On 9/20/16, the Wells Fargo CEO, John Stumpf testified before the U.S. congress where he was aggressively questioned by U.S. senators from both sides of the aisle about the millions of bank accounts opened without the consumers’ knowledge or prior approval.
It has been alleged that the financial service representatives were under such intense pressure to cross sell at each and every customer contact, in order to attain the goal of 6 to 8 accounts per client, that some agents sold bank products without their customer’s knowledge to pad their stats. In comparison, the vast majority of financial institutions average 3 accounts per client.
While Mr. Stumpf’ delivered his opening statement to the senators, he claimed that, he as the CEO, was taking full responsibility for the harm that has been done to their customers and that the company would be taking the appropriate corrective steps, including the recent firings of 5,300 low level employees who were found to be guilty of these types of offenses.
The problem with Mr. Stumpf’s mea culpa is that his performance was an encore of the play book previously acted out during a similar scandal uncovered by the LA Times in December 2013, (Article is footnoted below). This proves that high-ranking bank officials knew by 2013 that the illegal conduct was pervasive. The LA Times exposé reported that Wells Fargo employees had “opened unneeded accounts for customers, ordered credit cards without customers’ permission and forged customers’ signatures on paperwork.”
The beginnings of this widespread practice of cross selling new products with unrealistic goals set by management of financial and insurance businesses, coincidentally occurs with the advent of huge call centers being built around the country (around 2007-2009). For example, Wells Fargo has at least 20 call center locations by which the bank’s agents handle the bulk of customer service calls.
In one of my business blogs, “Nutty Consumer’s 1st Rant v Cookie Cutter Call Centers,” I note the following:
The “cookie cutter” call center systems business is a billion dollar industry and the marketers sell their systems to companies with the virtual guarantee of increased profits by streamlining the operational costs pertaining to their parts of the organization which interact directly with the consumer. The question is how does a company implement this “cookie cutter” call center system designed to increase profits by cutting operational costs while still maintaining an improvement in the other companies’ goals which are increasing customer satisfaction rates; increasing customer retention rates; increasing employee satisfaction rates; lowering employee turnover; and increasing revenues and market share in a competitive world. It is my opinion that those companies which utilize this “cookie cutter” call center prototype will show an increase in profits due to cutting operational costs but ( without customization) they will also suffer a decrease in many of their other goals.
If the DOJ and /or the SEC does not make Wells Fargo top executives pay a price to demonstrate that there will be accountability for wrongdoing, fraud, etc., then the public will not believe that when and if there is another financial meltdown, that it won’t be the taxpayers paying the price again. This will further erode any of the American taxpayers’ faith in their government’s ability to act on their behalf.
The following excerpts are from the 9/22/16, New York Times published article, “Wells Fargo Tests Justice Department’s Get-Tough Approach by James B. Stewart:
“Deputy Attorney General Sally Quillian Yates issued tough new guidelines last year for federal prosecutors. “One of the most effective ways she said, is by seeking accountability from the individuals who perpetrated the wrongdoing.”
“In Wells Fargo, the government may have the perfect first case.”
“We should really hold the Department of Justice’s feet to the fire here,” said John C. Coffee Jr., a professor at Columbia Law School who is an expert on white-collar crime. “Do they really mean what they said in that memo? Will they pursue individuals and not just the underlings. United States attorneys from three jurisdictions- in New York, San Francisco and North Carolina–have sent subpoenas to the bank, indicating Wells Fargo now faces a number of criminal investigations.”
(At the hearing, Senator Elizabeth Warren said) “You should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission.” On Thursday, a group of senators asked the Labor Department to investigate the bank’s employment practices. But calling for an investigation is easy compared with actually convicting high-ranking executives of a crime, or even proving civil liability, as the government’s poor record with post financial-crisis mortgage fraud cases has demonstrated.”
“Brandon L. Garrett, a law professor at the University of Virginia and author of “Too Big to Jail.” did not want to speculate about the eventual outcome of the Wells Fargo investigations. Still, “based on past experience, it’s incredibly rare to see high-level officials prosecuted,” he said. “
“Despite the long odds, and the layers of bureaucracy that typically insulate top executives from knowledge of wrongdoing, Wells Fargo may prove the exception.“I disagree with the fact that this is a massive fraud,” Mr. Stumpf told the Senate Banking Committee. Nonetheless, he said he was “fully committed to doing everything possible to fix this issue, strengthen our culture, and take the necessary actions to restore our customers’ trust.”
“But opening accounts without customers’ knowledge, even forging signatures — and then charging them fees — isn’t some kind of gray area or borderline behavior. As Senator Patrick J. Toomey, a Pennsylvania Republican, put it this week: “This isn’t cross-selling, it’s fraud.”
“Under corporate criminal law, Wells Fargo is strictly liable for the criminal behavior of its employees acting within the scope of its business.The Justice Department has 10 guidelines for when it should pursue criminal charges against a corporation, recently updated to reflect its more aggressive posture toward individuals.”
” Among the most important factors is “the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management.”That provision strikes at the heart of the Wells Fargo affair, given that this was an epidemic of bogus accounts,” Professor Coffee said. “This wouldn’t have happened without pressure from the top.”
Times investigation of Wells Fargo culture provokes strong … articles.latimes.com/2013/…/la-fi-mo-wells–fargo–sales-pressure-… Dec 28, 2013 – A Times investigation into the intense sales culture at Wells Fargo, published in … Luis Sinco / Los Angeles Times…
Justice Department Sets Sights on Wall Street Executives – The New … http://www.nytimes.com/2015/…/new-justice-dept-rules-aimed-at-pros…The New York Times Sep 9, 2015 – Sally Q. Yates, the deputy attorney general and the author of the memo. … The newrules, issued in a memo to federal prosecutors nationwide, are the first major … In Corporate Crimes, Individual Accountability Is Elusive FEB. 19, 2015 ..