In the wake of a controversy that has people again scrutinizing the practices of big banks, Wells Fargo (WFC) is waving the white flag on its use of product sales goals for its employees.
The decision follows last week’s revelation that at least two million fake—”unapproved”—credit card and deposit accounts were created for existing account holders by the bank’s employees in order to meet aggressive sales quotas. Essentially, customers had no idea the accounts were opened; it was done as an underhanded way to boost the metrics for the company’s retail banking sector.
While the banking giant has admitted no wrongdoing by settling for a $185 million fine, it doesn’t appear that this behavior was an actual directive. Yet, the incentive for employees to meet certain sales totals led to the problem. By removing these goals, Wells Fargo is signaling that it will end this practice to avoid these kinds of embarrassing headlines.
Nonetheless, the Consumer Financial Protection Bureau (CFPB) concluded that Wells Fargo encouraged these procedures, at least by implication, through its call center staff. The regulatory bureau found that managers in the retail banking division did not hold their subordinates accountable nor provide proper oversight that could’ve prevented this fiasco, or at least arrested the problem before it grew to such proportions. The CFPB also characterized the problem as “pervasive.”
The change in policy will take effect on January 1st of next year. In the meantime, the bank will also refrain—at least temporarily—from cross-selling its financial products. This approach, which encourages existing customers to consider other products offered by the bank (thereby making them less likely to switch banks), is at the core of Wells Fargo’s business.
Consequences for Wells Fargo
The aftermath of the fine and controversy has been fairly diffuse, as Wells Fargo has remained squarely in the headlines of the financial news since.
Warren Buffett’s Berkshire Hathaway, the largest shareholder of the bank, cannot be pleased with the negative publicity. WFC shares are down more than 11% year-to-date, making it one of the poorer-performing financial stocks. It remains one of the ten largest publicly traded companies in the world and the third-largest bank in the United States.
There are also legitimate fears that this whole ordeal could place a dent in the firm’s credibility with ratings agencies like Moody’s. The damning CFPB report could directly impact its credit rating, for example.
Strong credit and a heretofore stellar reputation are the lifeblood of Wells Fargo’s mystique. Its marketing centers around the image of trustworthiness, and it often makes a point of highlighting that the company has been around for over 150 years. (It was founded by Henry Wells and William Fargo in 1852. The two men also founded American Express.)
The company’s CEO, John Stumpf, is expected to testify at a hearing in front of the Senate Banking Committee on September 20th.
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