Wells Fargo, the second biggest commercial bank in the USA has agreed to pay $110 million to settle the lawsuit for opening 2 million fake accounts without customer permission. Due to the cross sales targets set by the branch managers, the employees found a way to fool the system by making a fool of the bank’s customers. Wells Fargo opened about 2 million bank accounts and provided more than half a million credit cards without obtaining customer permission. The illegal practice was uncovered a few months ago and the bank was levied $185 million penalties by Consumer Financial Protection Bureau.
The settlement of $185 million led to the departure of John Stumpf, a long time CEO of the bank. The customers knew nothing about the bank accounts, credit cards and the associated fees and charges. Apart from this scandal, the bank is also accused of setting impossible targets for the employees and it handled the whistleblowers harshly. The Justice Department is also planning on a probe which could result in criminal charges against the executives involved and their policies.
The $110 million settlement will benefit the customers wronged by the bank. The settlement will also resolve 11 other claims against the bank dating back to 2009. The approval for settlement agreement is still pending in the court. The claimants will be reimbursed all the wrong fees after the attorney’s fees and administration costs are deducted. The new CEO of Wells Fargo, Tim Sloan said that the bank has a lot of work to do. The bank has to work on rebuilding the trust with customers, employees, and stakeholders.
Wells Fargo has taken steps to be transparent and it disclosed the bank’s performance. The performance of credit cards and other accounts have dropped by 40%. The cross-selling goals which led to the scandal are scrapped. The sales tactics are now monitored through new measures costing several million dollars. New compensation plans are introduced for employees so that they don’t have to worry about cross-selling targets. The bank also received a failing score on community lending by a federal regulator. The bank is also under threat of class action lawsuits from employees and shareholders.
The lawyers behind some of the cases that Wells Fargo is determined to settle are unhappy with the $110 million settlement. Some of the lawyers want to object this settlement and look for a much sweeter deal from the bank. The settlement process could take several months to complete. However, if some consumers are willing to opt out of the settlement, they could continue with further legal action against the legendary bank.
When the court approves the settlement, Wells Fargo has to pay only 0.5% of the profits in 2016. It is to be noted that no discovery is made in the case and settlement agreement is proposed even before discovery. The bank has been successful in blocking lawsuits before as the agreement has arbitration clause which forces the customer to settle the disputes through private arbitration instead of a class action lawsuit.