Should a Company (or person) Be Defined By Their Worst Act?

Every time I walk into the local branch of Wells Fargo Bank I wonder whether I should change banks simply because of the massive fraud committed by Wells Fargo that was made public in 2016. I thought about last December when the bank settled lawsuits with all 50 states over unauthorized accounts, bogus charges, and cross-selling products. Wells will pay $575 million to resolve claims it violated consumer protection laws. There’s a lot more to the fraud which, in my opinion, is the worst I’ve ever seen. And, I follow these things closely.

One reason to leave the bank is of the personal relationship with a bank and its customers, and Wells violated that trust. Another is the bank showed little remorse until it was embarrassed by Congressional investigations and the outcry of public disgust. Still, should the bank, or any entity, be judged by its worst act? After all, many of us do things we’re not proud of and wouldn’t want to be defined by those acts.

As with many ethical issues, I look at the actions taken, penalties imposed, and what caused the failure of ethical systems. Here’s a brief view.

Improper Practices

• Opened 3.5 million fake bank and credit card accounts in customers’ names.
• Improperly charged mortgage fees known as rate-lock extensions when loan approvals exceeded the 30- to 45-day period. These fees were charged even though the delay in approvals were caused by the bank, not the customer.
• Set up about 528,000 unauthorized online bill-paying services.
• Forced up to 800,000 borrowers into unneeded auto insurance for collisions. The cost of unneeded insurance pushed about 274,000 Wells Fargo customers into delinquency and caused nearly 25,000 wrongful vehicle repossessions.
• Mortgage division changed loan terms, falsified records, and even stole money from mortgage bond investors.

Penalties

• Paid $1.2 billion to the U.S. government for hiding bad mortgage loans from its government-guaranteed loan program in years leading up to the home mortgage crash.
• Paid $142 million in fines for the fraud under a national class action lawsuit..
• Paid an additional $480 million to settle lawsuits brought by shareholders.
• Separately, agreed to a pay $575 million to states related to cross-selling practices.
• Refunded $3.7 million in bank account fees charged on unauthorized accounts and lines of credit.
• Paid an additional $5.4 million for illegal vehicle seizures by repossessing more than 860 vehicles of U.S. service members in violation of the Servicemembers Civil Relief Act.

The extent of wrongdoing is shocking as are the failures in the bank’s corporate governance system.

Corporate Governance Failures

• Unethical tone at the top: top management sanctioned the improper practices.
• Toxic corporate culture that emphasized profits over customer service.
• Conflict of interests between incentive compensation plan for employees and managers that pushed them into selling unwanted products to customers and serving customer interests.
• Failure of ethical leadership. The company knew about the fraud but did nothing to stop it until they were forced to by Congress and the public outcry.
• Former CEO, John Stumpf, resigned shortly after the scandal broke amidst severe criticism by Congress in its Senate Banking Committee hearing on the fraud on September 20, 2016.

Did the Bank Learn Its Lesson?

I do find Wells Fargo is trying to give good service ostensibly to win back the trust of customers. However, a story in the NY Times that was disclosed on March 9, 2019 makes me think the bank has not learned its lesson and a toxic culture still exists.

According to Times reporters Emily Flitter and Stacy Crowley, “Wells Fargo workers say they remain under heavy pressure to squeeze extra money out of customers” and that employees “have witnessed colleagues bending or breaking internal rules to meet ambitious performance goals.”

If this is true, then I’m certainly ready to leave the bank if for no other reason than to voice my concern over unethical behavior that has persisted for over three since years the first incident was disclosed, and a corporate culture that is toxic and seemingly not changing.

What do you think?

Blog posted by Steven Mintz, aka Ethics Sage, on April 18, 2019. Visit Steve’s website and sign up for his newsletter. Follow him on Facebook and “Like” his page.