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Culture of greed led Wells Fargo employees to commit fraud, create 2 million accounts using customer information without consent

Source: Fortune.com
The Consumer Financial Protection Bureau fined Wells Fargo $100 million when a third-party consulting firm discovered that 5,300 of their employees had opened 1.5 million deposit and 565,000 credit card accounts using customer credentials to boost their sales and earn bonuses.

Without the authorization of their customers, these employees would transfer funds from customer's real accounts to the fake new ones, draining the customer's real bank account in the process, leaving them with overdraft fees and ruining their credit ratings.


Many of these employees were also caught issuing and activating debit cards, creating PIN numbers for these accounts, and signing up for online banking programs using fake email addresses using customer information, all without the customer's consent.

In response, Wells Fargo issued refunds for fees to any affected customers to the tune of $2.6 million, with an average of about $25 per customer. In addition, the company has to pay the City and County of Los Angeles $50 million, and the Office of the Comptroller of the Currency $35 million.

High-pressure environment led employees to sell products by any means necessary

Employees at Wells Fargo were encouraged by their district managers to increase their sales by any means necessary, to meet seemingly impossible monthly targets, all against the wishes of regional executives.

Meeting these seemingly impossible sales targets would often offer lucrative rewards for employees and their managers alike, with bankers earning a possible bonus of up to $2,000 per quarter, while district managers could see bonuses of up to $20,000 per year.

This led to managers and employees alike gunning for sales, using any means necessary. These employees were told to try to sell Wells Fargo products at bus stops and retirement homes, were asked to open accounts for friends and family members, and were mailing activated credit cards out to wealthy customers without their consent.

Despite repeated investigations by the Los Angeles City Attorney Michael Feuer and the Office of the Comptroller of the Currency, district managers and their employees continued to chase after fraudulent sales. 

Source: The Motley Fool
Wells Fargo's success was built by a long history of questionable sales tactics

Since the late 80s, Wells Fargo has encouraged their employees to aggressively sell their services, when then-CEO Richard Kovacevich conceptualized "cross-selling," the act of selling additional goods and services to an already existing customer.

The current company mindset started in 1999 when customers were goaded by Wells Fargo employees into increasing the number of accounts they held from an average of three to eight, because "eight" rhymed with "great." Since then, the banking company has become one of the most profitable and successful banks in the United States.

It was clear that there were questionable sales practices being done throughout the country, with one-off reports of aggressive employees circulating the news throughout the mid 00s. By 2010, Wells Fargo was fully aware of their employees' illicit behaviors, and put together an internal task force to investigate any suspicious activity. By Spring 2013, the banking company had fired approximately 200 employees in California due to questionable sales practices. 

Industry focus on combating external fraud led experts to be caught off-guard by Wells Fargo internal fraud

While internal fraudulent activity at a banking company isn't necessarily unheard of, it's clear that most banking companies, customers, and security experts have targeted external fraud committed by outsiders unrelated to the company. The amount of money lost to these cases is well-documented, with a recent survey by the American Banker's Association reporting $1.744 billion in losses in 2012. 

However, due to new security measures taken to combat cyber-criminal activity, banks have prevented nearly $13 billion in losses to fraud in that same year, through the successful strategies of the constant monitoring of financial transactions and the introduction of new chip cards.

Of course, these security measures were ineffective in preventing the internal fraud committed by Wells Fargo employees, who had unlimited access to the finances and information of all their customers. While Wells Fargo had put effort towards countering internal fraud in the past few years, it was clear that their investigations had not deterred their employees from continuing their illicit activities.

How Wells Fargo will move on after this scandal is still unclear. With CEO John Strumpf having to answer to Congress for the company's inability to control their own employees and hold senior executives accountable, and with nation-wide backlash and ridicule growing, the financial health of Wells Fargo seems to be in dire straits.

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