Occasionally a story of corporate abuse of customers, employees, the environment, or taxpayers comes along that is so disgusting, it can’t be ignored. The Mylan EpiPen, Volkswagen Dieselgate, and Amazon employee abuse scandals immediately come to mind. And now we have the Wells Fargo scandal…
Wells Fargo had long been a Wall Street darling, fooling even the likes of Warren Buffett into become a major shareholder (320 million shares), driven in part due to its sky-high number of accounts per customer. Well, let’s just say that their house of cards just came crashing down.
In case you’ve missed or only caught pieces of the news, I’ll try my best to summarize the timeline of events for you (readers: let me know if I’m missing any key deplorable details):
- Wells Fargo CEO, John Stumpf (rhymes with Drumpf), pushed the unrealistic goal of 8 accounts per customer (the industry average is 3 accounts) for no reason other than, in his words, “8 rhymes with great” (and the teeny tiny matter that he and other Wells Fargo execs stood to personally make millions).
- To push this goal, branch tellers and managers were given unobtainable sales quotas that their performance, pay, and job status was reliant upon hitting.
- To meet their quotas, these employees fraudulently created fake accounts in their customers names, without the permission or knowledge of those customers – and sometimes with disastrous consequences such as damaged credit scores and bank fees. It’s been estimated that over 1.5 million unauthorized deposit accounts were fraudulently opened and 565,443 credit card applications were submitted without consent.
- To make matters worse, many Wells Fargo employees have claimed that the company forced unpaid overtime upon them in order to hit quotas.
- During the years this scheme was active, Wells Fargo shares gained $30 per share, as Wells Fargo outperformed its peers in part due to this inflated “accounts per customer” metric. John Stumpf’s personal Wells Fargo shares increased $200 million in value during this time.
- The Wells Fargo scandal broke.
- Now, Wells Fargo is being hit with the largest penalty since the Consumer Financial Protection Bureau (CFPB) was founded in 2011. They have agreed to pay $185 million in fines, along with $5 million in refunds to customers.
- Carrie Tolstedt, the executive who led the community banking division that created the fake accounts, was rewarded with an advanced retirement date, just a few months before her planned retirement. It’s estimated she’ll walk away with $77 million in compensation.
- Stumpf still has not taken responsibility and shifted the blame to 5,300 low-level branch employees by firing them. Stumpf has kept his job, hasn’t resigned from his role, and even after the Wells Fargo board decided to claw back $41 million in his compensation, it’s estimated he’ll still have gained over $200 million during his time at the helm of the scandal.
And If all that is not enough to get your blood boiling, it was just reported that Wells Fargo illegally repossessed 413 military service members cars.
I sometimes take flack for arguing for more consumer protections (and loftier penalties for bad behavior), but this Wells Fargo case is a prime example of not only why it’s a good idea, but it’s an absolute necessary component to a healthy and sustainable economy. There’s nothing I hate more than seeing the little guy get screwed.
This type of corporate abuse is criminal, and if hard working people can’t trust the corporations they give their hard earned dollars to (and the government to protect them), then our economy suffers. Not only that, but our communities and the social fabric that ties us together suffers.
And what about investors? Wells Fargo stock (WFC) is down over 18% on the year and the company has lost more than $20 billion in market value since this scandal broke. Think about all the individual investors that have been fleeced and lost confidence in investing because of this experience.
I get why corporations and their lobbies (and the politicians they give money to) advocate for less regulations and more legal protections for themselves. But what I will never understand is why private citizens rehash their talking points as gospel. Not all regulations are great, but most are there for a reason. The fact that this type of scam occurs on a regular basis is enough evidence that more, not less, common sense regulations and punishments are needed. If you feel otherwise, please tell us what you (or anyone other than the scammers) stand to gain from this type of fraudulence? Remember how close to the brink bad behavior from banks that led to the Great Recession drove us?
In the case of the Wells Fargo scandal, while Elizabeth Warren’s epic takedown of Stumpf in a Congressional hearing was satisfying, anything short of the following actions are not enough:
- All executives proven to have knowledge of and profited from this scheme should have to forfeit all compensation from the moment they became aware, onward.
- Said executives should face legitimate jail time. If you or I rob a bank, we’re going to be locked up for many years. Why should the people who run that bank receive any less jail time for robbing customers and shareholders of billions of dollars more?
- All customer damages should be repaid in full.
- Significant fines (much more than the 8/1,000th of a percent of the companies market cap in this case) and audited oversight should be levied.
- Regulatory measures should be put in place to prevent similar future criminal activity.
The fact that only the customer damages point has happened and/or is being seriously considered shows that we have a long ways to go to level the playing field for consumers.