By now, you have no doubt hear that Wells Fargo Bank recently fired 5,300 employees following an investigation by the various government agencies that revealed that hundreds of thousands of unauthorized deposit accounts were opened by Wells Fargo employees, including tens of thousands of credit cards. The bank also was hit with $185 million in fines.
The Consumer Financial Protection Bureau (CFPB) reports that more than 1.5 million Wells Fargo deposit accounts may not have been authorized. According to the Los Angeles City Attorney’s Office, new accounts were created without authorization using cash from existing customer accounts to meet sales goals under an aggressive incentive-compensation program.
After the initial news, new stories are emerging that reveal that the sales culture inside Wells Fargo put incredible pressure on employees. During the time of the unauthorized account creation, from 2011 to 2015, employees report they were responsible for unrealistic sales goals with up to four daily meetings to review sales targets. For example, “pinning” became a common practice where the banks would issue unauthorized ATM cards and PINs. At the same time, managers ignored ethical and legal misconduct. One employee reported to CNN:
"I had managers in my face yelling at me. They wanted you to open up dual checking accounts for people that couldn't even manage their original checking account."
Given the tough economic climate in recent years you have to wonder whether Wells Fargo’s illicit sales practices are an anomaly or more widespread. Has the industry as a whole turned a blind eye to unethical practices that increase revenue at the expense of the customer. As the industry “tisk tisks” Wells Fargo for malfeasance, I keep thinking of Claude Rains in Casablanca proclaiming “I’m shocked - shocked to find that gambling is going on in here!” as he pockets his night’s winnings.
A recent podcast posted by the Wharton Business School questions the entire fees-based profit model for banking. The whole practice of cross-selling bank products is ripe for abuse. This kind of relationship banking is common practice, but in the case of the current Wells Fargo scandal, it seems likely that the bank will lost customers to credit unions and smaller institutions that put more emphasis on customer service based on trust. Consider the trend among black consumers who are seeking out black-owned banks.
Wells Fargo may be the first to be caught with a hand in the fees cookie jar, but chances are it won’t be the last. The CFPB is scrutinizing Wells Fargo and CEO John Stumpf is going to testify this week before the Senate Banking Committee. Senate Democrats have already signed a letter urging strong action against Wells Fargo, but Wells may only be the first to feel Senatorial wrath.
Times continue to be tough for banks. We are all holding our breath, waiting for the Federal Reserve to move and interest rates to rise. However, there are always new sources of income available for creative financial institutions. Cracking the whip and demanding more revenue from a consumer market that remains reticent and feels tapped out can only lead to abuses to meet unrealistic sales goals.
In these uncertain times with an erratic economic climate fueled by the uncertainty of the upcoming election, financial institutions continue to struggle to maintain profitability. Putting more pressure on employees and customers to build more fee revenue is not the answer. Consider other ways to build revenue and business. Banks need to think back to the days before the deposit bubble burst and consider revenue approaches they may not have revisited for a while. Focusing more attention on customer service, for example, can have a positive impact on revenue; if you build a better service model, customers will come. What about new types of loan packages? We maintain a database of new product ideas that goes back decades and many of those ideas have little or nothing to do with generating fee revenue. It’s time to get back to basics and focus on delivering products consumers want and providing better customer service to build business.