For at least five years, Wells Fargo was engaged in a practice of secretly opening some 2 million phony credit card and deposit accounts in an effort to put multiple banking products in customers’ hands. That kind of growth strategy was central to the bank’s business, and employees were pressured to meet demanding quotas calling for each customer to have eight accounts with the bank. This prompted employees to cut corners. They started opening up accounts without customers’ Ok or knowledge.
This practice started at least as far back as 2011, but there is evidence to indicate it may have been going on even back in 2009. As a result, the bank was able to rake in at least $2.6 million in additional fees on accounts customers never wanted to begin with. In many cases, customers didn’t even know they existed, and the fees were simply being deducted from other legitimate accounts. Federal regulators got involved this month, and the bank quickly agreed to settle the case for $185 million. Thousands have been fired (though not the company CEO) and U.S. Attorneys have begun investigations. Sen. Elizabeth Warren (D, Mass.) lambasted CEO John Stumpf during a Senate Banking Committee. Although he apologized, Warren told him he was personally responsible, should resign and be criminally investigated.
But the question of why this took so long to uncover goes back to another practice that isn’t unique to Wells Fargo. It’s called an arbitration clause. Continue reading