Wells Fargo Fine is a Slap on the Wrist

Wells Fargo Fine is a Slap on the Wrist

Much has been made over the last couple of weeks about the $185 million fine Wells Fargo is facing following the wide spread fraud found by the Consumer Finance and Protection Bureau (CFPB). For at least the past 5 years, Wells Fargo employees have opened 2 million customer and credit card accounts without customer authorization using fake e-mail addresses and other false information. Customers have been unaware of these new accounts until they received late notices and charges. Wells Fargo has often reported these “late payments” to credit reporting agencies, adversely affecting consumers’ credit.

$100 million of the fine was levied by the CFPB, the largest fine in the agency’s history. In addition, the Office of the Comptroller of the Currency fined Wells Fargo $35 million and the City and County of Los Angeles, which instituted the initial investigated, will receive $50 million. The bank will also be required to pay restitution to affected customers.

The fine, while large, is only a minor inconvenience to Wells Fargo, at least from a monetary point of view. Carrie Tolstedt, the head of the bank’s Community Banking Division, recently announced her retirement from the bank as of the end of the year. Her current salary has been reported to be $1,700,000 per year. But more importantly, she will receive a golden parachute valued near $125 million. Though Ms. Tolstedt was not singled out by the CFPB, she has been “credited” with helping the bank achieve its internal sales goals. In fact, John Stumpf, Wells Fargo CEO has called Ms. Tolstedt the “standard bearer” of the Wells Fargo culture. She was responsible for creating sales goals and incentives for employees which has been criticized as the prime reason for the bank’s systemic fraud. A $185 million fine is nothing when the person likely responsible for the bad behavior is being paid an amount equal to almost 2/3 of the fine.

The bank has been aware of the fraud for over 5 years and has been firing employees engaged in the practice. Over 5,300 employees have been fired in that time. However, the bank took no action during these 5 years to stop the practice or change its ways. The investigation began in 2013 and again the bank took no action. Finally, with Ms. Tolstedt’s recent retirement announcement, the bank has announced that it will eliminate sales goals and incentives effective January 1, 2017. This doesn’t sound like the bank is taking the fine and enforcement action very seriously.

Neither Ms. Tolstedt nor CEO Stumpf, nor any other individual associated with Wells Fargo is the subject of an investigation or disciplinary action by the CFPB or any other investigatory agency at this time, at least not publicly announced. Those involved in these deceptive practices appear to walk away without responsibility or liability. In fact, Mr. Stumpf has recently been re-appointed to the Federal Advisory Council, a 12 member board trusted to give guidance to the Federal Reserve Board of Governors. Makes you wonder about US monetary policy.