Overview of the Wells Fargo Scandal
The past couple of years have been a nightmare for Wells Fargo. The multibillion dollar company has fired thousands of employees, been hit with billions of dollars in legal fees, and been sued many times. All of this happened because of the shady and dishonest acts from some of their employees. Wells Fargo employees made a huge mistake in 2016, and their actions ultimately got them fired, hurt the Wells Fargo brand, and cost the company billions of dollars. Wells Fargo is still dealing with the aftermath of these employees’ actions today in 2018.
In September of 2016, the first allegations against Wells Fargo came out. On September 8th, 2016 federal regulators revealed that Wells Fargo employees have secretly created millions of unauthorized bank and credit card accounts without their customers knowledge. They ended up getting fined $185 million dollars, and 5,300 employees were fired for reasons related to the incident. A Government official told CNN the Department of Justice issued a subpoenas in a probe related to the fake account scandal. A subpoena is also known as a witness summons. According to Wikipedia, a subpoena is issued by a government agency, a court being the most likely to issue it, and it compels a testimony by a witness or production of evidence under a penalty for failure. A few weeks after the initial allegations, Wells Fargo CEO John Stumpf forfeited some of his pay. He said he will give up much of his 2016 salary, including a bonus and $41 million in stock awards. The first major executive also left the company on the same day. Carrie Tolstedt, who was head of the division that created the fake accounts, stepped down and forfeited some of her pay. Just a day later Wells Fargo was accused of illegally repossessing service members’ cars. The company agreed to pay $24 million to settle the charges. The Department of Justice claimed the bank took four hundred and thirteen cars without a court order, which violated federal law. Wells Fargo apologized for the incident and committed to refund the people they wronged.
Wells Fargo was beginning to be swarmed with the media and they needed to act fast. The next day Wells Fargo came out and said they promised to abandon unrealistic sales goals. John Stumpf said this was driven by a desire to “focus on rewarding excellent customer service rather than product sales.” This statement was short-lived with the already angry multitude of customers and government officials. Wells Fargo employees blamed their bosses for effectively encouraging the making of the fake accounts. Before the lawmakers on Capitol Hill, Stumpf is accused of running a “criminal enterprise.” But the allegations didn’t end there. In October, California’s attorney general opened an investigation into possible identity fraud related to the fake account scandal.
With all the allegations piling up, Stumpf decided to step down on October 12, 2016. Wells Fargo stated he would retire effective immediately. In early November, a new public filing from the bank disclosed that the securities and exchange commission would investigate the bank for issues related to the creation of around 2 million fake accounts. Surprisngly, a month later Wells Fargo was punished by federal regulators for their actions that were actually unrelated to the fake account scandal they have been facing recently. The bank was punished for failing to comply with some provisions of the Dodd-Frank act, which was meant to better regulate the banks and help protect the consumers.
Moving on to 2017, Wells Fargo’s problems continued. Less than a month into the new year, Wells Fargo acknowledged there could be some potential worker retaliation. They said there were signs that the bank retaliated against its workers who tried to “blow the whistle” on the fake accounts, CNN says. A month later, four senior employees were fired by Wells Fargo. The cause of this firing was because the employees either currently worked in or used to work in the Wells Fargo community bank division, which is where the fake account scandal was said to have started. These allegations against the company did not only affect them legally, the overall company image fell as well. A federal agency accused Wells Fargo of “egregious, discrimitory, and illegal” practices, reports CNN. Later, a top federal banking regulator severely downgraded Wells Fargo’s community lending rating. The decision to downgrade the rating stemmed from factors beyond the fake account scandal. On March 27th, 2017, Wells Fargo settled for their first class action lawsuit. The company agreed to pay $100 million to customers affected by their actions.
Just two weeks later, former executives are asked to give money back to the bank. The bank ended up taking $75 million from two former executives, one of them being the former CEO John Stumpf. Stumpf ended up giving back $28 million to Wells Fargo. At the same time, the Wells Fargo board revealed the bank prepared an internal report all the way back in 2004 that showed some practices may have encouraged some employees to create fake accounts. At the end of April, the bank’s cost of a settlement skyrocketed. The settlement in the class action suit against Wells Fargo was increased to $142 million. This marked a dead zone in the allegations. Nothing major really happened until the summer.
