(CN) — Wells Fargo will pay $185 million to settle accusations that its employees attempted to meet aggressive sales quotas by illegally opening millions of unauthorized accounts for customers without their knowledge.
Under the settlement, announced Thursday morning, the San Francisco-based bank will pay $100 million to the Consumer Financial Protection Bureau (CFPB) — the largest fine ever imposed by the federal agency — and $35 million to the Office of the Comptroller of the Currency.
Wells Fargo is also required to provide restitution to affected customers and pay $50 million in civil penalties to the City and County of Los Angeles, the largest such payment in the history of the L.A. City Attorney’s office.
City Attorney Mike Feuer called the settlement a “major victory for consumers.”
“Customers must be able to trust their banks. They should never be taken advantage of by their banks. We’re holding Wells Fargo accountable and assuring the violations we’ve alleged never happen in the future,” Feuer said. “This extraordinary resolution sends a strong message — to big banks and consumers alike — that we’ll be vigilant in protecting consumer rights.”
Wells Fargo, like other banks, has pushed the cross-selling of multiple products to its customers. The bank enacted compensation-incentive programs for its employees that encouraged them to sign up existing clients for other accounts, but the bank failed to adequately monitor the programs, the CFPB said.
According to Wells Fargo’s own analysis, employees opened more than 1.5 million deposit accounts that may not have been authorized by consumers. They then transferred funds from consumers’ authorized accounts to temporarily fund the new, unauthorized accounts.
This practice gave the employees credit for opening the new accounts, allowing them to earn additional compensation for meeting the bank’s sales goals.
The bank then sometimes charged consumers for insufficient funds or overdraft fees when the money was not in their original accounts.
The CFPB estimates that employees also applied for roughly 565,000 unauthorized credit card accounts, on which many consumers incurred annual fees and associated finance charges.
In addition, bank employees issued and activated debit cards without consumers’ knowledge and created phony email addresses to enroll consumers in online-banking services, according to the CFPB.
In a statement, Wells Fargo said it regrets and takes responsibility “for any instances where customers may have received a product that they did not request.”
“Our entire culture is centered on doing what is right for our customers. However, at Wells Fargo, when we make mistakes, we are open about it, we take responsibility, and we take action,” the bank said.
Approximately 5,300 employees were fired in connection to the illegal conduct.
The bank said it has refunded $2.6 million to customers for any fees associated with products customers received that they may not have requested. Accounts refunded represented a fraction of one percent of the accounts reviewed, and refunds averaged $25, the bank said.
Wells Fargo’s questionable sales tactics were first disclosed by The Los Angeles Times in an investigation in 2013, prompting the L.A. City Attorney’s office to sue the bank.
The federal agencies conducted their own investigations into the bank’s sales. Richard Cordray, director of the CFPB, said that the large penalties imposed on Wells Fargo “should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences.”
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