Well, it looks as if Wells Fargo, the self-proclaimed “community-based financial services company” is once again on the hot seat.The bank had been forcing unneeded collision insurance on customers who financed their car purchases through the bank. That practice, first disclosed by The New York Times, affected 800,000 customers according to an analysis commissioned by the bank.
The bank issued a press release when it learned that the New York Times had obtained the 60-page report put together by consulting firm Oliver Wyman and would go public with it. The bank said they had learned that it had wrongfully charged 570,000 of its auto-loan customers for comprehensive and physical damage insurance (CPI) since 2012 although those customers already had their own insurance, not the 800,000 the report cited.
Wells Fargo said it became aware of this issue in July of 2016 and started its own review of the “CPI program” — as it calls this profit center — “and related third-party vendor practices,” namely those of the insurance supplier National General and other “In response to customer concerns.” In some cases, the additional and unnecessary insurance raised car payments by $50 per month which meant higher payments over a six-year loan of $3600. Many of these loans were set up on the bank’s automatic payment systems causing some accounts to be overdrawn. What with resulting insufficient fund fees and late fees some accounts went into default.
The bank admitted that the wrongful CPI premiums “contributed to a default that led to their vehicle’s repossession,”… credit was ruined and “approximately 20,000 customers might have lost their vehicle.” The consultant’s report as cited by the Times again has numbers higher than the bank claims. According to the report, the costs of the unneeded insurance pushed about 274,000 Wells Fargo customers into delinquency and caused nearly 25,000 wrongful vehicle repossessions.
Wells Fargo said that it is “extremely sorry for any harm this caused our customers….” and has already begun reimbursing some customers which will result in $80 million in reimbursements. Franklin Codel, head of Wells Fargo Consumer Lending, told Reuters that they’d been planning to disclose the problems eventually but not until they were ready to issue reimbursement checks.
Mr. Codel said, “our CEO and our entire leadership team committed to build a better bank and be transparent about those efforts,” …. “Our actions over the past year show we are acting on this commitment. We take full responsibility for our failure to appropriately manage the CPI program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us,” said Codel. “Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”
However, let’s not forget these Well Fargo victims come on top of the victims of the 2.1 million fake accounts that bank employees had opened in their customers’ names. The bank paid $185 million in fines last September. It settled a class-action suit for $142 million. Then Chairman and CEO John Stumpf was deposed. A slew of low-level order-followers were fired. Some mid-level managers got axed. A number of federal and state investigations are still pending.
The report by Oliver Wyman report found:
- The extra insurance was more expensive than the insurance customers had already bought on their own.
- Wells Fargo received part of the commissions from those insurance sales until February 2013.
- The way the car payment is structured, the additional insurance initially decreased the amount of principal paid with each payment, and thus increased the amount of interest the bank earned on the loan.
- Wells Fargo was aggressive in repossessing the vehicles, and according to The Times, some victims “endured multiple repossessions.”
Wells Fargo claims to be an “a community–based financial services company.” Their tag line says, ”together we’ll go far” and their corporate vision states ”As we have grown over the years, we have never lost sight of our focus on helping customers and businesses in the “real economy”… We support our communities…Some call this a “Main Street” focus. We believe that this community-based approach to financial services lets us serve our customers in the best way possible and differentiates us from the other large banks.”
Really? They believe that? Somebody’s lying. Looks as if they were instead following the old profit model of profit only is king! From my own experience at Citigroup, I can attest that for so long the major banks have had such a profitable business/sales model which brings in very substantial incentive compensation and bonuses, that they have ignored the issues that internal whistleblowers and other concerned employees continually attempted to bring to management’s attention. Instead of heeding warnings, Wells Fargo employees who stood up for the right thing were dismissed.
If profit is king, it’s easier to overlook warning signs that will cut into what goes into your pocket. Ethics pays. However, once again, ethics and common sense were not part of this company’s code. The bank offered an “ethics” hotline expressly for the purpose of reporting behavior they suspected as suspicious or fraudulent; then they retaliated against those employees who did just that
The 2012 and subsequent reports from Great Place to Work® Institute note that the stock price growth of the 100 firms with the most ethical cultures continues to dramatically outperform stock market and peer measures. According to studies, researchers have shown that a firm’s culture is the strongest predictor of how much market value that firm will create for shareholders’ investments.
Yet, in spite of the evidence, in half of our workplaces, employees report seeing unethical or actual illegal practices (Ethics Resource Center). Lapses in ethics cost trust and erosion of employee and customer confidence. Lack of ethics ultimately includes financial consequences as you can see from the Wells Fargo debacle – fines, loss of business, bankruptcies, and more. Yet, unethical practices continue, despite the costs. The continuing saga of bank fraud, theft, misconduct, greed, lack of ethics and governance is astounding.
What does it take to be an ethical company? As my friends at Penn Mutual say “there is no right way to do a wrong thing.” Ethical practices are not the vision and values posted on the wall; Citigroup had that! It’s not a 64-page ethics policy and training, Enron did that! Enron’s policy said, “we are responsible for conducting the business affairs of the company in accordance with all applicable laws and in a moral and honest manner!”
Ethics has to be part of the culture, top down. It is about unequivocally listening to feedback and acting with transparency. It is more than a rigorous code of conduct that a company follows; it is what also serves the customer, employees, vendors and the community. And just the pursuit of profits has proven time and time again to be for losers.