NEW YORK (AP) — The Biden administration eased some of the restrictions on banking giant Wells Fargo, saying the bank has sufficiently fixed its toxic culture after years of scandals.
The news sent Wells Fargo’s stock up sharply Thursday as investors speculated that the bank, which has been kept under a tight leash by regulators for years, may be able to rebuild its reputation and start growing again. The bank’s shares closed up 7.2% to $52.04, its highest level since March 2022, in extremely active trading.
The Office of the Comptroller of the Currency, the regulator of big national banks like Wells Fargo, on Thursday terminated a consent order that had been in place since September 2016. The order required the bank to overhaul how it sold financial products to customers and provide additional consumer protections, as well as employee protections for whistleblowers.
That consent order was put into place after a series of newspaper and government investigations in 2016 found Wells Fargo to have a poisonous sales culture that pressured employees into selling multiple products to customers even though the products were not needed. Employees — who worked at “stores” not bank branches — were forced to open millions of unauthorized accounts. Customers had their identities stolen and their credit scores impacted. Of the millions of customers effected, a disproportionate number were non-English speaking Americans.
The scandal severely tarnished the reputation of San Francisco-based Wells Fargo, which eight years ago was considered one of the best-run banks in the country by investors and analysts.
Since the scandal broke, Wells Fargo overhauled its board of directors and management, paid more than a billion dollars in fines and penalties, and has spent eight years trying to show the public that the bad practices are a thing of the past. The scandal led to unionization efforts at some branches as employees protested how managers pushed unreasonable sales goals.
In a brief statement Thursday, the Comptroller of the Currency said that Wells Fargo’s “safety and soundness” and “compliance with laws and regulations does not require the continued existence of the Order.”
The decision is a major victory for Wells Fargo’s management and Charles Scharf, who took over as CEO in 2019.
“Confirmation from the OCC that we have effectively implemented what was required is a result of the hard work of so many of our employees, and I’d like to thank everyone at Wells Fargo involved for their dedication to transforming how we do business,” Scharf said in a prepared statement.
Citigroup banking analyst Keith Horwitz said in a note that the OCC’s decision was “positive proof” that Wells Fargo’s management was making the right decisions to fix the company’s culture.
There remains in place a Federal Reserve consent order against Wells Fargo as well as a requirement by the Fed that bank grow no bigger than its current size until it fixes its sales culture. The Fed declined to comment, but the OCC’s decision is likely to pressure the Fed to make its own decision regarding its restrictions on Wells Fargo.
Including the Fed’s order, Wells Fargo still has eight consent orders that govern its operations. That’s down from 14 when Scharf took over the bank. Management says they still have work to do.
“We’ve changed the company across a number of dimensions,” said Scott Powell, Well Fargo’s chief operating officer, in an interview. Powell joined the bank roughly around the same time as Scharf.
We’re doing better for customers and employees and we keep working to address the risk issues that are still outstanding.”
FAQs
To address the scandal and prevent similar incidents in the future, Wells Fargo implemented a number of reforms and measures. These included strengthening its compliance and ethics programs, improving its customer service and communication practices, and increasing transparency and accountability within the company.
How Wells Fargo could have avoided a scandal? ›
A decision-making process informed by input from line employees, while not foolproof, would likely have avoided the far-reaching negative effects of the 2016 scandal. Illegal/Criminal Acts vs. Negligence, Lack of Information Sharing, Poor Decision-Making, etc.
What did Wells Fargo do that encouraged unethical actions? ›
( Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unauthorized Accounts | Consumer Financial Protection Bureau , 2016) The event had a profound influence on Wells Fargo's rules and operations: Incentive Structure : The bank altered its reward ...
What happened at Wells Fargo with regard to past activities that led to this major scandal? ›
The major scandal at Wells Fargo involved the creation of fake customer accounts to meet high-pressure sales goals. Salespeople within the company created around 2 million fraudulent accounts without the knowledge or consent of customers.
How did Wells Fargo change after the scandal? ›
Since the scandal broke, Wells Fargo overhauled its board of directors and management, paid more than a billion dollars in fines and penalties, and has spent eight years trying to show the public that the bad practices are a thing of the past.
Did anyone go to jail for the Wells Fargo scandal? ›
Tolstedt is also the rare top executive at a major U.S. bank to have faced potential time behind bars. None went to prison as a result of the 2008 global financial crisis. Prosecutors had sought a one-year prison term.
What laws were broken in the Wells Fargo scandal? ›
The Commission found that Wells Fargo violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and ordered it to pay a $500 million civil money penalty to the Commission.
What is the problem with Wells Fargo? ›
The CFPB said the bank had systemic failures in its auto and mortgage loan businesses, resulting in wrongfully repossessed vehicles and home foreclosures. And Wells' infamous fake-accounts scandal in 2016 triggered congressional hearings, regulatory probes, and the eventual ousting of two CEOs.
Who and what was at fault in Wells Fargo scandal? ›
Initial reports blamed individual Wells Fargo branch workers and managers for the problem, as well as sales incentives associated with selling multiple "solutions" or financial products.
Why does Wells Fargo have a bad reputation? ›
Its reputation today is in tatters, following a notorious scandal that is still unfolding. Reports of fraudulent activity in Wells Fargo's sales department first surfaced in 2013. The bank opened at least 3.5 million fraudulent accounts for unwitting customers, according to researchers at the Harvard Business School.
Updated Dec. 20, 2022 at 1:02 p.m. ET. Wells Fargo has been ordered to pay $3.7 billion in penalties and victims' compensation for alleged illegal practices that caused thousands of the bank's customers to lose their homes and vehicles, federal regulators have announced.
Where did Wells Fargo go wrong? ›
The Scandal Unveiled: A Breach of Trust 🕵️♂️
For years, Wells Fargo employees created millions of unauthorized accounts on behalf of their customers. Imagine having a credit card account opened in your name without your consent! This was a massive breach of trust and, of course, illegal.
What were the consequences of the Wells Fargo fake account scandal? ›
The scandal has led to billions of dollars of fines, the toppling of two chief executives, a guilty plea by a former retail banking chief to an obstruction charge, and a Federal Reserve cap on assets that remains in place.
What did Wells Fargo do in 2016 that got them in serious trouble with the federal government? ›
Wells Fargo & Company and its subsidiary, Wells Fargo Bank, N.A., have agreed to pay $3 billion to resolve their potential criminal and civil liability stemming from a practice between 2002 and 2016 of pressuring employees to meet unrealistic sales goals that led thousands of employees to provide millions of accounts ...
What are the organizational behavior issues with Wells Fargo? ›
These issues were high employee turn-over rates, sales pressure, unattainable sales goals, unethical practices, and lack of communication between managers and employees.
How did Wells Fargo respond to the cross selling scandal? ›
Initial response from Wells Fargo and management
After news of the fines broke, the bank placed ads in newspapers taking responsibility for the controversy. However, the bank rejected the notion that its sales culture led to the actions of employees, stating "... [the fraud] was not part of an intentional strategy".
What should business leaders take away from the Wells Fargo scandal? ›
Employees in Well Fargo were pressured to make sales, and this led to the creation of fake accounts. Leaders should focus on of setting goals that are achievable and will not encourage unethical methods of making sales. Also, leaders should apply ethical considerations in business.
What could Wells Fargo have done differently to avert this cultural meltdown? ›
If frequent conversations existed within Wells Fargo, it would have allowed managers to provide feedback to their employees and adjust expectations as they saw fit.
