People should always feel a sense of confidence and trust when they enter any bank, and that financial institution should be nothing but welcoming to any person crossing the business’ threshold.
That’s how banks stay in business. Whenever that public trust falters, the bank generally is in trouble.
Wells Fargo stands out as a case study over allegations that bank employees opened up to millions of unauthorized accounts to meet sales quotas. Wells Fargo Chief Executive John Stumpf was grilled Tuesday by members of the Senate Banking Committee over the goings-on at the mega-bank.
Stumpf apologized for the bank’s irresponsible action and slow response, promising now to aid customers whose credit has been negatively affected.
Wells Fargo sales employees under pressure to meet sales goals that called for every customer to have eight products with the bank, opened more than 2 million potentially unauthorized bank and credit card accounts. Regulators who disclosed the unsavory practice levied a $185 million fine against the bank.
Money in customers accounts was thought to have been moved to the new unauthorized accounts. Debit cards were issued and activated with PINs being created without customers’ knowledge. Regulators reported that in some cases, email addresses were created to sign up customers for online banking services.
Under the settlement, Wells Fargo neither admitted nor denied the allegations. About 5,300 employees with the mega-bank have been fired. Stumpf said they included “bankers, bank managers, managers of managers and even an area president” whose salaries ranged from about $35,000 to $65,000.
Wells Fargo will eliminate the sales targets by Jan. 1. That should have happened yesterday.
Massachusetts Sen. Elizabeth Warren labeled the sales practices a “scam” and called for Stumpf to resign.
“You squeezed your employees to the breaking point so they would cheat customers,” Warren said. “You should resign. You should give back the money you took while the scam was going on.”
Warren questioned whether Stumpf and other Wells Fargo senior executives had no knowledge of the problems until 2013 when the Los Angeles Times reported the sales misconduct. The practice apparently started at least in 2009, The Associated Press reports.
To add insult to injury, Carrie Tolstedt announced in July that she was retiring as head of the retail banking business. It was under her watch that the shenanigans occurred, yet she is expected to exit with as much as $125 million in salary, stock options and other compensation.
Stumpf took the Senate committee grilling for nearly three hours. In the end, he didn’t have to worry. Like many mega-banks, Wells Fargo is in that “too big to fail” league.
This flap will blow over just as the subprime mortgage scam and other banking shadiness did after taking the country into the Great Recession. The bailout by the government was expected then just as it will be in the future.
The average American takes the hit both in absorbing the cost in damaged credit and the tax burden that mega-bank bailouts create. Also lost is public trust in banks and in governments at a time when neither can afford any more losses.