The Wells Fargo Fake Accounts Scandal Just Got a Lot Worse
Wells Fargo & Co. said employees created two-thirds more bogus accounts than initially thought, a sign the bank is still struggling to move past a scandal that sparked record fines and congressional investigations.
An outside review found an additional 1.4 million potentially unauthorized deposit and credit-card accounts opened when the bank was encouraging employees to sell multiple products to retail customers, bringing the total to about 3.5 million, according to a statement Thursday from the San Francisco-based firm. The revised estimate covers January 2009 to September 2016, almost twice as long as the period examined in the initial review.
The disclosure of even more fraudulent accounts threatens to catapult Wells Fargo back into the political crosshairs just as Congress returns Sept. 5 from its summer recess. The scandal came to light almost a year ago after regulators slapped Wells Fargo with fines of $185 million over its sales practices, prompting congressional hearings and resulting in the bank naming new leaders, clawing back executives’ pay and beginning an overhaul of its retail division.
“New data should cause some lawmakers to re-engage on the issue,” Isaac Boltansky, an analyst with Compass Point Research & Trading, said before the new tally was announced. Democrats will again argue it proves Washington needs to keep rules tight on financial firms, while Republicans will continue to fault Consumer Financial Protection Bureau officials for not spotting the misconduct themselves, Boltansky said.
Wells Fargo agreed to expand its review after Washington lawmakers lambasted the company following former Chief Executive Officer John Stumpf’s testimony last September about the bank’s sales practices. Under pressure, the bank agreed to review records dating back to 2009, rather than through 2011 as it initially did.
The company said it has paid or identified $10.7 million in customer compensation related to the investigation. The figure includes $7 million of refunds, up from $3.3 million the bank had previously disclosed. It also includes $3.7 million related to what it described as the “complaints process/mediation.”
“Today’s announcement is a reminder of the disappointment that we caused to our customers and stakeholders,” CEO Tim Sloan said on a conference call Thursday with reporters. “We apologize to everyone who was harmed by unacceptable sales practices that occurred in our retail bank.”
Democrats led by Representative Maxine Waters of California earlier this month called for a House Financial Services Committee hearing about a separate scandal at Wells Fargo involving unwanted car insurance imposed on auto-loan customers. And Senator Elizabeth Warren of Massachusetts wrote to the Federal Reserve to again press for the removal of board members who served during the original accounts review period of 2011 to 2015.
The lender warned investors in March that its initial bogus-accounts estimate was probably too low, saying in its annual filing that a new search by a third-party firm “could lead to, among other things, an increase in the identified number.”
Wells Fargo has worked to minimize the impact of the new tally, describing the additional accounts as those it couldn’t rule out from lacking customer authorization. The company said in the statement that it erred on the side of its customers during the review, so the figures might include some accounts that were properly authorized.
When it fined Wells Fargo last year, the CFPB ordered the bank to identify all customers affected by its sales misconduct and set aside $5 million for those harmed.
Wells Fargo paid $3.26 million to customers covered under that order through June 30, as well as one from the Office of the Comptroller of the Currency and a judgment from the Los Angeles City Attorney, according to the bank’s most recent quarterly filing. In August, Sloan said refunds and payments to affected customers and others he didn’t identify were “exceeding $5 million.”
The 2016 analysis found the bank charged $2 million in fees on 85,000 deposit accounts that were probably opened without authorization, according to the CFPB’s order. About 14,000 bogus credit-card accounts were billed approximately $403,000, the agency said.
The new review doesn’t go back as far as 2002, the year that executives first knew about the sales misconduct and fired employees over it, according to investigators hired by the company’s board. Lawyers representing customers who said they were harmed by the bank’s abusive sales practices claimed in a lawsuit that Wells Fargo employees probably created 3.5 million bogus accounts starting in May 2002. Wells Fargo is awaiting final approval to settle that case for $142 million.