authorized by consumers. On those unauthorized credit cards, many consumers incurred annual fees, as
well as associated finance or interest charges and other fees.
3. Issuing and activating debit cards without authorization: Wells Fargo employees requested and issued debit cards without consumers knowledge or
consent, going so far as to create PINs without telling consumers.
4. Creating phony email addresses to enroll consumers in online-banking services: Wells Fargo employees created phony email addresses not belonging
to consumers to enroll them in online-banking services without their knowledge or consent.

Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unauthorized Accounts
Todays order (20160908) goes back to Jan. 1, 2011.
Among the things the CFPBs order requires of Wells Fargo:
1. Pay full refunds to consumers: Wells Fargo must refund all affected consumers the sum of all monthly maintenance fees, nonsufficient fund fees,
overdraft charges, and other fees they paid because of the creation of the unauthorized accounts. These refunds are expected to total at least $2.5
million. Consumers are not required to take any action to get refunds to which they are entitled.
2. Ensure proper sales practices: Wells Fargo must hire an independent consultant to conduct a thorough review of its procedures. Recommendations
may include requiring employees to undergo ethical-sales training and reviewing the banks performance measurements and sales goals to make sure
they are consistent with preventing improper sales practices.
3. Pay a $100 million fine: Wells Fargo will pay a $100 million penalty to the CFPBs Civil Penalty Fund. Todays penalty is the largest the CFPB has
imposed to date.