Wells Fargo will pay $185 million in fines for the widespread practice of opening credit card and bank accounts under customers’ names without their approval.
The Consumer Financial Protection Bureau said thousands of employees of the bank enrolled consumers in unauthorized accounts, sometimes transferring funds without customer permission, to hit sales targets and receive bonuses for opening new accounts.
Bank employees opened 1.5 million deposit accounts, applied for 565,000 credit cards and issued an undisclosed number of debit cards, all without authorization from customers. Some employees used fake email addresses to enroll customers in online-banking services without consent.
Wells Fargo has pushed the cross-selling of products and services to existing customers to increase revenue. For example, a customer with a mortgage at Wells Fargo may be encouraged to sign up for the bank’s home rebate card, which allows the homeowner to reduce the mortgage principal using rewards earned on the card. To increase this cross-selling, the bank offers incentives to employees who are successful in signing up customers for other products or services.
But the practice went awry. Employees went so far as to transfer money from existing accounts to fund the new, unauthorized ones. In some instances, customers faced charges for insufficient funds or overdraft fees because the balances in their old accounts had been drained.
“Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed,” said CFPB Director Richard Cordray in a statement. “Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences.”
In addition to a $100 million penalty to the CFPB, the largest ever imposed by the consumer watchdog bureau, Wells Fargo has to pay another $35 million penalty to the Office of the Comptroller of the Currency and an additional $50 million to the City and County of Los Angeles. The bank will refund about $2.5 million to all affected customers who paid fees associated with these unauthorized accounts.
The bank also must have an independent consultant review its procedures and make recommendations for changes.