By Tamanna Desai,
Tech and Innovation Editor
Having credit card fraud is one of many worries Americans have, but having multiple ghost bank accounts in your name that incurs fees you did not know about is a whole other ballgame. Wells Fargo (WFC: NYSE) created over two million unauthorized accounts for their customers nationwide.
The employees fired over this scandal created the secret accounts in order to push sales above their quota and receive bonuses for bringing in more business.
This seems eerily similar to the housing market crash of 2008 where loans were given to anyone and everyone just so that it would seem like business is booming. L.A Times uncovered the entire scandal and brought light to the fake accounts in 2013.
Had it not been for their investigation, many accounts would have continued to incur fees without being recognized. This has many customers, and even people who do not affiliated with WFC, wondering how a huge corporation that has to follow specific regulations to be followed could let something this massive happen. Without trust in banks, the economy could crash.
WFC now has to make $3.2 million of refunds to customers after prosecution by the Los Angeles City Attorney and two other organizations that investigate company scandals. On September 20, Senators such as Elizabeth Warren pressed former CEO John Stumpf about the scandal, and told him he should resign.
Warren also asked Stumpf about executive’s compensation and bonuses in relation to the sales targets. Stumpf did resign allowing, Tim Sloan to take the position and start the process of rebuilding the company and trust in customers.
WFC fired about 5,300 employees, according to CNNMoney, who started to create fake accounts because former CEO Stumpf pressed that employees should push sales so that each customer would have eight different accounts attached to their name. The fraudulent accounts were opened from 2011-2016.
According to bizjournals.com, WFC quarterly earnings were on a decline as it has been for the past five quarters due to the scandal. Along with reimbursing customers who suffered from this, WFC must also pay $185 million in fines to federal regulators.
Reuters.com stated that, “Wells Fargo’s net income applicable to shareholders fell 6.4 percent to $4.87 billion, or 96 cents per share, in the fourth quarter, from $5.20 billion, or $1.00 per share, a year earlier.”
On Friday, WFC stated that they think they reimbursed enough customers according to their lawsuit settlement. However, investors, regulators, and customers are all wondering if that is enough. The bank also said they would eliminate sales quotas, which started the entire problem in the first place. Many regulators have shown worry for whether or not Wells Fargo will learn from their mistake and avoid something like this in the future.
For a corporation so huge that its top competitors was Berkshire Hathaway, the reimbursements and fees may just be a drop in the bucket for them.
Wells Fargo is not the only company that has pressured their employees to reach nearly impossible sales targets in order to keep the company growing and above other competitors.
A version of this article appeared in the Tuesday, January 24th print edition.
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