How the wheels came off the Wells Fargo stagecoach

The author, a former Los Angeles Times reporter, provides a first-person account of how his newspaper broke the Wells Fargo scandal — how employees opened millions of unauthorized deposit and checking accounts, often transferring funds from consumers’ existing accounts without their knowledge or consent.

My wild ride as a Los Angeles reporter on the Wells Fargo stagecoach began on a short-staffed late Wednesday afternoon in October of 2013. Pat McMahon, a veteran editor of aerospace, health care and real-estate stories in the LA Times newsroom, took a complaint call from a fired Wells Fargo employee.

We field a lot of oddball gripes at a newspaper, and Pat was no banking expert. He handed this one to me like someone on a fishing party boat who hooks a sculpin. Ever seen one? They’re delicious but covered with poisonous spines. You look for a deckhand to take them off the hook and clean them.

In this case, I was the deckhand — that is, the banking reporter. Pat said it was a weird yarn that might not amount to anything but to call the guy back, check it out and — only if merited — do a little spot story because the business section news had a late deadline that night and room to fill inside the section. Probably not worth devoting a day to it tomorrow.

The story was indeed odd: A small-business banker who said he and a bunch of other workers at a Wells Fargo branch in a suburban part of Los Angeles had been fired for creating unneeded accounts and issuing unwanted credit cards to customers. He told me that in some cases signatures were forged and customers had accounts opened in their names without their knowledge.

The banker described an immense pressure to meet sales goals. Managers required workers to stay in the branch after the close of business and call their friends and family members if they failed to meet the daily targets. And the worker said that managers had coached them how to game the system and meet what he called quotas, not sales goals.

Reporters always seek comment. I got hold of a local Wells Fargo spokesman who listened to what I’d been told and said he’d check it out. He called me back with what became Wells Fargo’s standard statement: There were indeed sales goals, employees were occasionally blinded by them and the bank took customer abuse very seriously. About 30 such workers in the LA region had indeed been fired, he said, but that was a tiny percentage of the 6,500 employees at branches in the region. Not much to write about, really.

Now, reporters aren’t big fans of hastily produced spot stories that run inside, and Pat had offered me an easy way to beg off. All I had to do was say the story sounded complicated, too tough to sort out on deadline and too flaky to spend time on it the next day. Which it was. After all, the bank already had rid itself of the problem workers.

But the banker sounded genuinely wounded. He said he’d been praised as an example by higher ups as one of the best performing sales people — before things blew up. And he expressed concern that employees down the totem pole had been terrorized, like one young woman who wound up selling her grandmother more than a dozen unnecessary “solutions” to financial problems she didn’t really have.

Wells Fargo employee call parallels previous reporting

Oddball tale, right? And the bank had fired the employees who did wrong. But past experiences made this story resonate. First off, I had spent years writing stories about bank financial statements, and you couldn’t miss how heavily Wells Fargo touted its industry-leading, cross-selling efforts in its quarterly reports. The ever-growing number of products sold to retail customers was supposed to be evidence of the deep loyalties it bred among clients.

Wells Fargo & Co.’s 2011 annual report: 5.92 products per customer in the fourth quarter, up from 5.70 a year earlier. 2012 fourth quarter: 6.05. 2013: 6.16. You get the picture. The target was to reach what John Stumpf, the CEO, called the “great eight”: eight financial products per household. Stumpf’s predecessor, Dick Kovacevich, had embedded that phrase into the bank’s DNA. He’d set the goal of eight products while running Norwest Corp. in Minneapolis in 1997. In 1998, Norwest struck a $34 billion deal to take over San Francisco-based Wells; it kept the company’s name, stagecoach emblem and San Francisco headquarters.

I’d already written in 2011 about Wells Fargo’s heavy sales pressure on employees, especially when it came to getting customers to opt in to overdraft protection — a big and controversial source of revenue at a $35 fee per account-busting transaction.

Back then, a disgruntled branch manager had leaked me emails and a spreadsheet showing how the bank issued frequent “report cards” to its district managers evaluating every branch’s performance at signing up customers for overdraft coverage.

