Wells Fargo Paying $3 Billion To Settle U.S. Case Over Fraudulent Customer Accounts

Feb 21, 2020
Originally published on February 21, 2020 5:40 pm

Wells Fargo has agreed to pay $3 billion to settle charges that the bank engaged in fraudulent sales practices for more than a decade.

The company acknowledged collecting millions of dollars in fees for bank accounts, debit cards and other products that customers neither asked for nor needed. The illegal practices were carried out by thousands of Wells Fargo employees in order to meet unrealistic sales targets.

"When companies cheat to compete, they harm customers and other competitors," Deputy Assistant Attorney General Michael Granston said in a statement.

The $3 billion penalty is appropriate, "given the staggering size, scope and duration of Wells Fargo's illicit conduct," added Andrew Murray, U.S. attorney for the Western District of North Carolina.

Authorities say bank managers were aware of the illegal conduct as early as 2002 but allowed it to continue until 2016.

"This case illustrates a complete failure of leadership at multiple levels within the Bank," said Nick Hanna, U.S. attorney for the Central District of California. "Simply put, Wells Fargo traded its hard-earned reputation for short-term profits, and harmed untold numbers of customers along the way."

The Justice Department says a cornerstone of Wells Fargo's business model during this period was a "cross-sell strategy," in which existing customers were encouraged to open additional accounts and buy other financial products. In order to meet onerous sales targets, prosecutors say employees often opened accounts without customers' knowledge or consent — forging signatures, moving money from existing accounts and altering customers' contact information to avoid detection.

"We are hopeful that this $3 billion penalty, along with the personnel and structural changes at the Bank, will ensure that such conduct will not reoccur," Hanna said.

Wells Fargo reported net income of $2.9 billion in its most recent quarter.

"The conduct at the core of today's settlements — and the past culture that gave rise to it — are reprehensible and wholly inconsistent with the values on which Wells Fargo was built," CEO Charlie Scharf said in a statement. "We are committing all necessary resources to ensure that nothing like this happens again."

None of the $3 billion penalty will go to Wells Fargo customers. The bulk of the fine will go to the U.S. Treasury, while $500 million will go to the Securities and Exchange Commission to be distributed to investors. Previous fines and settlements have gone to customers who suffered financial harm, including downgrades of their credit ratings. The bank has made additional payments to settle complaints over mortgage abuses and the sale of unnecessary auto insurance.

In addition to the civil penalties, the Justice Department agreed to defer criminal prosecution of Wells Fargo, as long as the bank meets certain conditions for three years. Authorities noted that the bank has already made significant changes to its management and board of directors.

The settlement does not preclude additional action against individuals who took part in the illegal scheme.

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AUDIE CORNISH, HOST:

Wells Fargo has agreed to pay $3 billion to settle federal charges that the bank engaged in fraudulent sales practices for more than a decade. The bank has acknowledged setting up millions of checking accounts, debit accounts and other financial products that customers never asked for. Prosecutors say the fraud was carried out by thousands of Wells Fargo employees who were under pressure to meet aggressive sales targets. NPR's Scott Horsley joins us now.

Welcome back.

SCOTT HORSLEY, BYLINE: Hi, Audie.

CORNISH: Three billion sounds like a major fine, but we're talking about a bank. So how big a hit is this?

HORSLEY: You know, this settlement was announced after the market closed, but it had been rumored while traders were still busy. And Wells Fargo investors seemed to welcome this deal. The bank shares actually gained about three-quarters of a percent today on what was generally a down day for Wall Street.

Three billion dollars is roughly equivalent to the profits that Wells Fargo recorded in its most recent quarter. Now, prosecutors say this fine is appropriate given what they call the staggering size, scope and duration of this scheme. Nick Hanna, who is the U.S. attorney in Los Angeles, said Wells Fargo managers were aware of the illegal conduct all the way back in 2002, but they looked the other way and allowed it to continue until 2016.

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NICK HANNA: Simply put, Wells Fargo traded its hard-earned reputation for short-term profits and harmed untold numbers of customers along the way.

CORNISH: What was the bank's motivation? I mean, we talked about the idea that employees were, like, under pressure for sales targets.

HANNA: Right. The Justice Department says a cornerstone of Wells Fargo's business model during this period was what they called the cross-sell strategy, in which existing customers were encouraged to open new accounts and buy other financial products. Now, there's nothing wrong with that in principle if you're giving customers what they want, but prosecutors say in this case, the bank set really aggressive sales targets. And to meet those targets, bank employees wound up giving customers products they didn't want and didn't even know they were getting. The facts spelled out in the settlements say bank employees would often open accounts in customers names without their knowledge or consent, sometimes forging signatures, moving money from the customer's other accounts, even altering customer's contact information so they wouldn't be called by other bankers and accidentally tipped off to the scheme.

Now there were red flags early on. Investigations by the bank itself flagged this conduct years ago. They called it a growing plague. They warned it was spiraling out of control. But those warnings were ignored, and Hanna says the case illustrates what he called a complete failure of leadership at multiple levels.

CORNISH: There was so much criticism of that bank's leadership. What's happened to them?

HORSLEY: Already there have been a lot of changes. There's a new CEO at Wells Fargo, and he said today he's committing all necessary resources to make sure nothing like this happens again. They've also shuffled their board of directors. And those changes in leadership are one reason the Justice Department agreed not to pursue criminal charges against Wells Fargo as a corporation. That does not preclude future prosecution, though, of some of the individuals who were involved. The company's former CEO John Stumpf has already been hit with a big regulatory fine, and he's been barred from the banking industry for the rest of his life.

CORNISH: And what about Wells Fargo customers?

HORSLEY: They are not getting any of this $3 billion. Wells has paid other fines and settlements over the years that are intended to compensate customers who either had to pay account fees for accounts they didn't want or suffered other financial harm. But prosecutors say this fine is really a - it's not about compensation. It's about punishing the bank and deterring this kind of behavior in the future. So half a billion of the $3 billion is going to go to the Securities and Exchange Commission for distribution to Wells Fargo investors, and the other $2 1/2 billion is going to go to the U.S. Treasury.

CORNISH: That's NPR's Scott Horsley.

Thanks for your reporting.

HORSLEY: You're welcome.

(SOUNDBITE OF TORTOISE'S "TEN-DAY INTERVAL") Transcript provided by NPR, Copyright NPR.

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