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December 14, 2017

Wells Fargo’s Other Victims (Gwen Moritz Editor’s Note)


Last week in this space I wrote about what the egregious corporate behavior of Wells Fargo Bank does to innocent competitors in the banking industry, especially the little banks that must meet most of the same expensive regulatory hurdles even though they couldn’t execute anything on that level if they wanted to.

But Wells Fargo had other victims, so I’m going to say a few more things about this scandal while it’s on my mind, even though it may seem like piling on to the few Wells Fargo employees in Arkansas. If the second-largest bank in the country can operate a scam for five years, I can harp on it for two weeks.

The customers — at least 1.5 million of them — whose personal information was used to create accounts they didn’t want, need or request were also victims. Oh, they didn’t lose much money — only a fraction of the customers were ever charged bogus fees, and Wells Fargo made them whole with refunds averaging $25.

But here’s something that I never considered even though I think of myself as more financially literate than most: Those unauthorized accounts — checking accounts and credit cards, mostly — could reflect negatively on the unsuspecting customer’s credit score, and that could cost them far more for far longer.

“Yes, we pull a credit bureau [report] for each one of these cards,” Wells Fargo CEO John Stumpf acknowledged when pressed by U.S. Sen. Jon Tester, D-Mont., during a grilling by the Senate Banking Committee last week.

And here’s another thing I never considered: Even if customers figured out what was happening to them, there wasn’t much they could do about it. That’s because Wells Fargo, like many other corporate giants, tucks a forced arbitration clause into every contract, preventing the peons from filing public lawsuits individually or collectively.

A helpful reader called my attention to commentary about this by a couple of consumer advocates, Robert Weissman of Public Citizen and Lisa Donner of Americans for Financial Reform, that appeared last week in The Hill, an influential Washington political newspaper:

“The problem isn’t just that aggrieved consumers don’t have access to a remedy. Keeping cases out of court means abuses are kept out of the spotlight.

“That’s exactly what happened with Wells Fargo, and why the abuses could go on so long.”

Now, that may sound very clever to business readers who tend to be sympathetic to a company just trying to make a buck … or 20 billion. But, ironically, I was reminded that big shots were also Wells Fargo’s victims as I sweated through a YouTube video of U.S. Sen. Elizabeth Warren, D-Flamethrower, scorching Stumpf.

Warren was mainly talking about the self-serving corporate culture that spawned the phony account fiasco: While most banks’ customers average fewer than three accounts, Wells Fargo set a goal of eight accounts for each customer because, Warren quoted from the 2010 annual report, “eight rhymes with great.”

It was such a ridiculous goal, based on linguistics rather than an identified market demand, that low-level customer service reps resorted to fraud in order to keep their crummy jobs. They would be fired when caught — more than 5,300 of them over the years.

But did Wells Fargo acknowledge the faulty incentive structure and back off the account quota that was making desperados out of thousands of employees? Au contraire!

In 12 consecutive quarterly conference calls in 2012-14, Stumpf “personally cited Wells Fargo’s success at cross-selling retail accounts as one of the main reasons to buy more stock in the company,” Warren scolded.

And ticker symbol WFC did rise more than $30 a share during the years that the phony cross-selling was being incentivized, then punished and then bragged about, making Wells Fargo the most valuable banking company in the country. That added about $200 million to Stumpf’s personal net worth, so he’s clearly not a victim.

But everyone who bought the stock based on those representations was suckered, in part because the arbitration clause kept the truth under wraps. The Consumer Financial Protection Bureau announced on Sept. 7 that Wells Fargo had agreed to pay fines totaling $185 million, a relative pittance, but over the next few days the company’s value slid by almost 10 percent —$20 billion, give or take. (And that’s before we learn how many customers decide to take their real accounts — one or two or eight of them — to a bank that hasn’t proven that it cannot be trusted.)

Several class-action lawyers are already eagerly seeking out Wells Fargo stockholders as plaintiffs. They don’t seem to think investors who have been rooked can be forced to arbitrate.


Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.

Last week in this space I wrote about what the egregious corporate behavior of Wells Fargo Bank does to innocent competitors in the banking industry, especially the little banks that must meet most of the same expensive regulatory hurdles even though they couldn’t execute anything on that level if they wanted to.

But Wells Fargo had other victims, so I’m going to say a few more things about this scandal while it’s on my mind, even though it may seem like piling on to the few Wells Fargo employees in Arkansas. If the second-largest bank in the country can operate a scam for five years, I can harp on it for two weeks.

The customers — at least 1.5 million of them — whose personal information was used to create accounts they didn’t want, need or request were also victims. Oh, they didn’t lose much money — only a fraction of the customers were ever charged bogus fees, and Wells Fargo made them whole with refunds averaging $25.

But here’s something that I never considered even though I think of myself as more financially literate than most: Those unauthorized accounts — checking accounts and credit cards, mostly — could reflect negatively on the unsuspecting customer’s credit score, and that could cost them far more for far longer.

“Yes, we pull a credit bureau [report] for each one of these cards,” Wells Fargo CEO John Stumpf acknowledged when pressed by U.S. Sen. Jon Tester, D-Mont., during a grilling by the Senate Banking Committee last week.

And here’s another thing I never considered: Even if customers figured out what was happening to them, there wasn’t much they could do about it. That’s because Wells Fargo, like many other corporate giants, tucks a forced arbitration clause into every contract, preventing the peons from filing public lawsuits individually or collectively.

A helpful reader called my attention to commentary about this by a couple of consumer advocates, Robert Weissman of Public Citizen and Lisa Donner of Americans for Financial Reform, that appeared last week in The Hill, an influential Washington political newspaper:

“The problem isn’t just that aggrieved consumers don’t have access to a remedy. Keeping cases out of court means abuses are kept out of the spotlight.

“That’s exactly what happened with Wells Fargo, and why the abuses could go on so long.”

Now, that may sound very clever to business readers who tend to be sympathetic to a company just trying to make a buck … or 20 billion. But, ironically, I was reminded that big shots were also Wells Fargo’s victims as I sweated through a YouTube video of U.S. Sen. Elizabeth Warren, D-Flamethrower, scorching Stumpf.

Warren was mainly talking about the self-serving corporate culture that spawned the phony account fiasco: While most banks’ customers average fewer than three accounts, Wells Fargo set a goal of eight accounts for each customer because, Warren quoted from the 2010 annual report, “eight rhymes with great.”

It was such a ridiculous goal, based on linguistics rather than an identified market demand, that low-level customer service reps resorted to fraud in order to keep their crummy jobs. They would be fired when caught — more than 5,300 of them over the years.

But did Wells Fargo acknowledge the faulty incentive structure and back off the account quota that was making desperados out of thousands of employees? Au contraire!

In 12 consecutive quarterly conference calls in 2012-14, Stumpf “personally cited Wells Fargo’s success at cross-selling retail accounts as one of the main reasons to buy more stock in the company,” Warren scolded.

And ticker symbol WFC did rise more than $30 a share during the years that the phony cross-selling was being incentivized, then punished and then bragged about, making Wells Fargo the most valuable banking company in the country. That added about $200 million to Stumpf’s personal net worth, so he’s clearly not a victim.

But everyone who bought the stock based on those representations was suckered, in part because the arbitration clause kept the truth under wraps. The Consumer Financial Protection Bureau announced on Sept. 7 that Wells Fargo had agreed to pay fines totaling $185 million, a relative pittance, but over the next few days the company’s value slid by almost 10 percent —$20 billion, give or take. (And that’s before we learn how many customers decide to take their real accounts — one or two or eight of them — to a bank that hasn’t proven that it cannot be trusted.)

Several class-action lawyers are already eagerly seeking out Wells Fargo stockholders as plaintiffs. They don’t seem to think investors who have been rooked can be forced to arbitrate.


Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.

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