Wells Fargo Fake Account Scandal Grinds On

Oakland, CAThe Northern District of California has approved attorneys’ fees in the settlement of the latest lawsuit arising from the massive Wells Fargo fake account fraud. The scandal came to light in 2016 after account holders raised questions about mysterious bank overdraft fees that they were charged. The bank’s misconduct, however, may date back at least as far as 2002.

Were it not for alert customers the scam might have continued for longer and caused far more damage to individuals’ credit ratings, the bank’s reputation, shareholder investments and the basic system of banking regulation. What can bank customers learn from this? Following are four basic rules of self-protection.

The basic scam

In order to meet aggressive and unrealistic sales goals, employees at Wells Fargo's banking employees opened as many as 1.5 million deposit accounts that were not authorized by consumers. This may have ultimately involved as many as 5,300 Wells Fargo employees.

Employees then transferred funds from consumers’ authorized accounts to fund the new, unauthorized accounts. This practice gave the employees credit for working toward the bank’s sales goals and earned them additional compensation. The deception became elaborate with fake PIN numbers and substitution of the Wells Fargo employees’ contact information for the information linked to genuine customers.

Usually, the employees were able to close the new accounts and transfer the money back into the legitimate account before the account holder noticed. In some cases, however, Wells Fargo customers were hit with bank overdraft fees when their original bank accounts ran low. Nearly 85,000 of the unauthorized deposit accounts incurred $2 million  in bank overdraft fees as a result of Wells Fargo’s conduct, according to a Consumer Financial Protection Bureau enforcement action.

This was only part of the scheme. Bank employees also signed up existing customers for credit cards, debit cards, and online banking without their authorization. Consumers were ultimately harmed by:

• Monthly fees for unauthorized accounts;
• Bank overdraft fees in existing accounts linked to unauthorized accounts;
• Interest charges;
• Damaged credit from unauthorized fees and credit activity resulting from unauthorized credit inquiries;
• Higher borrowing costs because of damaged credit; and
• Time lost identifying and closing fraudulent accounts and negotiating with Wells Fargo to obtain reversals of unauthorized charges.

The fallout

The final order in the Northern District of California seems to signal the last step in settlement of a shareholder derivative lawsuit. Shareholders, including Fire & Police Pension Association of Colorado and the City of Birmingham Retirement and Relief System, sued Wells Fargo CEO John Stumpf and 19 other executives on behalf of the bank for harm to the company that resulted from their violations various securities laws and common-law duties.

Business analysts believe that the bank faces an uncertain future characterized falling stock prices and a dwindling workforce. Wells Fargo’s wealth management brokerage division has reportedly seen a substantial decline in its ranks.

The derivative lawsuit follows a $100 million fine by the CFPB and a $35 million penalty from the Office of the Comptroller of the Currency. Former senior executives also face individual charges.

The bank will pay $50 million to the City and County of Los Angeles as well as offering restitution to affected customers. The U.S. Department of Justice has announced that Wells Fargo will also pay $3 billion to resolve civil and criminal charges. The amount will be payable to the DOJ and the Securities and Exchange Commission.

In late March 2017, the bank agreed to pay $110 million to settle a consolidated class action that had been filed on behalf of bank customers who were harmed by the fraud. This was only one of many class action bank overdraft fee lawsuits.

What consumers can do to protect themselves

Having a trustworthy banking relationship is one of the keys to building wealth. But as the Wells Fargo saga winds down, banking customers should review four basic rules of financial self-protection. Think of it as banking hygiene, if you like.

Rule #1:  Review your bank statements and credit report -- Many Wells Fargo customers had no clue what was happening until they were charged bank overdraft fees that did not seem right. Follow up on any questions you may have. The same is true of your credit report.

Rule #2: Read your deposit and other agreements-- Do not sign up for “overdraft protection” unless you have thought about the fact that this may open you up to excessive bank overdraft fees. Also be very alert to arbitration clauses in your bank’s contracts. These may prevent you from bringing a lawsuit against your bank even if you become the victim of a financial scam.

Rule #3: Keep in mind that if you cannot get an adequate response from your bank, you may submit a complaint to the CFPB.

Rule #4: Do not hesitate to reach out to a lawyer or law firm that specializes in these kinds of complaints. They are more common than most people realize, and many lawyers are willing to help you evaluate your situation without a fee.