The Consumer Financial Protection Bureau levied the largest fine in its history — $100 million — against Wells Fargo Thursday for the "widespread unlawful" practices of employees who opened more than 2 million fake accounts to get sales bonuses.
“Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed," said CFPB Director Richard Cordray. "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.”
According to a CFPB press release, Wells Fargo employees secretly opened deposit and credit accounts under existing customers' names without their knowledge, which often racked up fees or other charges. From the release:
In recent years, the bank has sought to distinguish itself in the marketplace as a leader in “cross selling” these products and services to existing customers who did not already have them. When cross selling is based on efforts to generate more business from existing customers based on strong customer satisfaction and excellent customer service, it is a common and accepted business practice.
But here the bank had compensation incentive programs for its employees that encouraged them to sign up existing clients for deposit accounts, credit cards, debit cards, and online banking, and the bank failed to monitor the implementation of these programs with adequate care.
Wells Fargo has agreed to pay the CFPB's fine, along with another $85 million to the Office of the Comptroller of the Currency and the city and county of Los Angeles, without admitting or denying the allegations.
The scandal first came to light thanks to reporting by the Los Angeles Times in 2013, which spurred a lawsuit filed last year by Los Angeles City Atty. Mike Feuer, which then caught the attention of federal regulators.
According to an LA Times article published Thursday, "The bank had consistently said such practices were not widespread and that workers who cheat to meet sales goals are disciplined or fired."
Instead, the CFPB's Consent Order states that over a five year period Wells Fargo fired roughly 5,300 employees for engaging in improper sales practices. These included:
- Opening deposit accounts and transferring funds without authorization
- Applying for credit card accounts without authorization
- Issuing and activating debit cards without authorization
- Creating phony email addresses to enroll consumers in online banking services
Under the CFPB's order, Wells Fargo must:
- Pay full refunds to consumers, including the sum of all monthly maintenance fees, nonsufficient fund fees, overdraft charges, and other fees they paid because of the creation of the unauthorized accounts. These refunds are expected to total at least $2.5 million.
- Ensure proper sales practices by hiring an independent consultant to conduct a review of its procedures.
- Pay a $100 million fine to the CFPB’s Civil Penalty Fund.
The CFPB stated that it levied the fines under the authority it was granted by the Dodd-Frank Act to "take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices," according to the bureau. That authority has been questioned by Republicans in Congress for years, and it will be specifically considered by the House Financial Services Committee on Sept. 13, the committee announced Thursday.