You May Have More Bank Accounts Than You Think

Incentive-based compensation scheme linked to 2 million unauthorized accounts


Opening unauthorized deposit accounts for existing customers and transferring funds from their owners’ other accounts, all without their customers’ knowledge or consent. Submitting applications for credit cards in consumers’ names using consumers’ information without their knowledge or consent. Enrolling consumers in online-banking services that they did not request. Ordering and activating debit cards using consumers’ information without their knowledge or consent.


All of the above were the practices the Consumer Financial Protection Bureau (CFPB) found Wells Fargo to be involved in since 2011.


There are several issues related to these practices that customers should be concerned about. Firstly, the direct material impact on consumers: some of the debit and credit accounts that were opened incurred annual fees, overdraft-protection fees, as well as various late fees averaging around $25 per account (to a total of $2.4 million dollars in fees accrued by 99,000 credit and debit accounts). Secondly, in a society where credit scores play such an important role in everyday life, additional credit cards may determine the terms of automobile loans, mortgages, or even success in job searches for consumers. Lastly, unauthorized use of customer personal information raises serious questions about the company’s general practices around data security and customer privacy.


An incentive-based compensation structure based on the number of products and services sold to customers, as well as constant pressure from management to meet sales targets, pushed employees to engage in these illegal sales practices. After the violations were uncovered, Wells Fargo fired 5,300 of its retail banking employees. But were they really the ones to blame and is it really a solution to the bank’s problems? Such a high number of employees involved in aggressive cross-selling practices and the opening of bogus accounts indicates the problems were much more systemic in nature.


Well Fargo agreed to settle the allegations with the CFPB and other regulators for $185 million, but this fine likely only scratches the surface of the financial impacts Wells Fargo may face. This incident could substantially damage the company’s reputation and make its customers question whether their interests are, in fact, the priority of Well Fargo’s employees. To prevent further repercussions, the bank issued a statement promising that as of January 1, 2017, its retail banking employees will no longer have product sales goals.


The magnitude of the aggregate impacts on Well Fargo’s sales and earnings, as well as future risks of such incidents occurring, is something that analysts should be able to evaluate and quantify. SASB has identified these issues as material to companies in the Consumer Finance industry and has included metrics in the standards that could help analysts evaluate the risks associated with cross-selling practices. Specifically, metrics within SASB’s ‘Transparent Information & Fair Advice for Customers’ topic focus on the link between employee compensation and sales of related and complementary products, Companies are encouraged to describe how they ensure that truthful information about these products is communicated effectively to consumers.


Consistent and comparable reporting on these metrics would allow analysts to assess the relevant riskiness of financial services companies, as well as quantify the magnitude of potential financial impacts on individual firms. Over the long term, disclosure translates into performance, which means higher customer satisfaction with the services provided by financial services companies.



Anton Gorodniuk is SASB’s Financials sector analyst. Please follow @SASB_Financials for regular updates on sustainability topics for the Financials sector.