I could not let too many days go by without noting that my favorite recidivist corporate criminal was once again making remarkable news. It seems incredible to contemplate at this point in time, but there was a time in the mid-2000s when Wells Fargo was considered by analysts and industry insiders as one of the better managed banks on Wall Street. That appearance was bolstered by the fact that, in 2008, Wells Fargo chairman Richard Kovacevich initially attempted to refuse to take the $25 billion bailout provided under TARP simply because the bank did not need the additional capital and had limited exposure in the mortgage related products that had brought other banks to their knees.
Of course, the reality was that Wells Fargo was actually a seriously dysfunctional bank long before the financial crisis. The original California-focused Wells Fargo’s decision to engage in a hostile takeover of First Interstate Bank in 1996 had already created such a debacle that the bank itself was acquired two year later by Norwest which merely kept the Wells brand name. That new Wells Fargo, under Kovacevich’s leadership, then went on an orgy of mergers and acquisitions after the repeal of Glass-Stegall in 1999, buying up 41 different entities in just the two years after being bought out by Norwest.
Kovacevich had adopted the goal of getting every Norwest customer to have eight different Norwest accounts and this emphasis on cross-selling continued at Wells Fargo with ever increasing pressure on the sales team. The unsurprising result was that Wells employees opened millions of accounts without the customers’ permission in order to juice fees. In addition, Kovacevich’s claim that Wells was not seriously exposed to toxic mortgages was also false as the firm was forced to pay a $1.2 billion settlement for shady mortgage origination and underwriting practices between 2001 and 2005 that were described as “reckless”. In 2005, Wells paid a $3 million fine for fleecing its mutual fund clients. In 2007, it paid nearly $13 million for fleecing its own workers over unpaid overtime. Having seemingly survived the worst in 2008, Wells went ahead and completed its merger with Wachovia which itself could not survive the mortgage crisis because of its own prior acquisition in 2006 of Golden West, which specialized in the risky mortgages that created the financial meltdown to begin with. In doing so, Wells inherited those Wachovia mortgage liabilities which then led to a series of fines for forging foreclosure documents. All this activity created a banking behemoth, but one that was dysfunctional and obviously impossible to manage.
Since the financial crisis in 2008, Wells has been cited for significant infractions over 40 times resulting in $15 billion in fines and settlements, with one of the more recent actions being a $1 billion fine for more unauthorized billings to its auto loan customers.
Last week, we learned of yet another scandal in which the bank fleeced its customers, this time from those who had actually closed their accounts. Normally when you attempt to close a bank account, you are given two dates. The first is the date at which any new deposits will not be accepted. The second, sometime later, usually a couple of weeks at most, is the date when the account will stop honoring any transactions in the account. Wells, however, not only extends that second date our for a couple of months but still keeps the account active if it has any kind of balance, either positive or negative. What that means for customers is that any kind of automatic withdrawals still hit their account even after they have been told by the bank that those transactions will not be honored. The customers were then liable for any overdraft fees that these withdrawals after the closing date created.
A similar problem existed for those consumers who had been a victim of bank fraud. While those customers may have believed they had successfully closed their accounts at Wells and thereby cut the fraudsters who had access to their accounts either through bogus checks or other means, instead fraudulent withdrawals continued and the customers racked up overdraft fees. Even more troubling, it is Wells Fargo that may have unilaterally closed certain accounts that had been flagged for suspicious activity by the bank or been reported for fraud by the account holder just so that the bank could avoid the costs of a real fraud investigation while ensuring the customer absorbed the full cost of the fraud.
According to one bank employee, the situation where a closed bank account continues to accept withdrawals has generated over $100,000 on overdraft fees for the bank in just one eight month period, hardly big money but it does add up over time. In addition, the account holders are often unaware of the overdraft until either contacted by Wells’ collection department or when they are unable to open any new bank accounts elsewhere after Wells reports them to a national database of delinquent accounts that is used by banks as part of the process of vetting new account openings. Even more frustrating for account holders is the fact that they can often see that their accounts still remain active and are generating overdrafts but are told when they contact their local branch or customer service that nothing can be done because their accounts are closed.
It is a remarkably profitable catch-22, still processing transactions that create overdraft fees and liabilities the customer will be forced to pay while at the same time claiming that nothing can be done because the accounts are closed. And it somehow uniquely typical of Wells Fargo that it still somehow manages to screw their own customers even after they close their accounts and move to another bank.
Originally published at https://thesoundings.com on August 20, 2019.