Branch managers were supposed to track employees daily on these sign-ups, and those with low numbers were threatened in one memo with the loss of a prized perk: tickets to LA Lakers games and other sporting events at the bank’s luxury suite at Staples Center.

…we learned that some Ameriquest underwriters were known as the “art department.” They stayed late to forge documents that were stuffed into incomplete files.

Mike and I discovered that Ameriquest employees were a reporter’s dream source. They told us stories from the sales floor of how unrelenting pressure to sell high-risk loans had led to widespread falsification of documents and, ultimately, the burial of borrowers in debts they could never repay.

For example, in the Tampa, Florida, area, we learned that some Ameriquest underwriters were known as the “art department.” They stayed late to forge documents that were stuffed into incomplete files. Our stories on this “boiler room” culture helped to push along an investigation by an alliance of attorneys general that resulted in a $325 million settlement by the company.

Small story spurs major investigation

So, I was predisposed to at least get the fired Wells Fargo workers’ stories on the record. Pat, the editor, agreed, and I blasted out a story that ran inside the business news section. After our newspaper published the article, no one could have foreseen the volume of emails and phone calls that started coming in — mainly at first from California but then from across the country. We also heard from angry customers and attorneys who’d sued the bank.

Within days, my usual editor, Brian Thevenot, approved a major investigation, and I started compiling stories and calling Wells Fargo to check them out. Almost immediately, I was asked to talk to the top corporate PR guy at the bank, Oscar Suris; this was a change from the usual policy of talking to lower-ranking flacks such as mortgage PR people on home-lending stories, say, or Southern California specialists about local branch questions. That, too, seemed to indicate we might be onto something big.

We devised a tracking system to store notes and emails on each worker we talked to — sort of a simple index to common complaints. To guard against accusations of bias or skewed reporting, I devised rules as we went along to not rely too heavily on one type of source. I welcomed conversations with employees and customers who had sued the bank, for example, but I preferred stories from people who hadn’t yet hired attorneys.

It was a challenge to get documentary evidence because I didn’t have any subpoena power as did regulators and auditors. But sales-pressured employees came to our rescue and provided us documents from across the country — spanning five years. Records included a 10-page report that tracked sales of overdraft protection at more than 300 Southern California branches, a spreadsheet of daily performance by personal bankers in 21 sales categories and widely distributed emails urging laggard branches to boost sales and require employees to stay after hours for telemarketing sessions.

A manager (who was so scared about being fired that we identified the source of the information only as someone working in the Southwest) provided an internal report tallying direct-deposit accounts across numerous branches, with the percentage of customers who signed up for overdraft protection.

Employees give similar sad stories

We were struck with repetitive comparable stories:

• Calls to branches regularly scheduled several times a day by regional managers demanding reports on how employees were meeting the day’s sales goals and threatening consequences if they weren’t achieved.
• Stories of employees and branches trumpeted as examples of great sales work only to be fired or the branches cleaned out later for fraud.
• Descriptions of tricks, such as filling out a document that said a customer wanted to be contacted by email only and then providing a false address to prevent managers from seeing a customer satisfaction survey and a questionable statement.
• The practice of handing a customer several documents to sign that included a card that authorizes opening accounts outside the bank. The banker could then use the card to provide unrequested accounts and services.
• “Simulated funding”: pilfering money out of an existing account and stashing it into a new account long enough to get credit for opening it and then shutting it down.
• Begging friendly customers to open unneeded accounts and accept unneeded credit and debit cards and saying they wouldn’t be charged or could shut down the service before fees kicked in.
• Complaints that front-line bankers received scanty rewards for meeting sales goals while high-ranking managers earned huge bonuses, which were incentives for managers to pressure the troops into cheating.
• Accounts of how supposedly confidential whistleblower reports to HR hotlines turned out not to be so secure. One banker said he reported confidentially that a nearby branch had used faulty documentation to open an account for a Mexican national. The next day, a regional manager ordered the whistleblower’s branch manager, along with the manager of the offending branch, to deal with this sort of complaint at the local level. The whistleblower was convinced he would’ve been fired if he hadn’t transferred to a wealth advisory job for Wells Fargo.
• Multiple reports of employees suffering physical and mental illnesses because of stress.

