SAN FRANCISCO (CN) — Wells Fargo's $185-million settlement for opening millions of unauthorized accounts to meet aggressive sales goals fails to adequately compensate victims, bank customers say in a federal class action.
Lead plaintiff Larry Veach, of Delaware, sued the San Francisco-based bank on Friday, saying the Sept. 8 consent decree the bank reached with the Consumer Financial Protection Bureau falls short.
Veach says the deal requires the bank to spend a mere $5 million repaying customers, and does not compensate victims for reduced credit scores or time and money spent dealing with phony accounts.
"Wells Fargo obtained substantially in excess of $5 million in fees from consumers as a result of its creation of unauthorized accounts," Veach says in the 16-page complaint.
Consumer Financial Protection Bureau spokesman David Mayorga, however, said the consent order does not limit Wells Fargo's reimbursement to victims to $5 million. It requires the bank set aside at least $5 million for that purpose.
"The CFPB has ordered the bank to provide refunds to all harmed consumers," Mayorga said.
As for the claim that the deal fails to address consumers' damaged credit, Mayorga said the bank has to comply with the Fair Credit Reporting Act. If Wells Fargo does not correct inaccuracies in credit reports, consumers can file a complaint with his bureau.
Wells Fargo, the nation's fourth largest bank in assets, opened more than 2 million bogus deposit and credit card accounts for customers going back at least five years, according to the CFPB and the bank's own analysis.
The bank pushed an aggressive "cross selling" campaign, dubbed the "Gr-eight" initiative, pressuring employees to increase the number accounts held by each customer to eight, according to Veach's lawsuit.
"There was intense pressure within Wells Fargo to cross-sell," Veach says. "Wells Fargo managers evaluated each banker's performance, based upon his or her cross-selling sales quota, four times per day."
Wells Fargo announced this month that it would eliminate sales quotas for credit cards and other banking products starting on Jan. 1.
Wells Fargo employees also issued and activated debit cards without consumers' knowledge and used phony email addresses to sign customers up for online banking without their consent, according to the bureau.
The bank said it fired approximately 5,300 employees from January 2011 to March 2016 for opening sham accounts and that it plans to continue its probe into employees' behavior.
At a Senate hearing last week, Sen. Elizabeth Warren, D-Mass., grilled Wells Fargo CEO John Stumpf about why only low-level employees have been fired, while he and other senior executives kept multimillion-dollar bonuses and have faced no consequences. Warren called Stumpf "gutless" and said he should resign.
"You haven't resigned; you haven't returned a single nickel of your personal earnings; and you haven't fired a single senior executive," Warren told Stumpf at the hearing. "Instead, evidently your definition of accountable is to push the blame to your low-level employees who don't have the money or a fancy PR firm to defend themselves. It's gutless leadership."
The $185 million settlement, representing 0.8 percent of the bank's $22 billion in profit last year, includes $100 million for the Consumer Financial Protection Bureau, $50 million for the city of Los Angeles, and $35 million for the Office of the Comptroller of the Currency.
Veach also criticized the deal because it allows Wells Fargo to hand-pick the consultant who will administer payouts to fraud victims.
Mayorga said that though the bank is responsible for hiring its own independent consultant, the consultant must conduct a thorough review of Wells Fargo's books and that the bureau will review and approve all aspects of the redress plan to make sure all harmed consumers receive refunds.
"There's multiple checks built into this order," Mayorga said.
Veach complained that any part of the $5 million in redress not distributed to consumers, or recouped by Wells Fargo for previously paid redress, will go to the CFPB, which may "deposit any remaining funds in the U.S. Treasury for disgorgement."
But Mayorga said leftover money will go to the Treasury only after all victims are compensated in accordance with the redress plan.
Veach seeks class certification, restitution, an injunction, disgorgement of ill-gotten gains, and punitive damages for unjust enrichment, unfair competition, bad faith, conversion and violations of the Electronic Fund Transfer Act.
He is represented by Daniel Girard with Girard Gibbs in San Francisco.
Wells Fargo spokesman Ancel Martinez declined to comment.
Last week, Wells Fargo employees filed a $2.6 billion class action against the bank, claiming they are the "biggest victims" of its policy of opening accounts without customers' knowledge.
Wells Fargo shares have fallen around 9.5 percent since it announced the $185 million settlement for the phony accounts scheme on Sept. 8.
Follow @NicholasIovino
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