Wells Fargo and Company (WFC) - Consumer Financial Protection Bureau (CFPB) - Case Study Assessment Answer

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Wells Fargo and Company (WFC) - Case Study Assessment Answer

TASK In September 2016, Wells Fargo and Company (WFC) faced an account fraud scandal brought about by opening 1.5 million of fraudulent both checking and savings bank accounts and 500,000 credit cards without the authorisation from their clients at the Community Bank. Out of those opened accounts, there were approximately 85,000 accounts that incurred fees which totalling US$2 million, credit scores of the customers were affected by the fake accounts. Due to such illegal activities, WFC was issued by United States Consumer Financial Protection Bureau (CFPB) a combined fined of US$ 185 million. Also, Wells Fargo suffered further costs due to refunds and lawsuits US$6.1 million refunds for customer who were affected due to inappropriate fees and charges; US$142 million as compensation to the customers for a class-action settlement; US$480 million payment for investors class-action lawsuit; US$575 million 50-state Attorneys General (AG) settlement for a combination of opening unauthorized accounts and charging for unnecessary auto insurance and mortgage fees. According to AG announcement on December 2018, that Wells Fargo had already paid $2.3 billion in settlements and consent (WIKI). The underlying cause of the sales practice issue in WFC was due to the distorted sales culture and performance management system of the Community Bank of WFC. This led to reinforcing sales-driven incentive compensation and performance rating. Accordingly, it created pressures on employees to cross-sell unneeded products to the customers and even open or duplicate accounts that their clients never authorised. As a result, approximately 5,300 employees were terminated for violating sales practices. Additionally, the decentralised “run it like you own it” corporate structure of Wells Fargo’s, which inherited from Norwest after the 1998 merger between the two banks, did not also help to quickly address sales integrity related issue associated to the high turnover of employees as this gave lavish autonomy to the community bank’s senior leadership as who were reluctant to change the sales model or even recognize it as the underlying cause issue. Moreover, this operating model of WFC, encapsulated the independence not only to determine how to operate their own respective line of business but also its autonomy to exercise department and control functions such as Risk and Human Resource, thus limited the needed information to be disseminated the then CEO Sloan and opportunities for him to be quickly engaged on the Community Bank sales practice breaches. Lastly, the corporate control and risk functions of WFC was weakened by the organisation’s decentralised structure and culture of considerable deference of the business unit heads. Its traditional approach to problem-solving narrowed their perspective of the overall context of the case and decelerated their actions. Thus, they lost the opportunities to analyse, size and escalate sales practice issues. Issues on Sales practices were not identified to the Board as a noteworthy risk until 2014.

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