Wells Fargo incentives led to illegal banking practices

Banking giant Wells Fargo faced another round of fines for opening accounts without customers’ permission. Wells Fargo agreed to pay nearly $200 million to the victims, the Consumer Financial Protection Bureau fund and the LA Office of the Comptroller of the Currency.

This latest infraction, shows employees going rogue and management not putting a stop to it. The bank faced or settled four key areas of litigation as of the end of 2015 including several with much larger settlements connected with:

FHA insurance claims: Wells Fargo agreed to pay $1.2 billion in February 2016 to settle complaints from the Department of Justice, the U.S. Attorney’s Office for the Southern District of New York, the U.S. Attorney’s Office for the Northern District of California and Housing and Urban Development over claims associated with the bank’s Federal Housing Administration loans between 2001 and 2010.

The complaint suggested the bank improperly received insurance proceeds from HUD from some loans that defaulted. The complaint suggests Wells Fargo made claims for insurance for mortgages it knew didn’t qualify and didn’t disclose problems.


  • Visa and Mastercard interchange fees: Wells Fargo is part of a group of defendants that have agreed to pay $6.6 billion on claims merchants were overcharged for credit card fees or improperly bundled other products. Wells Fargo, in addition to Visa and Mastercard, on July 13, 2012, signed a agreement to settle the allegations.


  • Mortgage products: Wells Fargo as well as firms it has previously acquired continue to be investigated for alleged wrongdoing in making home loans during the housing boom of the middle of the 2000s. Wells Fargo has agreed to pay $10 billion in fines in the past eight years with a vast majority of those being associated with mortgage investigations, says Robert Hockett, professor of law at Cornell Law. The largest of those was a $5.4 billion fine in February 2012, Hockett says.


  • Order of posting: Wells Fargo in August 2010 was ordered to pay remediation of $203 million connected to the way the bank processed debit card payments for customers. By allowing a payment to hit the ledger before a deposit, the bank was allegedly able to generate overdraft fees. Several of these cases were still pending at the end of last year. Wells Fargo filed a petition for the U.S. Supreme Court to review the decision but is still awaiting word, according to its annual regulatory filing.

Wells Fargo employees opened more than 1.5 million accounts and applied for nearly 550,000 credit cards that were not authorized by customers. Employees rushed to open these accounts because of current incentive policies that rewarded them for opening new accounts.


The banking giant terminated several managers and other employees. A bank spokeswoman declined to say whether any senior executives had been reprimanded or fired in the scandal.

Wells Fargo is committed to putting our customers’ interests first 100 percent of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request,” the bank said in a statement.

Customers began to take notice when they began receiving letters in the mail congratulating them on opening a new account. The average refunds sent to the customers affected were $25. Stock of Wells Fargo, which is the largest bank in the country by market capitalization but fourth-largest by assets, rose 13 cents on Thursday, to $49.90 a share.