The Wells Fargo Bank Fraud and Its Impact on Ordinary Americans

The Wells Fargo Bank Fraud and Its Impact on Ordinary Americans

One of the most scandalous reports from the world of retail banking made headlines in 2016: Wells Fargo, the third largest national bank in the United States, agreed to pay federal regulators a $185 million fine over allegations of a massive scheme consisting of the creation of accounts that were either fake or never authorized by existing customers.

 

The federal investigation revealed a disturbing practice that started around 2011, a few months after Wells Fargo had completed repayment of the government bailout funds received in the wake of the 2008 financial crisis. Former employees at Wells Fargo were pushed into selling retail banking services and hitting sales quotas; this high pressure tactic resulted in a boiler room environment that involved employees slamming existing customers with credit cards and savings accounts that charged small service fees.

 

Thousands of Employees Blamed

One of the problems with the Wells Fargo scandal is the bank’s decision to fire more than 5,000 employees, who were supposedly involved in the scheme, over the last two years. As soon as news of the scandal surfaced, regulators and Members of Congress were incensed. Former Wells Fargo CEO John Stumpf was called to testify before Congress, where he was grilled by Senator Elizabeth Warren. Stumpf took early retirement and was required to forego exit bonuses.

 

The fallout from the Wells Fargo scandal is currently unveiling in the form of lawsuits by former employees who claim that upper management and executives condoned the egregious practice of slamming. More damaging, however, are the lawsuits emanating from affected customers and even the potential for criminal charges.

 

The Identity Theft Problem at Wells Fargo

As expected, lawsuits from Wells Fargo account holders affected by the scandal are being filed; however, the bank quickly went to federal court to try to force the plaintiffs into arbitration. This legal move had an immediate effect of angering Senator Warren, who believes that Wells Fargo is shying away from responsibility.

 

The Consumer Financial Protection Bureau could make the arbitration clause, which all bank customers agree to when they open their accounts, less stringent for these situations. With the looming Trump administration, however, there is a chance that CFPB may be removed along with other consumer protection provisions of the Dodd-Frank Act.

 

Meanwhile, the California Office of the Attorney General has been investigating the Wells Fargo scandal as a potential fraud and identity theft case. Thus far, the Attorney General has requested human resources files and email correspondence related to the fraudulent accounts opened since 2011. The records are being requested as the execution of a search warrant, which was granted on the basis of probable cause of violations of California law.

 

The Impact of the Wells Fargo Scandal

With more than 5,000 employees allegedly involved in this scheme, it is unlikely that they will be subject to criminal charges; however, this may not be the case for higher level managers at Wells Fargo. The egregious conduct of sales managers and supervisors at Wells Fargo will likely erode the trust that Americans are expected to have in major financial institutions, which are supposed to protect against identity theft and fraud, not to cause it.