Branch managers were among the best sources because they were the filters through which daily sales demands were passed down to the branch employees. One 35-year veteran told me she retired early after eight years of making unanswered complaints about how the sales goals were backfiring, including a registered letter to Stumpf when he became CEO in 2007.

Some other branch managers also said they’d quit rather than endure the pressure. Others jumped to another part of the bank to get free of abuse. One Pacific Northwest manager told us about discovering that employees had talked a homeless woman into opening six checking and savings accounts with fees totaling $39 a month.

“It’s all manipulation. We are taught exactly how to sell multiple accounts,” the former manager said. “It sounds good, but in reality it doesn’t benefit most customers.”

We included a documents section in the story, which contained an email from a Southern California district manager in 2011 who criticized a dozen branches for signing up only 5 percent to 38 percent of new checking accounts for overdraft protection at $35 a pop — a practice often seen as victimizing lower-income depositors who were likely to overdraw their accounts. “This has to come up dramatically,” the email said. “We need to make a move toward 80%.”

We also spoke to a number of outraged customers, such as a woman who was notified she’d received a credit line after explicitly turning down the offer of one because she already had another, larger credit line with the bank.

While we’d been talking to some plaintiffs’ attorneys all along, the last step in the reporting was when the top editors asked for a comprehensive search of court records. Staff researchers at the LA Times turned up page after page of employee grievance lawsuits against the bank. Calls to their lawyers demonstrated that sales pressure played a huge role in many of them, even if the stated cause of action was failure to pay overtime.

Overwhelming reaction

When we published the major story on Dec. 21, 2013, we’d interviewed three dozen current and former employees in nine states plus numerous customers and plaintiffs’ lawyers. The reaction was overwhelming. By the time we ran a follow-up article a week later, we’d been in contact with more than 50 additional former employees, 21 additional current employees and 19 customers — all with horror stories.

A guy at a Texas call center reported closing 26 debit cards for a customer who only wanted one. He said: “As was customary, I blamed it on a system error.”

A former employee in Denver said he quit the bank without another job lined up after being sent out to open accounts for people so down on their luck that they were waiting in line to sell their blood.

A San Diego woman said she spent two years as a Wells Fargo branch manager before leaving her keys on the desk and walking out even though she was single with a mortgage and car payments. She said the work environment was unfailingly hostile, and the chastising never stopped.

In preparing the page 1 story we repeatedly passed on what we were hearing to the top Wells Fargo PR guy, so the bank knew exactly what was coming. He’d say he’d try to get comment but never really did on the specifics, so I figured he was just using the information to prepare the brass for bad news. All we really got from him was the insistence that the bank policy was to always put the customers first.

We closed out the big story with an anecdote from the customer surprised by an unwanted credit line. She said she went to complain at the branch where the account was opened without her knowledge. A manager told her the person responsible was one of the branch’s best employees. But the bank never provided the apology she requested. She said she told the manager, “If that’s one of your best employees, Wells Fargo is in trouble.”

This article is an adaptation of a speech that the author gave at the Oregon ACFE Chapter’s Annual Fraud Conference, May 17.

Read more: Employees opened 3.4 million possibly unauthorized accounts and Lessons from a reporter that CFEs can apply.

E. Scott Reckard, a former reporter for the Los Angeles Times, won a “Best in Business” award from the Society of American Business Editors and Writers, and he was a finalist in the 2014 Gerald Loeb Awards for distinguished financial journalism, both for his 2013 Wells Fargo coverage. His email address is: sreckard@gmail.com.

Illustrations by Marybeth Daigle.

Employees opened 3.4 million possibly unauthorized accounts

The Los Angeles Times uncovered the phony accounts scandal at Wells Fargo three years before regulators announced last fall’s settlement. So far, this fraud has cost the bank $185 million in regulatory penalties, $142 million for a class-action settlement and hundreds of millions of dollars more to pay its lawyers, restructure its operations, refund overcharged customers and account for a fall-off in business. The reputational damage is staggering.

