NEW YORK • For years, Wells Fargo employees secretly issued credit cards without a customer's consent. They created fake e-mail accounts to sign up customers for online banking services. They set up sham accounts that customers learnt about only after they started accumulating fees.
On Thursday, these illegal banking practices cost Wells Fargo US$185 million (S$251 million) in fines, including a US$100 million penalty from the Consumer Financial Protection Bureau, the largest such penalty the agency has issued.
Federal banking regulators said the practices, which date back to 2011, reflected serious flaws in the internal culture and oversight at Wells Fargo, one of the largest banks in the United States. The bank has fired at least 5,300 employees who were involved.
In all, Wells Fargo employees opened about 1.5 million bank accounts and applied for 565,000 credit cards that may not have been authorised by customers, the regulators said. The bank has 40 million retail customers.
Some customers noticed the deception when they were charged unexpected fees, received credit or debit cards in the mail that they did not request, or started hearing from debt collectors about accounts they did not recognise. But most of the sham accounts went unnoticed, as staff would routinely close them soon after opening them. Wells Fargo has agreed to refund about US$2.6 million in fees that may have been inappropriately charged.
Wells Fargo is famous for its culture of cross-selling products to customers - routinely asking, say, a current account holder if she would like a credit card. Regulators said bank staff had been motivated to open the unauthorised accounts by compensation policies that rewarded them for opening new accounts; many current and former Wells Fargo employees told regulators they had felt extreme pressure to open as many accounts as possible.
"Unchecked incentives can lead to serious consumer harm, and that is what happened here," said Mr Richard Cordray, director of the Consumer Financial Protection Bureau.
Wells Fargo said those fired included managers. A bank spokesman declined to say whether any senior executives had been reprimanded or fired in the scandal.
"Wells Fargo is committed to putting our customers' interests first 100 per cent of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request," the bank said in a statement.
One Wells Fargo customer in California, Mr Shahriar Jabbari, had seven additional accounts that he did not consent to, according to a lawsuit he filed against the bank last year in federal court.
When Mr Jabbari called the bank asking what he should do with three new debit cards he did not authorise, a bank employee told him to dispose of them, according to the lawsuit. Mr Jabbari said in the lawsuit that his credit score had suffered because unpaid fees on the unauthorised accounts had been sent to a debt collector.
Banking regulators said the widespread nature of the illegal behaviour showed that the bank lacked the necessary controls and oversight of its employees.
"If the managers are saying, 'We want growth; we don't care how you get there,' what do you expect those employees to do?" said Mr Dan Amiram, an associate business professor at Columbia University.
NEW YORK TIMES