Wells Fargo Sham Accounts By Design — Not Rogue Actors

Approximately a week ago a story broke that Wells Fargo would be fined 185 million dollars for fraudulently opening accounts without the consent of Wells Fargo customers. According to the Consumer Financial Protection Bureau around 1.5 million bank accounts were opened and 565,000 credit cards were applied for fraudulently by Wells Fargo employees.

Current Chief Executive John Stumpf stated that, “There was no incentive to do bad things.” He further went on to say, “The 1% that did it wrong, who we fired, terminated, in no way reflects our culture nor reflects the great work the other vast majority of the people do.”

John Stumpf is a liar.

I worked as a teller at a Wells Fargo branch in Los Angeles for approximately a year. I can only speak to what I saw at the time approximately 6 years ago, but what I’m reading right now about this current scandal aligns neatly with what I witnessed as a base level employee working at a smaller branch.

Tellers and bankers were given weekly, monthly, and quarterly sales goals to meet. These metrics were based on Wells Fargo’s own projections of what they felt each individual branch should be capable of meeting. Metrics based on previous quarter and yearly sales. What products are being sold? Things like new checking accounts, savings accounts, money market accounts, lines of credit, mortgage refinances, and so on.

The amount of pressure put on the branch managers by the management groups that oversaw regional groupings of branches seemed intense. No doubt they were being pressed hard by their own management. I as a teller had it pretty easy. While there were base line goals, the most important part of being a teller is making sure your drawer stayed balanced and you helped customers quickly and with a smile.

Bankers would often still be working their phones when I was punching out for the day. There were times when the branch manager would not let bankers leave until they had hit their goal for the day. What this meant was a banker would sit on their phone begging a friend or family member to open up a new checking account and leave it open for 30 days before they could close it. Perfectly serviceable “older” checking accounts would be rolled over into ‘new’ accounts.

I feel that an unfortunate result of the headlines that hit last week are that many consumers may simply shake their head and think, “The banks are at it again, but at least some people are getting fired over it.” Unfortunately the bankers that are losing their job are not the bankers who probably should have lost their job during the most recent economic collapse.

The frontline retail banker you see when you walk into your local branch is not the fat cat Wall Street banker you conjure up when you think about credit default swaps. It’s a man or woman who’s making 30,000 dollars a year who gets yelled at because the 62 year old man didn’t want to open up another savings account that would yield him .0003 interest as 500 dollars sat in it.

30 years ago if you walked into a bank to deposit a check you could do just that. The teller would take the check and process the deposit. They’d probably ask you if there was anything else they could do for you and then you’d leave. Today, retail banking is not like that. Every bank has one goal. To become a bigger bank. The more products a consumer has with a single bank, the less likely they are to leave that bank. They’re also more likely to go back to do more things. You have a checking account, savings account, and a student loan with Wells Fargo? Well, why not get a mortgage through them too?

All the fraud, the so called bad apples, those people were driven to do deceptive things because they were afraid to lose their job. If you didn’t hit your goals after a couple quarters you’d be fired. It was as simple as that.

The result was nothing if not obvious. A banker has to open X accounts by the end of the month or they are forced to stay late, get yelled at, and possibly lose their job. Of course they are going to start fudging things a bit.

The insanity lies in how retail banking operates to begin with. How many individuals do you think walk into a bank every day who have no relationship with that branch what so ever? The number is not high. The branch I worked in was tucked into a small upperclass neighborhood where easily 80 percent of the customers who came in were the same people every day or week. The local business merchants, the residents of the neighborhood who had used the branch for decades. How then could each banker in the branch be expected to open up dozens of new accounts every week?

The limits of retail banking seem to be quite evident. No doubt Wells Fargo’s top minds are scrambling and coming up with new and creative ways to force growth. They have to, their stock price depends on it.

Chief Executive John Stumpf may insist that there was no incentive to do bad things, but the directive was clear. Hit your numbers or lose your job. Unemployment is a powerful incentive.

The sad truth is that the people who got fired in this were quite simply doing what they were told to do. Hit the numbers no matter what. The people who came up with these sales goals, who pushed the metrics, who demanded the branch managers exert pressure on their bankers, well you can bet they’re not the ones losing their jobs.