When news of a financial scandal at Wells Fargo was made public last month, the implications seemed negative, but not dire.
But ongoing investigations and lawsuits against the company are beginning to paint a picture of the San Francisco-based bank as a company that fostered a culture of unethical — and sometimes illegal — activity.
In early September, the company reached a $185 million settlement with U.S. bank regulators who alleged Wells Fargo employees had knowingly opened around 2 million fraudulent bank and credit card accounts in the names of its retail customers. As a result, the bank fired around 5,300 (1 percent) of its employees.
According to a recent probe by Reuters, around 10,000 falsified accounts were opened in the names of small businesses across the country. Wells Fargo is currently the top Small Business Association lender in Colorado and was responsible for 136 loans totaling nearly $34 million between Oct. 1, 2015, and Dec. 31, 2015, according to records obtained from SBA’s district office for Colorado.
Christopher Chavez, regional communications director for the U.S. Small Business Administration, said that he has not fielded any complaints from small business owners in the state about the banking giant.
Amanda Averch, director of communications for the Colorado Bankers Association (of which Wells Fargo is a member bank), said the organization does not comment about specific banks, but that they are “confident this situation will prompt all banks to take a hard look at their internal policies.”
“We denounce any and all unethical practices, by anyone,” she said. “This is an opportunity for banks — and society and other businesses — to ensure policies and practices protect customers and are above reproach. Customer trust and confidence is a bank’s most valuable asset. We hope that bank regulators will use their existing authority to appropriately address any policies or practices that fail to have customers’ best interests at the forefront.”
Averch said that the organization has not received any formal complaints from Wells Fargo customers in Colorado.
One woman who worked at Wells Fargo in Colorado during 2010 and 2011, who asked to remain anonymous, said that she “wasn’t surprised at all when [she] found out what was going on.”
She described the environment at the bank as being “very high-pressure” and said there was a constant push for staff to sell customers products and services they often didn’t need.
“The sales piece was always more heavily weighted,” she said. “I was constantly being bombarded with needing to boost my sales.”
Although her position was not supposed to involve sales, she said her job quickly became one of a “glorified salesperson.”
“It was not a very positive working environment,” she said. “There was a lot of pressuring customers … and customer service was not a priority — I think it was definitely on the back burner.”
She said she would consider the bank’s practices “manipulative” and said that sales pitches were “worded in a way that didn’t sound like we were selling them something.”
Such claims have become increasingly common in recent years, with numerous current and former employees of Wells Fargo stepping forward as whistleblowers.
But there’s no real information about employees at the state or local levels.
Christie Drumm, the bank’s spokesperson for the Midwest, said that she does not “have employee data at the state level to share” regarding how the scandal and subsequent layoffs have affected its operations. Wells Fargo currently employees around 6,000 people in the state, 2,500 work in retail banking.
“We take this issue seriously and have made fundamental changes to our retail banking business over the past three years to ensure that customers receive only the products and services they want and value, and customer satisfaction is high,” Drumm said.
“If even one customer received a product they did not request, it is unacceptable and contrary to our culture of doing what’s right for customers. We regret and take full responsibility for the incidents in which customers received a product they did not request.”
In 2013, Wells Fargo topped the list of banks that consumers in Colorado complained about to the Consumer Financial Protection Bureau. The bureau received 7,303 complaints against Wells Fargo so far this year. Of the 880 complaints lodged with the CFPD by consumers in Colorado since Dec. 1, 2011, more than 100 pertain to “account opening, closing and management.” A total of 23 complaints were filed with the CFPD by consumers in Colorado Springs between April 2012 and January 2016 — seven related to “account opening, closing or management.”
In response to pressure from bank regulators, the bank ended its controversial product sales goals program effective Oct. 1, Drumm said.
The bank has taken a big hit on the stock market.
Earlier this month, stock in the company dropped to a 52-week low of $43.78 and its rating with Raymond James was lowered from “market perform” to “underperform.”
Colorado Public Employees Retirement Association is one of more than a dozen state pension funds with investments in Wells Fargo. PERA’s fifth largest equity holding by fair value was in Wells Fargo & Co. as of Dec. 31, 2015, when the pension fund reported that it owned more than 3 million shares in the company that were then valued at more than $163.3 million (that value was $142.5 million as of June 30, according to a July filing with the U.S. Securities and Exchange Commission).
PERA also uses Wells Fargo Securities LLC for financial advisory services, according to its 2015 Comprehensive Annual Financial Report.
Katie Kaufmanis, public information officer for PERA, declined to comment about whether the fund had plans to follow states like California and Illinois in divesting itself of Wells Fargo stock.
Allan Roth, founder of Colorado Springs-based financial planning firm Wealth Logic LLC, said that Wells Fargo might weather this storm — but that isn’t necessarily a sign of strength.
“I suspect Wells will survive the next decade, but that doesn’t mean it’s a good investment,” he said. “I personally can’t believe 2 million fake accounts could have been opened without management or the auditors being aware of it.”
Tom Ashley, regional president for ANB Bank in Colorado Springs, said the Wells Fargo scandal has an impact on public perception of the industry that trickles down into distrust even for community banks such as his.
“When something like this happens, it causes concern and it does impact us,” he said. “I think there is certainly more skepticism on behalf of the customers.”
The banking industry overcame a similar problem in 2008-09 that resulted in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which imposed what Ashley calls a “more onerous regulatory environment” for financial institutions.
“Unfortunately, there is often a reaction from our legislators to increase the regulatory burden or to look for ways to make sure other banks don’t have these kinds of practices,” he said. “That was the culture at Wells, and I think that maybe it got away from them. But that’s not the culture we have, and I don’t think it was at every Wells Fargo branch. … It’s not the approach that most banks would take.”
Ashley said he views it as an opportunity for small banks to reinforce their customer service-oriented cultures and evaluate their own practices.
“It also gives us an opportunity to look in the mirror and ask ourselves if we have an environment where we can be sure this sort of thing won’t happen,” he said.
Ashley said he doesn’t recall hearing about widespread creation of fraudulent accounts by banks. He has heard about larger banks that might have encouraged workers to “cheat the system” in order to meet stringent sales quotas and keep their jobs, he said.
“It’s an anomaly,” he said. “But I wasn’t completely shocked that something like this could happen.”