Remember the outrage one year ago when it was revealed that in its push to pad its top, and bottom line, Warren Buffett’s favorite bank had engaged in outright criminal account churning and “cross selling”, opening some 2.1 million unauthorized client accounts without permission (subsequently this extended to unsolicited car insurance policies extended on Wells auto loans). Well it turns out there was not nearly outrage, because as the bank revealed this morning, the “real” number was higher. 67% higher.
According to the outside review whose findings were released today, Wells Fargo said employees created two-thirds more bogus accounts than initially thought. According to the review, an additional 1.4 million “potentially unauthorized” deposit and credit-card accounts opened when the bank was encouraging employees to sell multiple products to retail customers, bringing the total to about 3.5 million, according to a statement Thursday from the San Francisco-based firm. The revised estimate covers January 2009 to September 2016, almost twice as long as the period examined in the initial review.
Wells new CEO was, predictably, all apologies:
“We apologize to everyone who was harmed by unacceptable sales practices that occurred in our retail bank,” said Wells Fargo CEO Tim Sloan. “To rebuild trust and to build a better Wells Fargo, our first priority is to make things right for our customers, and the completion of this expanded third-party analysis is an important milestone. Through this expanded review, as well as the class action settlement, free mediation services, and ongoing outreach and complaint resolution, we’ve cast a wide net to reach customers and address their remaining concerns. Our commitment has never been stronger to build a better bank for our customers, team members, shareholders and communities.”
However, as Bloomberg writes, the discovery is “a sign the bank is still struggling to move past a scandal that sparked record fines and congressional investigations.” Furthermore, “the disclosure of even more fraudulent accounts threatens to catapult Wells Fargo back into the political crosshairs just as Congress returns Sept. 5 from its summer recess.”
The scandal came to light almost a year ago after regulators slapped Wells Fargo with fines of $185 million over its sales practices, prompting congressional hearings and resulting in the bank naming new leaders, clawing back executives’ pay and beginning an overhaul of its retail division.
“New data should cause some lawmakers to re-engage on the issue,” Isaac Boltansky, an analyst with Compass Point Research & Trading, told Bloomberg before the new tally was announced. Democrats will again argue it proves Washington needs to keep rules tight on financial firms, while Republicans will continue to fault Consumer Financial Protection Bureau officials for not spotting the misconduct themselves, Boltansky said.
As Bloomberg writes, Wells Fargo had agreed to expand its review after Washington lawmakers lambasted the company following former Chief Executive Officer John Stumpf’s testimony last September about the bank’s sales practices. Under pressure, the bank agreed to review records dating back to 2009, rather than through 2011 as it initially did.
The company said it has paid or identified $10.7 million in customer compensation related to the investigation. The figure includes $7 million of refunds, up from $3.3 million the bank had previously disclosed. It also includes $3.7 million related to what it described as the “complaints process/mediation.”
“Today’s announcement is a reminder of the disappointment that we caused to our customers and stakeholders,” CEO Tim Sloan said on a conference call Thursday with reporters. “We apologize to everyone who was harmed by unacceptable sales practices that occurred in our retail bank.”
Democrats led by Representative Maxine Waters of California earlier this month called for a House Financial Services Committee hearing about a separate scandal at Wells Fargo involving unwanted car insurance imposed on auto-loan customers. And Senator Elizabeth Warren of Massachusettswrote to the Federal Reserve to again press for the removal of board members who served during the original accounts review period of 2011 to 2015.
Today’s revelation was partially expected: in March the bank warned investors that its initial bogus-accounts estimate was probably too low, saying in its annual filing that a new search by a third-party firm “could lead to, among other things, an increase in the identified number.”
Wells Fargo has worked to minimize the impact of the new tally, describing the additional accounts as those it couldn’t rule out from lacking customer authorization.
The company said in the statement that it “erred on the side of its customers during the review”, so the figures might include some accounts that were properly authorized. When it fined Wells Fargo last year, the CFPB ordered the bank to identify all customers affected by its sales misconduct and set aside $5 million for those harmed.
On the other hand, the new review doesn’t go back as far as 2002, the year that executives first knew about the sales misconduct and fired employees over it, according to investigators hired by the company’s board. Lawyers representing customers who said they were harmed by the bank’s abusive sales practices claimed in a lawsuit that Wells Fargo employees probably created 3.5 million bogus accounts starting in May 2002. Wells Fargo is awaiting final approval to settle that case for $142 million.