You’ve heard the details: 5,300 employees fired in five years for abusing customers — and according to a recent bank update — up to 3.5 million phony consumer accounts opened over eight years by employees out of fear they’d never get a promotion or would be fired.

That was a 67 percent increase from the tally of 2.1 million suspect deposit and credit card accounts in the initial consent order reached last year with the Consumer Financial Protection Bureau. Wells Fargo’s own response at that time said many of the unauthorized checking and savings accounts involved “simulated funding,” or transferring funds from consumers’ existing accounts without their knowledge or consent.

To be clear, the personal and small-business bankers generally returned the customers’ money to the initial account after getting credit for a new funded account, which they often (but not always) would then close. But I think newspaper readers know theft when they see it — not to mention the betrayal of the bond of trust that banks promise when they take custody of clients’ earnings and savings.

We could say this is part of the long pattern we’ve seen of banks looking away as employees grab short-term benefits that harm the customer in the long run. Exploding mortgages come to mind or rigging the key interest rate known as Libor. When Swiss banking giant UBS settled with international regulators over its role in the greedy Libor grab, it agreed to plead guilty to criminal wire fraud and pay $1.5 billion in penalties — eight times as much as Wells Fargo’s settlement.

But that really misses the point. San Francisco-based Wells Fargo was supposed to be the anti-Wall Street bank with community banking values and devotion to Main Street at its core. No wonder, then, that its CEO, John Stumpf, took such a tongue-lashing from the Senate Banking Committee with Democrats and Republicans saying Wells Fargo had accomplished the inconceivable — uniting members of both parties in outrage.

Since the settlement in September 2016, we’ve seen a series of Wells Fargo executives and directors forced out, including Stumpf, who had made his mark in banking by emphasizing ever-rising, cross-sell ratios. The bank has clawed back $183 million in civil penalties from Stumpf and Carrie Tolstedt, who headed Wells Fargo’s Community Bank division, which includes its enormous retail branch network. The bank allowed Tolstedt, the greatest proponent of cross-selling and sales goals, to “retire” early before the settlement became public. The bank continues to cross-sell financial products but says it has phased out the sales goals that drove the phony accounts.

Tolstedt’s replacement as head of the community bank, Mary Mack, has launched a turnaround plan, which the bank describes as focusing on delivering exceptional customer experiences rather than product sales. She told American Banker that her mission is “to turn over every rock, to look at every place that we need to improve and if we need to make things right, we will make things right.” (See Inside Mary Mack’s plan to turn around Wells’ branches, by Kate Berry, August 31, American Banker.)

Yet even as Wells Fargo struggles to put the phony accounts debacle behind it, reports of customer abuses continue to erupt in other bank operations. Recent events include the bank’s admission to charging hundreds of thousands of borrowers for unnecessary auto insurance, a federal regulatory inquiry into claims of excessive mortgage fees and a lawsuit accusing Wells Fargo’s credit-card processing division of gouging small-business customers. The trail ahead remains rocky and rutted.

— E. Scott Reckard

Lessons from a reporter that CFEs can apply

My reporting career has intersected with CFEs and what you do since I started writing about fraud in the savings and loan meltdown nearly 30 years ago. Our goals, methods and emphases might differ. News investigations rely heavily on anecdotes to leaven statistics with human interest, and we have to rely on leaks — not audits — to get at sensitive documents. But there are some lessons from my reporting that might be worthwhile for you to note.

One is that reputational boasts can get you in hot water. Some of the worst practices I’ve seen are at companies that claimed to have the highest standards and best performance in their niches. That makes for a great scandal story, of course.

Another lesson is that when employees are providing services that will last — this would include financial products like checking accounts, credit cards and mortgages — make sure the rewards are for long-term performance of the account, not immediate sales goals.

Still another is that a fabulous source for anyone looking into corporate malfeasance are front-line employees — people who work every day at the pressure points where company policies and customer care intersect. They just might tell you they were threatened with firings or would never be promoted if they didn’t meet enormous sales quotas — a common occurrence at Wells Fargo Bank.

— E. Scott Reckard