Wells Fargo Pays Largest Consumer Protection Fine in US History
Wells Fargo, one of the largest banks in the United States, will pony up $100 million for the widespread illegal practice of secretly opening 2 million unauthorized deposit and credit card accounts. It’s the largest consumer protection fine ever paid.
Spurred by sales targets and compensation incentives, employees boosted sales figures by covertly opening accounts and funding them by transferring funds from consumers’ authorized accounts without their knowledge or consent, often racking up fees or other charges, according to the Consumer Financial Protection Bureau (CFPB).
According to the bank’s own analysis, employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers. Wells Fargo will pay full restitution to all victims and a $100 million fine to the CFPB’s Civil Penalty Fund. The bank will also pay an additional $35 million penalty to the Office of the Comptroller of the Currency, and another $50 million to the City and County of Los Angeles.
“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 CFPB noted that in recent years, the bank has sought to distinguish itself in the marketplace as a leader in “cross-selling” products and services to existing customers. The banking giant offered compensation incentive programs for its employees that encouraged them to sign up existing clients for deposit accounts, credit cards, debit cards and online banking, which is all commonly accepted business practice—except for the fact that the bank failed to monitor the implementation of these programs. It has now fired 5,300 workers in the effort to root out those who took advantage of a lack of oversight—a staggering number of unethical employees.
The violations include opening 1.5 million deposit accounts and transferring funds without authorization; applying for roughly 565,000 credit card accounts without authorization; issuing and activating debit cards without authorization; and creating phony email addresses to enroll consumers in online-banking services.
“The unfortunate news surrounding the more than two million phony accounts opened by Wells Fargo on behalf of unknowing customers reinforces the need for banks to go beyond PIN numbers, and passwords to requiring digital ID verification,” Steve Stuut, Jumio CEO, said via email. “The ease of opening accounts and facilitating financial transactions without physically entering a bank must be matched with appropriate security layers. The recent actions by Wells Fargo employees underscores the need for banks to implement ID verification processes, and in some case re-verify existing accounts, to ensure the person opening the account is who they say they are. As banks look to move forward in a digital world, these processes will minimize fraudulent transactions and create a more safe and secure experience for customers.”
According to CNN, customers were naturally hopping mad. Brian Kennedy for instance logged onto the Wells Fargo website to pay his mortgage, and discovered he had a checking account he never asked for, with a negative balance of $60 for two months of fees and penalties. When he asked to close it, the bank charged him a $1 fee to do so.
"It really pissed me off," Kennedy told CNN. "They expect people to not be paying attention and hope you don't notice. I've got a high credit score and I want to keep it that way. As soon as rates drop enough I'm going to refinance out of their mortgage."
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Source: Information Security Magazine