Once June came along, new allegations hit the company. A new lawsuit struck Wells Fargo, accusing the banking company of modifying mortgages without authorization from the customers. That meant some customers could have ended up paying more than they owed. It was unclear how many people were affected, but Wells Fargo strongly denied the claims against them. A month later new allegations were revealed. Wells Fargo admitted to changing at least 570,000 employees for auto insurance they didn’t need. An internal review within the company found about 20,000 customers may have defaulted on car loans for reasons related to the allegations. Just a week later Wells Fargo was sued for ripping small businesses. A lawsuit accused Wells Fargo of overcharging smaller businesses for credit card transactions. They were accused of using a deceptive 63 page contract to confuse them. At the end of August, more fake accounts were discovered. Wells Fargo said they found 1.4 million more fake accounts. That number would bring the total number of discovered fake accounts up to 3.5 million. Wells Fargo also ended up admitting to wrongly fining mortgage clients. The company admitted 110,000 mortgage holders were fined for missing a deadline even though the delays were the company’s fault. Wells Fargo pledged to refund all of the consumers affected by their actions.
The fines just wouldn’t stop coming for Wells Fargo. Regulators said the company sold dangerous investments it didn’t understand. The regulators ordered the bank to pay back $3.4 million to brokerage customers because advisers recommended products that were highly likely to lose value over time. Wells Fargo didn’t admit or deny the charges. A month later Wells Fargo admitted to illegally repossessing more service members’ cars. The company said they found that it had taken vehicles from another 450 service members. They agreed to pay an additional $5.4 million, according to the Justice Department. The company promised refunds to the people affected.
Wells Fargo’s problems continued into 2018. The Federal Reserve punished Wells Fargo and said the bank won’t be allowed to grow it’s assets until the company cleaned up it’s act. This resulted in Wells Fargo agreeing to overhaul it’s board of directors. Sacramento, California got involved with Wells Fargo. The city accused the bank of a “long-standing pattern and practice” of illegal lending in minority and low-income communities that ended up lowering home values, limited property tax revenue and drove up the amount of foreclosures. Wells Fargo fired back and said the allegations “do not reflect how we operate in the communities we serve” and says it will “vigorously defend” it’s lending record reports CNN. A month after these allegations, the consumer financial protection bureau and the office of the Comptroller of the Currency announced they are fining Wells Fargo $1 billion for the car insurances and mortgage abuses. As of now, the total amount of money Wells Fargo has had to pay for all of their allegations has exceeded $2 billion.
Over the course of the last 3 years, Wells Fargo has undergone a plethora of fines, lawsuits, and is continuing to deal with a falling public opinion. They have been scrutinized over multiple scandals branching out from their original fake account creation scandal. Because of their actions, Wells Fargo has had to pay billions of dollars, and lost many customers, and employees. Over the course of their fraudulent actions, Wells Fargo has lost their CEO, 4 major executives, and over 5,000 employees. From a business perspective, they attempted to make themselves more money in secret, but have ended up losing billions, and crushed their company image in the process.
From a class perspective, what can we learn? What I think this class can get out of this case is that Wells Fargo pulled multiple fraudulent actions, and the outcome of those actions severely hurt the company. In the business field, running a company, we must make sure we ethically run our business. From an employee standpoint, we must ethically carry out our job duties. The negative impact from trying to sneak their way into gaining more wealth ended up severely haunting them in the end. Wells Fargo’s reputation has become fairly negative in the eyes of a lot of consumers and employees, and they will be dealing with their consequences of their actions for quite some time.
- Wattles, Jackie, Geier, Ben, Egan, Matt, and Weiner-Bronner, Danielle. “Wells Fargo’s 20 Month Nightmare.” CNN Business, 24 Apr. 2018,
- https://money.cnn.com/2018/04/24/news/companies/wells-fargo-timeline-shareholders/index.html. Accessed 12 Nov 2018.
- Levine, Matt. “Fake Accounts Still Haunt Wells Fargo.” Bloomberg Opinion, 23 Oct. 2018.
- https://www.bloomberg.com/opinion/articles/2018-10-23/fake-accounts-still-haunt-wells-fargo . Accessed 14 Nov 2018.
- “Whistleblower: Wells Fargo Fraud ‘Could have been stopped.’” CBS News, 03 Aug. 2018.
- https://www.cbsnews.com/news/whistleblower-wells-fargo-fraud-could-have-been-stopped/. Accessed 14 Nov 2018.