Daily Record Business Writer//September 30, 2016
//Daily Record Business Writer
//September 30, 2016
An independent review of Wells Fargo credit card and deposit accounts has determined that more than 15,000 accounts in Maryland may have been unauthorized, a practice found among Wells Fargo accounts across the country and one that has put the third-largest bank in the United States under intense scrutiny.
Wells Fargo worked with PricewaterhouseCoopers to investigate 93.5 million credit card and deposit accounts nationwide, of which 2 million were flagged for potentially being unauthorized. Of those accounts, 115,000 were found to have fees associated with them.
Of the 15,391 Wells Fargo accounts in Maryland that were flagged as unauthorized, 524 incurred fees, such as late payment or overdraft fees. A Wells Fargo spokeswoman added that some of the flagged accounts may have been false positives in instances where a customer signed up for a credit card but never activated it. Customers that incurred such fees were given a $25 refund on average. There are about 1.36 million deposit account and credit card holders in Maryland.
“Even if one customer received a product they did not request, it is unacceptable and contrary to our culture of doing what’s right for customers. We regret and take full responsibility for the incidents in which customers received a product they did not request,” the bank said in a statement Friday.
Wells Fargo is the fifth-largest bank in Maryland, with a 7.5 percent market share and $9.6 billion in deposits. The bank has 86 retail stores and just over 4,000 employees in the state, making Maryland a middle-of-the-road market for the bank compared to other states.
Earlier this month, San Francisco-based Wells Fargo agreed to pay a $185 million fine for allegedly opening more than 2 million unauthorized accounts to meet sales goals. That fine included $100 million to the Consumer Finance Protection Bureau, the largest payment in the agency’s five-year history.
Some 5,300 Wells Fargo employees were fired amid those revelations.
The bank’s board also determined that CEO John Stumpf will give up $41 million in unvested equity awards and his salary during the investigation, widely considered one of the harshest punishments ever against the head of a financial institution. Wells Fargo’s former head of community banking Carrie Tolstedt, who allegedly oversaw the banking practices, will forfeit $19 million in unvested equity awards.
Wells Fargo announced that it is eliminating product sales goals in retail banking, effective Oct. 1.
The bank is contacting deposit customers to review accounts and credit card customers to confirm that they want their accounts. Wells Fargo said it also has been in touch with credit bureaus to remedy issues with customers’ credit scores. The CFPB has encouraged Wells Fargo customers to closely monitor their accounts for any unauthorized products or activity.
Wells Fargo is required by the CFPB to provide full refunds to consumers for any fees incurred because of the bank’s illegal conduct. Customers don’t need to take any action to get that money.
‘A national shame’
The offending account management practices have played out on a complaint database set up by the CFPB to monitor consumer complaints in the financial industry. The database has numerous complaints over the past two years among Wells Fargo customers in Maryland.
On Aug. 28, 2015, one such customer filed a complaint with the CFPB to report that the bank had signed the complainant up for a personal loan without their knowledge.
“(I) was forced to sign a document not knowing what i signed for and not knowing what the document is,” the complainant wrote. “(Wells) fargo pulled my credit and lower my score without my consent. the unethical practice is unbelievable and the bank should be a national shame.”
In March, another Maryland customer filed a complaint that he or she was required to pay $500 in collateral to secure a business credit card with Wells Fargo. The complainant tried to cancel the card because Wells Fargo allegedly put unauthorized charges on the account but was unable to get the collateral check back.
“The impression I have is this: they want me to open a bank account with their bank. What they would do is charge fees I have not authorize or try to mess up my credit report. I do not appreciate being muscled by irresponsible and dishonest people. I would like Wells Fargo to return the security deposit I made in good faith,” the complainant wrote.
Those are two of about a dozen complaints Maryland customers have filed online with the CFPB against Wells Fargo in the past two years that align with complaints of cross-selling and other unauthorized actions.
The CFPB complaint database has been criticized for having inaccurate information, but CFPB officials say it’s one of many resources the agency uses to monitor banks. When a customer files a complaint on the database, the financial institution must confirm that it has a relationship with the customer and respond to the complaint within 60 days after that confirmation.
The CFPB learned about the problems at Wells Fargo in the summer of 2013 through a whistleblower.
One lawmaker’s suggestion
As a national bank, Wells Fargo is primarily regulated by the Office of the Comptroller of the Currency. At the state level, the Maryland Attorney General’s Office of Consumer Protection is accepting tips about unwanted accounts or other possible illegal activity related to Wells Fargo accounts, but a spokeswoman for the office declined to confirm or deny whether the office is looking into any wrongdoing.
State Sen. Anthony Muse, D-Prince George’s County, said on his Facebook page that Maryland should follow California’s lead and sever business ties with the bank. His post drew references to a 2012 settlement with the Department of Justice in response to allegations that Wells Fargo engaged in lending practices that discriminated against Hispanics and African Americans.
“Maryland should also consider what California has done,” Muse wrote. “This bank admitted steering bad loans to our state based on race and to poor people regardless of race. We should not allow them to do business here. My office is still receives complaint after complaint as they never changed their ways. Maryland should do what California did and I am going to work hard to see that we do.”
A Wall Street Journal analysis of the CFPB database found that the number of similar complaints in the database against many large banks was comparable with Wells Fargo. For example, 1,722 Citibank customers complained about account management issues in the 21-month period studied in the analysis, which translates to 1.8 complaints per $1 billion deposits, compared to Wells Fargo’s 1.3 complaint-to-deposit ratio.
More than a ‘few bad apples’
Those numbers suggest that Wells Fargo’s conduct could be symptomatic of larger problem in the industry.
“The gravity and breadth of the fraud that occurred at Wells Fargo cannot be pushed aside as the stray misconduct of just a few bad apples,” said CFPB Director Richard Cordray in his testimony in front of the Senate Committee on Banking, Housing, and Urban Affairs on Sept. 20. “Stunning nature and scale of these practices reflects instead the consequences of a diseased orchard.”
That said, cross-selling products to customers is a widespread practice and not necessarily a bad thing, unless it is unregulated and leads to fraudulent activity as it did at Wells Fargo, said Cordray.
“This is a common approach, and it should lead banks to devote more attention and resources to strong customer service, since the easiest and best way to earn more business from existing customers is by giving them superior value and excellent service,” he said. “But what happened here instead is that Wells Fargo built an incentive-compensation program that made it possible for its employees to pursue underhanded sales practices, and it appears that the bank did not monitor the program carefully.”
This is a line that is very important to Kathleen Murphy, president and CEO of the Maryland Bankers Association.
“Sales goals for any organization are a prudent way to move that organization forward but it has to be with proper management and board oversight,” said Murphy. “If there’s a breach of that trust, then it causes everyone to step back and make sure that their policies and procedures are in place.”
Murphy hopes regulators see this as an instance where safeguards worked and will not institute more regulations that are onerous for community banks, which make up the bulk of Maryland’s banking industry.
“It’s important for us to continue to communicate to our policymakers … to not overreact and put new layers of requirements in place that could hamper banks’ ability to continue to serve their customers.”