30 October 2020
Wells Fargo is a community-based company which offers financial services. It was founded during 1852 and is headquartered within San Francisco. The company was famous for its sound management. However, in 2016, a major scandal erupted from the company when its employees admitted to opening approximately 2 million accounts without the authorization of the consumers over a period of 5 years (Egan, 2016). A lawsuit against Wells Fargo was initiated by the county of Los Angeles and the company was required to pay 185 million USD to settle it (Corkery, 2016). This is a case of white-collar crime in recent times in which unethical and illegitimate practices were being adopted by the employees of the company in order to achieve their set targets.
The scandal was caused since the practices of the employees were at odds with the ethical statements as well as existing values of the company (Cavico and Mujtaba, 2017). Cross selling has become a prevalent concept within businesses in order to sign up the existing customers for other products as well such as customers having a savings account can be convinced to acquire a credit card, take out mortgages and open a checking account with the company. However, the employees of the company found such sales targets highly demanding and somewhat impossible to achieve. These employees were trained since the beginning to accomplish these targets and be competitive as these achievements decided their promotions and other financial rewards. If they failed in achieving the set targets, the company would transfer, terminate and penalize the employees. The Wells Fargo scandal happened due to the intense pressure placed on the employees to meet the cross-selling target (Davidson, 2016). The case was a very straightforward one where the employees opened up fraudulent accounts for credit cards and banking under the names of customers without their knowledge and consent (Blake, 2016). The problem with such actions of the employees was that they promoted the accounts as free of cost. However, in reality, these were premium accounts which had large fees which the customers were required to pay. Since the customers had no idea what the reality was behind these accounts, they were unable to pay the fees for the premium accounts which resulted in over drafted accounts. This directly had an impact on the line of credit of the customers.
The ethical issue within this case was that the trust of the customers was either lost or misused by the employees and Wells Fargo lost its integrity. Furthermore, the employees were breaking the trust of the customers for personal incentives which reflects the poor practices of the organization. This case demonstrates a failure within risk management as well as evaluation which is a primary responsibility of the senior management accountants of the company (Minsky, 2016.). Instead of focusing just on the number of sales, the senior management should have concentrated on ensuring that there were no illegal or unethical activities being carried out. In addition to this, these activities of the employees had gone on for some years which increased the scale of the scandal even more. When the rumors of such activities first circulated in 2013, nearly 30 employees were terminated for issuing credit or debit cards as well as opening new accounts for the customers without their knowledge; the employees were found to have forged the signatures of the customers on the necessary documentation (Weissman and Donner, 2016). However, there were no changes within the practices of the bank and the employees still faced the high expectations of fulfilling their targets. In 2016, after the scandal broke out, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency along with the City and County of Los Angeles stated that the company had to pay a fine of 185 million USD (Kasperkevic, 2016). When more revelations regarding customer abuse became public, the company was given an additional fine of 1 billion USD (Rucker, 2018). Furthermore, the company was also required to settle the legal claims made against it by paying 575 million USD (Mindock, 2018).
The lawsuits initiated by the customers were not taken to the court and settled outside of it since the company knew that there was an overwhelming amount of evidence against it which could not be refuted or proven otherwise. In addition to this, the criminal and civil lawsuits brought against the bank were dealt with by paying more than 2.7 billion USD (Franck and Lewis, 2020). In 2020, the bank had to pay an additional 3 billion USD in order to settle its long-running criminal as well as civil probes. The Department of Justice in the US as well as the Securities and Exchange Commission also brought charges against the bank for its illegal activities. The company was charged with a fine of 500 million USD which had to be paid to the SEC (Securities and Exchange Commission, 2020). These funds were acquired from the company in order to offer restitution to the customers who were defrauded (Kelly, 2020). The CEO of the bank, John Stumpf, was also forced to resign after the scandal broke out. The OCC charged him with criminal activities which he accepted. Stumpf was also permanently banned from working within the banking industry. The settlement for the OCC charges costs him 17.5 million USD (Ensign and Eisen, 2020). He also had to forfeit 41 million USD within equity rewards when he resigned from the bank. 28 million USD was paid by Stumpf to the bank as a compensation for his actions (McGrath, 2017). Five additional executives were also penalized by the OCC in which Carrie Tolstedt was required to pay 25 million USD and the other four were required to pay a fine of a total amount of 10.5 million USD (Levitt, 2020).
This case shows the immense impact of the bank on the society at large. It showed how banks may engage within unethical and illegal activities within their practices and how powerless the customers may be in dealing with such issues. Furthermore, millions of customers were financially impacted by their over drafted accounts which had a direct effect on their credit ratings. This scandal brought out a larger problem into highlight which is that customers started to doubt the banking institutions since there was a breach of trust. Moreover, the bank had some awareness about such activities when employees were found to be involved within such practices in 2013; yet the bank had done nothing to ensure that these activities would be discontinued and pressurized their employees more to meet the targets. Additionally, many customers had no option but to stay with Wells Fargo since switching banks is a costly and time-consuming task which not many of them can afford. This scandal could have been prevented with the application of an appropriate leadership style. While the bank maintains independent oversight mechanisms as well as independent risk, it is the responsibility of the senior leaders to ensure that appropriate and ethical practices are being embedded within the divisions which they lead (Tayan, 2019). It was also necessary to have decentralized audit systems which would be able to catch such activities and report them to the President of the banking community as well as to the Board of Directors. This case shows the deep impact that unethical activities had on the customers due to the Wells Fargo Scandal which also resulted in the regulatory authorities to re-evaluate the efficacy of their policies related to banking practices.
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