Huge Consumer Scam Results in Paltry Fines—and Little Else—for Wells Fargo

Banking behemoth Wells Fargo, one of the world’s largest financial institutions, was fined a mere $185 million by various regulators on Thursday for opening millions of unauthorized accounts that racked up fees for consumers and bonuses for employees. 

The biggest fine came from the Consumer Financial Protection Bureau (CFPB), which levied its largest-ever penalty: $100 million. The Los Angeles City Attorney and the Office of the Comptroller of the Currency were also party to the settlement.

“Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses,” said CFPB director Richard Cordray on Thursday. “Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed.”

According to the CFPB, those violations included:

• According to the bank’s own analysis, employees opened roughly 1.5 million deposit accounts that may not have been authorized by consumers. Employees then transferred funds from consumers’ authorized accounts to temporarily fund the new, unauthorized accounts. This widespread practice gave the employees credit for opening the new accounts, allowing them to earn additional compensation and to meet the bank’s sales goals. Consumers, in turn, were sometimes harmed because the bank charged them for insufficient funds or overdraft fees because the money was not in their original accounts.
• According to the bank’s own analysis, Wells Fargo employees applied for roughly 565,000 credit card accounts that may not have been authorized by consumers. On those unauthorized credit cards, many consumers incurred annual fees, as well as associated finance or interest charges and other fees.
• Wells Fargo employees requested and issued debit cards without consumers’ knowledge or consent, going so far as to create PINs without telling consumers.
• .

In addition to the $185 million in fines, Wells Fargo will refund all affected consumers, to the tune of roughly $2.5 million.

“When I worked at Wells Fargo, I faced the threat of being fired if I didn’t meet their unreasonable sales quotes every day, and it’s high time that Wells Fargo pays for preying on consumers’ financial livelihoods,” Khalid Taha, a former employee, said in a statement to Bloomberg.

But many critics said the penalties didn’t go far enough, considering that, as Matt Egan put it for CNN Money, “The scope of the scandal is shocking.”

“This ‘record breaking fine’ is a rounding error compared to Wells Fargo’s second quarter profits of $5.6 billion.”
—Yves Smith, Naked Capitalism

“It sounds like a big number, but for a bank the size of Wells Fargo, it isn’t really,” David Vladeck, a Georgetown University law professor and former director of the Federal Trade Commission’s Bureau of Consumer Protection, told Egan.

Indeed, wrote Yves Smith at Naked Capitalism:

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Furthermore, Alicia Adamczyk pointed out at Money, “the almost $200 million fine won’t come out of the pockets of wealthy bank executives who established the aggressive sales goals that led to widespread fraud. Wells Fargo shareholders are on the hook for that. And you’re probably one of them.”

As analyst and commentator Josh Brown explained at his blog, Reformed Broker: