Wells Fargo News

Wells Fargo faces dozens of lawsuits from angry customers over its fake accounts scandal, but it is reportedly seeking to push those disputes into arbitration.

Bloomberg News reports the bank has filed a motion in U.S. District Court in Salt Lake City to keep one particular lawsuit from getting to court. In the motion, Wells Fargo says customers agreed to resolve disputes out of court when they opened their accounts.

The lawsuits are the result of Wells Fargo's actions, opening millions of bank and credit card accounts in customers' names without their knowledge or permission. At the time, the bank was engaged in a sales strategy known as “cross-marketing,” where customers with one type of account were encouraged to open another type, increasing the amount of fees flowing to the bank.

Went beyond convincing

The bank offered incentives to employees who were able to convince customers with bank accounts to open credit card accounts, and vice-versa. Federal regulators charged Wells Fargo went beyond trying to convince customers to open new accounts and simply opened the accounts for them without their knowledge. The bank fired 5,300 employees and paid $185 million in fines. It's CEO, John Stumpf, after being raked over the coals by Congressional committees, took early retirement.

Bloomberg reports the motion, filed in the lawsuit brought by 80 Wells Fargo customers, points out that the arbitration clause has already been validated in another lawsuit brought in California.

Arbitration is a form of dispute resolution favored by large corporations with lots of customers. It keeps disputes out of court and, while saving in legal fees, often results in more favorable rulings. Besides banks, telecommunications companies usually require their customers to agree to arbitration.

Considering a ban

A year ago, the Consumer Financial Protection Bureau (CFPB) said it was considering proposed rules that would ban consumer financial companies from using “free pass” arbitration clauses.

With this free pass, CFPB said companies can sidestep the legal system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm countless consumers.

“Consumers should not be asked to sign away their legal rights when they open a bank account or credit card,” CFPB Director Richard Cordray said at the time.

Cordray said corporations are using the arbitration clause as a free pass to sidestep the courts and his agency would consider banning arbitration clauses that block group lawsuits.

Everyone denies having quotas. The police insist they don't but ask yourself how often you've gotten tickets late in the month. Telephone solicitors say they don't have quotas but how often have you been signed up for something you never heard of?

David E. Douglas says Wells Fargo Bank is up to the same shenanigans. In a lawsuit in Los Angeles County Superior Court, Douglas charges that employees of three different Wells Fargo branches opened new accounts in his name and his business' name without his knowledge.

Douglas says branch employees are under so much pressure to sign up new customers that they use the information they already have on existing customers to open phony new accounts. Douglas claims the individual defendants opened at least eight accounts in his name and forged his signature on the applications without his knowledge, Courthouse News Service reported.

Given the demands Wells Fargo makes on its employees, it "should have known that its employees and bank managers routinely use the account information, date of birth, and Social Security and taxpayer identification numbers of defendant Wells Fargo's existing bank customers to use the existing bank customers' money to open additional accounts in the existing customers' names without their knowledge or consent and by forging the signature of their existing customers without their knowledge or consent to open said additional accounts, including purported business accounts for businesses that do not exist," Douglas' suit charges.

Even after being alerted to the issue, Wells Fargo did nothing, Douglas alleges. He says in the suit that when he found out about the unauthorized accounts, he contacted a fraud investigator at the bank's Beverly Hills branch. She assured him that Wells Fargo would "conduct a thorough investigation and make him whole," but he never heard back from her or anyone else at the bank, so he was forced to sue, Douglas says in the complaint.

The Justice Department has sued Wells Fargo, the nation's largest mortgage lender, accusing it of "reckless" lending and sticking the Federal Housing Administration (FHA) with the tab for loans that went bad.

Prosecutors say they are seeking "hundreds of millions of dollars" in damages on behalf of the FHA.  The complaint, filed in New York City, alleges that for more than a decade, Wells Fargo engaged in "reckless" underwriting of government-backed loans.

“As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," Manhattan U.S. Attorney Preet Bharara said. "As also alleged, Wells Fargo’s bonus incentive plan – rewarding employees based on the sheer number of loans approved – was an accelerant to a fire already burning, as quality repeatedly took a back seat to quantity.

"What’s more, even after concerns were raised internally at the bank, Wells Fargo began self-reporting bad loans in a significant way, as required, only after this Office issued a subpoena last year. Now a jury will have to weigh the facts to determine the bank’s liability and the scope of the damages it must pay,” Bharara said. 

At issue are more than 100,000 FHA-backed loans. Wells Fargo said the loans met federal lending guidelines when half of them didn't, the government alleges.

“As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” U.S. Attorney Preet Bharara said in a prepared statement.

The Justice Department's case is similar to those filed earlier against Citigroup, Deutsche Bank and other lenders. Deutsche Bank has agreed to pay $202 million and Citigroup is paying $290 million. A suit against Allied Home Mortgage is still pending. Bank of America has said it reached an agreement to resolve claims for FHA-insured loans made by Countrywide Mortgage.

In July, Wells Fargo paid $125 million and set up a $50 million assistance fund to settle federal allegations that it discriminated against minority borrowers.

A class action lawsuit alleges that lending giant Wells Fargo profited off an unholy scheme with an appraiser owned by Wells Fargos parent company.

According to the suit, Wells Fargo requires borrowers to use Rels Valuation, an appraisal service owned by the same company that controls Wells Fargo. In turn, Rels, which uses third-party appraisers to perform the work, forces these vendors to come back with an appraisal that meets Wells Fargos expectations, and pays the appraisers well below market value for their services.

Despite the bargain that Wells Fargo receives on the appraisals, it continues to charge consumers the full amount for the service, and pockets the difference.

As described in the suit, Wells Fargos alleged scheme is exceedingly clever and complex. According to the suit, filed in the United States District Court for the District of Arizona, Wells Fargo pressures subcontracting appraisers to report back with a price that will allow Wells Fargo to underwrite the loan without significant obstacles, regardless of whether the figure is accurate.

Additionally, Wells Fargo allegedly informs the appraiser that they will pay them drastically less than the going market rate for their services. If the appraiser refuses to comply with either of these conditions, they are placed on Wells Fargos exclusion list, and are not considered for future appraisals.

Because of Wells Fargos giant stature — it is the number one mortgage lender in the nation — refusal to acquiesce in these demands could mean a drastic drop in appraisers business and significant damage to their reputation.

Under the rules laid out in the Real Estate Settlement Procedures Act (RESPA), no company is allowed to require consumers to use another company, as such arrangements practically invite the kind of price gauging alleged here. However, the Act makes an exception for lenders, since appraisals are ostensibly done to protect their interests, and allowing them to choose a trusted appraiser helps further this purpose.

Under RESPA, however, when a lender requires the use of a certain appraiser, they must inform the consumer both of the relationship and of the amount they were charged by the appraiser. According to the suit, Wells Fargo sometimes disclosed the relationship between themselves and Rels, but never disclosed the price they paid for the appraisals, giving consumers no indication that they were paying as much as twice what Wells Fargo had for the service.

The suit estimates that, given Wells Fargos size and influence, tens or even hundreds of thousands of homeowners have been victimized by the scheme.

It brings claims under both RESPA and the Racketeer Influenced and Corrupt Organizations Act (RICO), since the scheme was allegedly carried out across state lines via U.S. mail and interstate wire facilities. The suit also alleges unjust enrichment against Rels and breach of fiduciary duty and unfair competition against Wells Fargo.

Reader response

I would like to applaud Jon Hood for his bravery in telling the truth. I would also like to thank whatever Attorney(s) are involved and to lend support for their cause. Our business as honest, ethical appraisers has been derailed by these greedy companies. Did you know the CEO for Wells sat on the recent HVCC comittee to determine policy?

RC, Colorado Springs, CO

The city of Los Angeles has filed suit against Wells Fargo Bank, alleging that the bank's policies and high-pressure sales quotas encouraged employees to engage in “unfair, unlawful and fraudulent conduct” against customers.

L.A. Prosecutor Mike Feuer filed the suit in state court on Monday, alleging that, among other things, employees would misuse customers' confidential information, open accounts in customers' names without authorization, often failed to close those accounts when the customers demanded it, and sometimes even took money out of authorized client accounts to pay for those unauthorized fees.

“The result is that Wells Fargo has generated a virtual fee-generating machine, through which its customers are harmed, its employees take the blame, and Wells Fargo reaps the profit,” the lawsuit says.

Furthermore, “On the rare occasions when Wells Fargo did take action against its employees for unethical sales conduct, Wells Fargo further victimized its customers by failing to inform them of the breaches, refund fees they were owed, or otherwise remedy the injuries that Wells Fargo and its bankers have caused.”

Gaming

The lawsuit also claims that Wells Fargo bankers engaged in a practice known as “gaming” -- opening unauthorized accounts in customers' names, making unauthorized withdrawals from customers' authorized accounts to pay the fees on the unauthorized ones, and reporting customers to collections and/or posting “derogatory information” in the customers' credit reports.

Wells Fargo responded with a statement saying it would fight those allegations in court, and that “Wells Fargo's culture is focused on the best interests of its customers and creating a supportive, caring and ethical environment for our team members. This includes training, audits and processes that work together to support our Vision & Values and our commitment to customers receiving only the products and services they need and will benefit from.”

Yet many consumers — from all over the country, not just California — have written reviews that sound remarkably similar to some of the allegations mentioned in Feuer's lawsuit. Consider this sampling of complaints we got about Wells Fargo, just during the month of April 2015. Dan from Bozeman, Montana wrote us on April 1 to say:

Over the past several years, I have become more and more frustrated with Wells Fargo as a whole. I have kept my personal and business bank accounts with Wells Fargo and just about every month they find a way to charge some kind of fee for some random reason. Their accounts are set up with such complex sets of terms and conditions that you cannot possibly keep track of all of them. If you don't watch your accounts daily - you can be assured they will be siphoning money. The bankers will always assure you that your accounts are free.. just know that they are not.

"Misled in the beginning"

Tawnya from Alexandria, Alabama went into more detail about those fees. She visited her local Wells Fargo branch seeking “ANOTHER temporary check card since the company failed to send me the new card, although I did receive an email [assuring me] it was sent out.” While she spoke to one employee about her check-card problems, another one overheard her mention that she had an at-home business, and encouraged her to open a business savings account.

He quickly went over the benefits and had me transfer $150 from my checking on that day, explaining to me $150 must be deposited into the business savings monthly. He did not specify it had to be an automatic transfer set up for a specific date.... [the following month] I made a deposit of $150 in the Lenlock, AL branch and no worries, until I see they took out a $14 service charge from my business checking and $6 from my business savings. As I looked further, there was another $6 charge to my business savings in Feb. … Not only was I charged a $5 service fee for years to have a checking account after the Wachovia/Wells Fargo takeover, but now I am getting service fees for trying to build a business when I was mislead in the beginning by the representative ….

John from Chicago said that “Wells Fargo small business account reps gave me a personal credit card I did not ask for and charged me fees for that.”

But Octavia from New Jersey offered a view from the employees' side of the table:

.... [O]ur finances hit the toilet when my husband switched jobs and began working for Wells. The amount of stress and pressure that he had to endure to sell and open accounts was too much for him. ... My husband has since left but reiterates that it is the worst to its customers and employees alike!

Last year, officials found that Wells Fargo employees, fueled by sales incentives, had opened approximately two million accounts under customers’ names and signed them up for various financial products without authorization. In September, the Consumer Financial Protection Bureau (CFPB) imposed its largest fine ever on the company, ordering it to pay a $100 million fine, restitution to victims, and a combined $85 million to two other agencies.

Now, the company is looking to settle a class-action lawsuit connected to the scandal. Per the Washington Post, Wells Fargo agreed on Tuesday to pay $110 million to consumers who had accounts opened without their permission, or were signed up for a product they did not agree to.

Pending court approval, the settlement would cover affected customers going all the way back to January 1, 2009. The bank said that the settlement should resolve a total of 11 class-action suits brought against it connected to the fake account scandal.

Settlement terms

Wells Fargo has also agreed not to use third-party arbitration under the settlement – a right that it has contentiously maintained allows it to take complaints to a private mediator instead of to court. The company had been invoking the right up until its announcement on Tuesday, and the change of direction was welcomed by the plaintiffs.  

“We believe this is an outstanding result obtained for the benefit of a proposed nationwide class, notwithstanding Wells Fargo’s effort to block the class action with an arbitration clause,” said Derek Loeser, partner of a firm that filed one of the class-actions against Wells Fargo.

Under the terms of the settlement, the $110 million will first go towards any out-of-pocket losses or fees that customers faced because of the unauthorized accounts. The remaining money will then be split up between all impacted customers.

“Significant harm” to consumers

In addition to the settlement news, Wells Fargo also announced on Tuesday that its rating had been lowered from “outstanding” to “needs to improve” under the Community Reinvestment Act -- a law designed to help monitor and promote banking practices to low-income and minority communities.  

The Office of the Comptroller of the Currency, which made the decision, stated that the fraudulent sales practices were one reason for the downgrade. The effects of the move will limit Wells Fargo from opening more branches or making acquisitions in certain areas, and will open the bank up to fines or sanctions if patterns of discriminatory behavior are found in the future.

One regulator said that the deceptive sales practices that employees used already qualify as deceptive and unfair behavior, and that consumers have suffered because of it.

“These findings reflect an extensive and pervasive pattern and practice of discriminatory and illegal practices across multiple lines of business within the bank, resulting in significant harm to large numbers of consumers,” he said.

Wells Fargo CEO Tim Sloan said that he was disappointed by the Comptroller's decision, but that the settlement represents “another step in our journey to make things right with customers.”

The online video that insults the prophet Muhammad has sparked a crisis in the Middle East and isn't doing much to make life easier for banking customers in the U.S. either.

Cyber attacks blocked Wells Fargo's site in much of the country today and U.S. Bancorp and PNC are said to be next on the list.  Bank of America, Citigroup and JPMorgan Chase were all hit earlier. 

The disruptions were caused by what are known as denial of service attacks, in which massive numbers of computers hit sites simultaneously, flooding them with requests that cause the sites to either go down or operate at a crawl.

A group calling itself the Izz al-Din al-Qassam Cyber Fighters has claimed responsibility for the attacks and says they will continue until that controversial video is taken down.

The Wells Fargo site was completely unreachable for much of today, creating cries of anguish and outrage from many of its 21 million online customers.

Many customers have blamed the banks for the attacks, although experts say there is little that anyone can do to defend against massive distributed denial of service (DDOS) attacks, so called because they use thousands of computers all around the world to mount simultaneous attacks that overwhelm not just the targeted sites but, in many cases, other sites hosted within the same data centers.

Wells Fargo issued a statement apologizing for the outage. 

"We are working to quickly resolve this issue. Customers can still access their accounts through our ATMs, stores and by phone," the bank said in a statement.

If you’ve ever called a customer service line, then you may be all too familiar with the initial spiel or automated message that you hear before talking to a human: “This call may be recorded for quality assurance purposes.”

While companies certainly do use these recordings for training purposes, the statement is also important because it provides a warning for consumers. Wells Fargo may be learning that lesson the hard way. The company has been fined $8.5 million for violating California’s state law which requires that all companies disclose that a call is being recorded.

The suit was filed back in February when the state accused Wells Fargo of violating sections 632 and 632.7 of its penal code. The lion’s share of the $8.5 million will be split up amongst five California counties, with $7.6 million going to Los Angeles, Riverside, Venture, Alameda, and San Diego. Wells Fargo will also pay $250,000 to two organizations – the Privacy Rights Clearinghouse and the Consumer Protection Prosecution Trust Fund.

Victory for consumer privacy

The state considers the suit a victory for consumer privacy, saying that it is more important than ever that consumers feel safe in an increasingly technological world.

“This settlement holds Wells Fargo accountable for violating the privacy of its customers by recording calls without providing adequate notification, and ensures that the bank makes the changes necessary to protect the privacy of its customers,” said California Attorney General Kamala Harris.

In addition to the payment, Wells Fargo has stated that it will create an internal compliance program so that calls are no longer recorded without consent. 

When federal regulators discovered last fall that Wells Fargo had been creating credit card and checking accounts for its customers without their permission, simply to boost its fees, regulators punished the bank with millions of dollars in fines.

But it turns out consumers have also been punishing the bank.

When Wells Fargo reported its earnings for the latest quarter and full year, it disclosed that new credit card accounts plunged 43% year-over-year and dropped 7% from the previous month.

As for bank accounts, new checking accounts plunged 40% from December 2015. However, they were up slightly from November.

But that bit of good news was overshadowed by the revelation that some current Wells Fargo checking account customers simply stopped using their accounts without closing them. Between November and December, active checking account customers fell by 100,000.

5,300 bank employees fired

Back in September, Wells Fargo reached a settlement with federal agencies and the City of Los Angeles over revelations it had opened millions of accounts without customers' knowledge or permission. In settling with government agencies, Wells Fargo announced that it had fired 5,300 employees and changed sales practices to end incentives to open new accounts.

Regulators charged that, not only was it fraudulent to move money and open accounts without a customer's permission, the customer also incurred fees in the process, costing him or her money.

In the earnings report Friday, Wells Fargo CEO Tim Sloan said the bank is working to regain the trust of consumers, employees and other key stakeholders.

“I am pleased with the progress we have made in customer remediation, the ongoing review of sales practices across the company and fulfilling our regulatory requirements for sales practices matters,” Sloan said. “As planned, we launched our new retail bank compensation program this month, which is based on building lifelong relationships with our customers.”

It should be noted that not everyone is punishing Wells Fargo. Even after reporting its earnings, which fell short of analysts' estimates, the company's stock rose on Wall Street. CNBC reported investors are looking past the bad news and are convinced the bank's profits will still rise in the future.

Next week, if you need to withdraw money from a Wells Fargo ATM, you won't need your debit card. You can use your smartphone.

The bank ran a pilot program on the technology in several areas of the country and is now ready to roll it out nationwide. To use the new system, Wells Fargo customers who have the bank's mobile app will be able to request a code that they will enter, along with their PIN.

In an interview with Reuters, Jonathan Velline, Wells Fargo's head of ATM and branch banking, said the new system enhances safeguards against fraud.

"Security certainly was a big aspect of the cardless feature and the two-step identification helps reduce the risk of fraud," Velline told the wire service.

The ATMs will still take debit cards, but Velline says the digital access prevents thieves from installing skimmers that intercept and steal data from the inserted cards.

Repairing customer relations

The new system is being introduced as Wells Fargo continues its mission to repair relations with customers in the wake of last year's unauthorized accounts scandal. The bank got a black eye when it was revealed thousands of employees had opened checking and credit card accounts for customers without their permission, in a bid to increase fees.

In Orlando this week, Wells Fargo CEO Tim Sloan hosted a company-wide town hall meeting to inform employees about efforts to win back trust.

“We’re making things right for our customers and our team members," Sloan said. "We are fixing problems, and we’re building a better bank for the future.”

New ad campaign

Employees also got a sneak peak at a new national advertising campaign with the theme “Building Better Every Day.” The advertising campaign will begin in mid-April across multiple channels.

Business Insider reports the bank has faced strong headwinds as it tries to reassure consumers, experiencing a pronounced decline in new accounts and an increase in closed accounts since the scandal broke last fall.

Citing company data, the publication notes that new checking accounts dropped 43% and new credit card accounts fell by 55% in February.