Wells Fargo: Account Impropriety

Wells Fargo: Account ImproprietyTim Vleisides

OutlineFraudulent banking practices (2011-16)Last Thursday: $185M Fine5,300 employees firedEthical Issue: Breach of trustAnalysis: Whose fault?Questions

Consumer Financial Protection Bureau - $185M fine2

Fraudulent PracticesWells Fargo employeesOpened deposit accountsTransferred money from real to shamSubmitted credit card applicationsEnrolled customers in online banking servicesOrdered and activated debit cards and PIN numbersWells Fargo customersHad no knowledgeDid not consentReceived unexpected fees, debit/credit cards, phone calls from debt collectors, and no explanations

Employees actively covered up their impropriety, i.e. transferring money back to original accounts after earning commissions from new (fake) account deposits3

Why?IncentivesCompany cultureFamous for cross-sellingPressure from management

Ethical IssueAccount impropriety: inappropriate conduct, harmful to customers (financially)Also damaging to consumer trustAmartya Sen on morality in Smiths market:Mutual Confidence is essential in the marketIf he cannot trust the householder, the baker may have difficulty in proceeding to produce bread to meet ordersReminiscent of mortgage crisis, Arthur Andersen, etc.

Impropriety was fraudulent, harmed customers

Smiths market: everyone works in self-interest

Without trust and fairness, market will not grow or will collapse

Sounds a lot like 2008, especially for Wells5

Whose fault?Easy to point out wrongdoings, harder to enforce accountabilityEmployees or management?EmployeesIncentivized to commit fraudReally?ManagementCompany cultureCEO John Stumpf (2014): I am not going to be satisfied until every creditworthy customercarries our credit cardFired employee (last Thursday): What I want people to understand is [that] it was more survivalto say we were under pressure is an understatement.

Employee incentives: by that argument, every commission-based strategy incentivizes fraudToo coincidental that Wells is the anomalyManagement: clear history of aggressive sales tactics, high expectations for employees

6

Questions?

Sourceshttp://www.forbes.com/sites/maggiemcgrath/2016/09/08/wells-fargo-fined-185-million-for-opening-accounts-without-customers-knowledge/#a7c26885d7a7http://www.nytimes.com/2016/09/09/business/dealbook/wells-fargo-fined-for-years-of-harm-to-customers.html?_r=0