Wells Fargo and Fees

Posted by Catriona Larouche.

Several years later after the fraud scandal taking surface in the world, Wells Fargo is still dealing with the consequences of its mistakes. In 2016, it was discovered that Wells Fargo had created savings and checking accounts on behalf of their clients without their consent. This being said, clients noticed this change when they started getting unanticipated fees and receiving credit and debit cards they had never ordered. It was later on discovered that this fraud was created by a pressure of higher ups from the company, demanding their workers to open as many accounts as possible through what is called cross-selling (Wells Fargo Account Fraud Scandal). Cross-selling, which in this case is fraud, is a selling technique in order to get customers to spend more money by purchasing products that are related to what has already been bought in the past. Cross-selling “involves offering the customer a related product or service” (Cross-selling definition – what is cross-selling). An example of cross-selling would be that a sales representative at an electronic retailer suggests to the client that they should buy the memory card when buying a camera and not just the camera itself (Cross-selling definition – what is cross-selling). 

Wells Fargo is the fourth-largest bank in the United States and because of this fraud scandal, ever since 2018, the bank has been operating under orders from the Federal Reserve and two other United States financial regulations. These regulations were put in place in order for the bank to improve their oversight of the government and having the Fed’s capping the bank’s assets within their company (Person and Stempel, 2021). 

On Thursday September 30th 2021, a New York judge rejected the Wells Fargo bid to dismiss the lawsuit against them. This being said, the lawsuit will continue as it is believed that Wells Fargo did in fact defraud its shareholders five years prior of the scandal about the treatment of its customers. Shareholders had claimed that bank officials had falsely said in TV interviews that the bank was “mending its ways” and that their process was viewed as “deficient” and “unacceptable” (Person and Stempel, 2021). District attorney Judge George Woods in Manhattan said that the shareholders had mentioned that some of the statements claimed from the bank higher ups, including the former Chief Executive Tim Sloan, were “deliberately or recklessly false or misleading” (Person and Stempel, 2021). As well, shareholders from the San Francisco Wells Fargo bank said that the bank lost more than $54 billions of their market value. This was revealed over a two-year period which finally ended in March 2020, so right at the beginning of the covid-19 pandemic. 

Judge Woods also dismissed the claims against the current Chief Executive of the bank, Charles Scharf, stating that he is not responsible for all of the claims made by the shareholders and that it is rather the responsibility from the past higher ups and Chief Executive. To add, in an email written by Wells Fargo, they mention how they will “continue to vigorously defend the litigation and strongly disagree with these claims” basically saying that the shareholders are lying about their company (Person and Stempel, 2021). In another email, the lawyer of the Chief Executive Sloan, said that Sloan’s statements were truthful and that Sloan worked “tirelessly to bring Wells Fargo into compliance with consent orders and regulatory demands” (Person and Stempel, 2021). 

Back in 2016, the bank had opened about 3.5 million accounts without their client’s permission. They also charged hundreds of thousands of dollars to these clients for insurance they did not even need, which is why this scandal arose because it is illegal for a company to do so. Because of this, Wells Fargo paid more than $5 billion in fines and their Fed’s cap for assets was placed at $1.95 trillion, which is a lot of money. Thanks to this cap, this greatly restricts the company’s growth and it is shocking to think that before this cap they had even more assets (Person and Stempel, 2021).

In 2019, Chief Executive Sloan stepped down from his position with no heads up and one year later the company cancelled his bonus of $15 million. Woods then wrote a 61-page paper and did not make a decision on whether the bank officials did intend or not to defraud its shareholders; but he mentioned that it would have been impossible for Sloan to not have known about the situation which technically makes him an accomplice to the fraud crime (Person and Stempel, 2021).

So, overall, it looks like Wells Fargo is facing many issues and lawsuits because shareholders are allowed to sue them because they were frauded. The bank may have taken unnecessary profits out of it and it is therefore illegal to do so. Even five years later, the case is still going on and it is not close to being finished. 

Catronia is a student at Seton Hall University.

What Is Cross-Selling.” Shopify, https://www.shopify.com/encyclopedia/cross-selling.

“Wells Fargo Must Face Shareholder Fraud Claims over Its Recovery from Scandals.” Reuters, Thomson Reuters, 1 Oct. 2021, https://www.reuters.com/business/finance/wells-fargo-must-face-shareholder-lawsuit-over-compliance-with-consent-orders-2021-09-30/.

“Wells Fargo Account Fraud Scandal.” Wikipedia, Wikimedia Foundation, 16 Sept. 2021, https://en.wikipedia.org/wiki/Wells_Fargo_account_fraud_scandal.