Efforts continuing to clean up fake account fiasco at Wells Fargo

October 2016 photo at Wells Fargo's museum in San Diego by James Ulvog.
October 2016 photo at Wells Fargo’s museum in San Diego by James Ulvog.

There haven’t been a lot of high-profile articles about the Wells Fargo fake account fiasco recently. I’ve noticed a number of articles though, which suggest there is ongoing activity addressing the intentional, systemic failure. This disaster will not be cleared up soon.

  • How does Wells fix the indirect harm it caused?
  • New compensation plan removes cross-selling as a benchmark
  • Possible MD&A enforcement action?
  • Branches received 24 hour notice of internal inspections
  • Bank may eliminate 2016 bonuses for senior staff

12/27/16 – Wall Street Journal – Wells Fargo Is Trying to Fix Its Rogue Account Scandal, One Grueling Case at a Time – Making customers whole will be easy if the customer was only charged a few dollars a month for a while. Still simple to resolve if there were monthly charges and a bunch of overdraft fees because money was taken out of an account unknowingly which resulted in some bounced checks.

What do you do when the unpaid fees on a credit card flowed into negative information on a credit report which resulted in a customer being denied funding for a home loan somewhere else? That’s what happened to one interviewed customer.

Destroying someone’s credit is a tough thing to make right.

How about merely damaging someone’s credit rating? How do you quantify the impact if a negative credit report led to higher interest rates on a car loan or a home loan?

How do you make things right when a written off account (which was an unauthorized account, generating unauthorized fees, resulting in an illegitimate writeoff) is sold to a debt collection agency and the customer is hounded day and night to pay up? Oh, and with a writeoff on their credit report for 7 years?

The level of effort is not tremendously impressive at the moment. One customer, who speaks minimal English, was offered a $90 refund to make up for $690 of unauthorized fees. The customer involved said the nice banker kept presenting more and more forms to sign, obviously none of which the customer could read.  (After the WSJ asked the bank about this case, they refunded the other charges.)

Dive into the individual injustices described in the article if you want to appreciate the level of anger that exists against Wells Fargo.

Ponder some of those cases and one can start to understand why the California AG is pondering whether criminal identity theft charges are possible.

1/6/17 – Emily Glazer at Wall Street Journal –  Wells Fargo to Roll Out New Compensation Plan to Replace Sales Goals – Article says the new pay structure for retail staff will include increases in primary balances as a growth factor. Other factors will be customer usage and customer service.

The previous plan included a goal of selling 8 products per household. That would be something like a primary checking, savings, ATM card, credit card, overdraft line of credit, secondary checking, and two more products that I can’t figure a typical household would even buy. Eight products per customer.

1/10 – Tom Selling at The Accounting Onion – Could Wells Fargo be the Next Big MD&A Enforcement Action – Prof Selling wonders if the lack of disclosures in the MD&A reporting could lead to an SEC enforcement action. The pondering is based on the first disclosure of the fake account mess occurring in the 10-Q for 6/30/16 while the LA City attorney filed a lawsuit in 2015, the LA Times reported on the mess in 2013, and the board was informed in 2014.

The connection from knowing about a particular compliance issue and disclosing it in the 10-Q MD&A is that MD&As are supposed to discuss matters that is reasonably likely to have a material effect on the company.

The criteria mentioned in the article is:

Whether a transaction, event or uncertainty that management does know about had, or is reasonably likely to have, a material effect on profitability, liquidity or capital resources.

The struggle for me is using hindsight to determine that management should have known which of many dozens of lawsuits and dozens of compliance matters would in two years develop into a fiasco with material effect on reputation and profitability.

Perhaps management should be able to accurately predict which of dozens of issues they are briefed on will develop into something material.

1/13 – Francine McKenna at MarketWatch – Wells Fargo’s new pay plan dumps problematic cross-selling metric – New bonus plan will exclude cross-selling as a component. Instead, pay will be based on customer growth, along with gaining more primary customers (not accounts per customer) and two other somewhat fuzzy metrics, specifically “household relationship growth” and compliance (referred to as risk management).

1/24 – Emily Glazer at Wall Street Journal – At Wells Fargo, Bank Branches Were Tipped Off to Inspections – One factor behind how the fake account fiasco ran such a long time is that “typically” local branches got a 24 hour heads-up before risk managers arrived for inspections. This allowed time to clean up the fake files. Article says that often managers would have all-hands-on-deck to make sure all the cards had signatures (copied and pasted as needed), wire transfers were signed, and cash & teller audit counts were properly updated. Documents that needed to go away got shredded.

Article contains one major hint why branches would officially receive an advance call: that allowed them to be staffed up to respond to the inspectors document needs without interrupting customer service.  It would be a bad thing to have lots of customers waiting while the CSRs were pulling lots of documents and answering lots of questions.

The bank has instituted mystery shopper testing of branches. They have also developed surprise, no-notice “Conduct Risk Reviews.” The more intrusive inspection routines called “Branch Control Review” will still involve 24 hour notice.

2/8 – Emily Glazer at Wall Street Journal – Wells Fargo Board Likely to Eliminate 2016 Bonuses for Top Executives – For the top layer of staff, most of the compensation is bonuses and stock. Leaks out of the bank indicate the board might eliminate the bonuses for 2016. Leaks also say this is to reflect overall poor performance for the bank and not to show responsibility for the fake account fiasco.

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