Wells Fargo to pay $3bn over pressuring employees to meet unrealistic sales goals
The years-long practice led thousands of employees to provide millions of accounts or products to customers under false pretenses or without consent.
Wells Fargo & Co. and its subsidiary, Wells Fargo Bank, N.A., have agreed to pay $3 billion to resolve three separate matters stemming from a long-lasting practice of pressuring employees to meet unrealistic sales goals. This practice pushed thousands of employees to provide millions of accounts or products to customers under false pretenses or without consent, often by creating false records or misusing customers’ identities.
As part of the agreements with the United States Attorney’s Offices for the Central District of California and the Western District of North Carolina, the Justice Department’s Civil Division, and the Securities and Exchange Commission, Wells Fargo admitted that it collected millions of dollars in fees and interest to which the company was not entitled, harmed the credit ratings of certain customers, and unlawfully misused customers’ sensitive personal information.
“This case illustrates a complete failure of leadership at multiple levels within the bank”, said United States Attorney Nick Hanna.
- The criminal investigation into false bank records and identity theft is being resolved with a deferred prosecution agreement in which Wells Fargo will not be prosecuted during the three-year term of the agreement if it abides by certain conditions.
- Wells Fargo also entered a civil settlement agreement under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) based on Wells Fargo’s creation of false bank records.
- In addition, Wells Fargo agreed to the SEC instituting a cease-and-desist proceeding finding violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
The $3 billion payment resolves all three matters, and includes a $500 million civil penalty to be distributed by the SEC to investors.
The statement of facts accompanying the deferred prosecution agreement and civil settlement agreement outlines a course of conduct over 15 years at Well Fargo’s Community Bank, which was then the largest operating segment of Wells Fargo, consistently generating more than half of the company’s revenue.
As part of the statement of facts, Wells Fargo admitted that, beginning in 1998, it increased its focus on sales volume and reliance on annual sales growth. A core part of this sales model was the “cross-sell strategy” to sell existing customers additional financial products.
The Community Bank implemented a volume-based sales model in which employees were directed and pressured to sell large volumes of products to existing customers, often with little regard to actual customer need or expected use.
Many of these practices were referred to within Wells Fargo as “gaming.” Gaming strategies varied widely, but included using existing customers’ identities – without their consent – to open checking and savings, debit card, credit card, bill pay and global remittance accounts.
The top managers of the Community Bank were aware of the unlawful and unethical gaming practices as early as 2002, and they knew that the conduct was increasing due to onerous sales goals and pressure from management to meet these goals. One internal investigator in 2004 called the problem a “growing plague.” The following year, another internal investigator said the problem was “spiraling out of control.” Even after senior managers in the Community Bank directly called into question the implementation of the cross-sell strategy, Community Bank senior leadership refused to alter the sales model, which contained unrealistic sales goals and a focus on low-quality secondary accounts.
Despite knowledge of the illegal sales practices, Community Bank senior leadership failed to take sufficient action to prevent and reduce the incidence of such practices. Community Bank senior leadership viewed negative sales quality and integrity as a necessary byproduct of the increased sales and as merely the cost of doing business.
The government’s decision to enter into the deferred prosecution agreement and civil settlement took into account a number of factors, including:
- Wells Fargo’s extensive cooperation and substantial assistance with the government’s investigations;
- Wells Fargo’s admission of wrongdoing;
- Wells Fargo’s continued cooperation with investigators;
- Wells Fargo’s prior settlements in a series of regulatory and civil actions; and
- remedial actions, including significant changes in Wells Fargo’s management and its board of directors, an enhanced compliance program, and significant work to identify and compensate customers who may have been victims.
The deferred prosecution agreement will be in effect for three years.