Wells Fargo Fined $100 Million for Secretly Opening Unauthorized Accounts

Thousands of bank employees opened the accounts to meet sales targets and receive incentives

Wells Fargo Fined $100 Million for Secretly Opening Unauthorized Accounts
September 8, 2016

The Consumer Financial Protection Bureau (CFPB) has fined Wells Fargo Bank $100 million for illegally and secretly opening unauthorized debit and credit card accounts.

The bank put in place sales targets and financial incentives that spurred thousands of employees to boost sales figures by opening accounts in secret and then funding the accounts with funds transferred from the consumers' authorized accounts without the knowledge or consent of the consumers, often incurring fees and charges in the process.

Wells Fargo conducted an analysis that concluded that its employees may have opened more than two million of these accounts.

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

The bank will pay full restitution to all affected customers. It will also pay a $100 million fine to the CFPB's Civil Penalty Fund, a $35 million penalty of the Office of the Comptroller of the Currency, and $50 million to the City and County of Los Angeles.

One of the largest banks in the U.S. , Wells Fargo has been attempting in recent years to set itself apart from competitors by becoming a leader in "cross selling" consumer financial products and services to its customers who did not have them. This business practice is fine as long as it results from efforts to obtain more business from existing customers out of high customer satisfaction and quality customer service. The problems in Wells Fargo's case are that it had in place employee compensation incentive programs and that it did not correctly monitor how those programs were effected.

The Dodd-Frank Wall Street Reform and Consumer Protection Act make illegal all unfair, deceptive, and abusive acts and practices. The CFPB's enforcement action states that thousands of Wells Fargo employees illegally and without consumer authorization or knowledge enrolled those consumers in financial products and services in order to receive financial compensation for meeting sales targets. The bank's specific violations include the following:

  • Opening deposit accounts and transferring funds without customer authorization. Wells Fargo's analysis found that employees opened approximately 1.5 million deposit accounts that consumers may not have authorized, then transferred money from those consumers' authorized accounts so that the new unauthorized accounts would be funded temporarily. A widespread practice, this allowed employees to receive credit for opening new accounts, providing them with additional compensation and meeting sales goals for the bank. The practice caused consumers harm by sometimes charging them for insufficient funds or overdraft fees due to the fact that they money was not in the authorized accounts.
  • Applying for credit card accounts without customer authorization. The bank's analysis further found that employees applied for approximately 565,000 credit card accounts that consumers may not have authorized and on which consumers may have incurred fees and charges.
  • Issuing and then activating debit cards without customer authorization. Bank employees asked for and then issued debit cards without the knowledge or authorization of the consumer, at times even creating PINs without notifying the consumer.
  • Creating false email addresses to enroll customers in online-banking services. Wells Fargo employees created false email addresses that did not belong to consumers in order to enroll them, without their authorization or knowledge, in online-banking services.

The Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the CFPB to take action against any institution that is violating consumer financial laws. Among the requirements in the CFPB's order to Wells Fargo are the following:

  • Fully refund consumers. The bank has to refund all victims all fees and charges they paid due to the creation of the unauthorized accounts. The refunds are expected to reach at least $2.5 million. Consumers do not have to do anything to receive their refund.
  • Ensure proper sales practices. Wells Fargo is required to hire an independent consultant who will carefully review its sales procedures. Potential recommendations include ethical-sales training for employees and reviews of the banks performance measurements and sales goals to ensure consistency with the prevention of improper sales practices.
  • Pay a $100 million fine. The bank will pay $100 million to the CFPB, the largest fine ever imposed by the agency.