Not Wells Fargo's First Rodeo...
09/21/16
Over on Twitter, Michael Barr noticed that there's an eerie similarity between Wells Fargo employees team members being incentivized to open up unauthorized deposit and credit card accounts for consumers and another practice that got Wells in trouble in 2011, falsifying borrower income and employment information in order to sell debt consolidation, cash-out refinance mortgage loans at sub-prime rates (often to prime borrowers). Wells entered into an $85 million consent order with the Federal Reserve Board in July 2011 over these practices. (See summary here.) The consent order noted that it was Wells incentive-based compensation and minimum sales quotas that drove the employee fraud:
B. Under Financial's sales performance standards and incentive compensation programs, Financial sales personnel, called "team members," were expected to sell (a) a minimum dollar amount of loans to avoid performance improvement plans that could result in loss of their positions with Financial, and (b) a minimum dollar amount of loans to receive incentive compensation payments above their base salary.
This rather expensive consent order should have been a giant red flag for Wells Fargo's compliance department, for Wells Fargo's board of directors, and for John Strumpf, Wells Fargo's Chairman/CEO. It should have caused Wells Fargo to reexamine its loan officer compensation structures throughout the bank. One assumes that the consent order did not come out of the blue in July 2011, but was likely the result of months if not years of investigation and negotiation. That suggests that Wells should have been aware of problems with its compensation system substantially before it began firing employees in 2011 over the unauthorized account openings. As ugly as things already look for Wells, we might learn that things were in fact worse.
- Feeds Categories: