UPDATED: Comptroller Sanctions Wells Fargo; CFPB Fines It $100 Million


Wells Fargo — the largest U.S. bank by market value — found itself on the receiving end of a $100 million fine. Levied by the Consumer Financial Protection Bureau (CFPB) for the “widespread illegal practice of secretly opening unauthorized deposit and credit card accounts.” The issue? Cross-selling of products and sales tactics.

On top of the $100 million to be paid to the CFPB, Wells Fargo will additionally pay a $35 million penalty to the Office of the Comptroller of the Currency and another $50 million to the City and County of Los Angeles.

This marks the third regulatory ding Wells Fargo has endured as of late. A few weeks ago, the CFPB hit the bank with a fairly robust fine over student lending practices it labeled “highly deceptive.” Wells Fargo — like so many banks before it — has agreed to pay the fee without formally admitting guilt of any kind.

At issue in the current double-barrel action from the CFPB and the Comptroller is the sales culture at Wells Fargo and whether employees were pushed into meeting sales targets by any means necessary.

Last May, Los Angeles filed suit against the bank for allegedly pressuring employees to commit blatant frauds, like opening accounts for nonexistent people or opening accounts for consumers without their consent. At hand is the issue of cross-selling, the widespread industry practice of selling different financial services to current customers — i.e., pushing a credit card on a checking customer.

This practice is not illegal — or discouraged.

Rather, Wells Fargo is being fined because regulators have found that the bank set employee benefits and rewards around the amount of cross-selling employees could do and then looked the other way while they created a myriad of fraudulent accounts using customer information to boost their numbers.

Among the behaviors called out by the CFPB decision against Wells Fargo: opening deposit accounts and transferring funds without authorization, applying for credit card accounts without authorization, issuing and activating debit cards without authorization and creating phony email addresses to enroll consumers in online banking services.

Mary Eshet — a bank spokeswoman — has previously noted the bank denies the allegations against it. She has also noted that the bank doesn’t require, coach or encourage managers to frequently discuss sales goals and that providing customers with products they don’t want or value doesn’t benefit the bank. She also noted that the bank does “extensive training” with employees on proper sales techniques.

The fine is the largest of its kind ever levied by the CFPB — a necessity, according to CFPB Director Richard Cordray, due to the extent of the illegality on display.

“Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses,” Cordray said. “Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed. Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences.”

And Wells has acted on some of the charges already. Wells Fargo confirmed to CNNMoney that it had fired 5,300 employees over the last few years related to the shady behavior, such as creating phony PIN numbers and fake email addresses to enroll customers in online banking services.

But the alleged scale of the fraud remains a bit staggering. Wells Fargo concluded that bank employees opened over 1.5 million deposit accounts that may not have been authorized. On top of that, Wells Fargo employees also submitted applications for 565,443 credit cards without customers’ consent or knowledge. Those accounts rang up about $400,000 in fees, including annual fees, interest charges and overdraft protection fees.

And Wells Fargo does continue to push those credit products. Since July, it has been hosting the “Great Rate Event,” running through Sept. 30, which emphasizes savings on credit products. Eshet noted such promotions are common in banking.