How many bank accounts do you have?

If you are banking with Wells Fargo you may not know the correct answer to this question. Why?

On September 8, 2016 Consumer Financial Protection Bureau (CFPB) filed a Consent Order in the matter of Wells Fargo. According to the CFPB filing, from January 1, 2011 to September 8, 2016 Wells Fargo employees opened approximately 1,534,280 deposit accounts "that may not have been authorized and that may have been funded through simulated funding, or transferring funds from consumers’ existing accounts without their knowledge or consent. That analysis determined that roughly 85,000 of those accounts incurred about $2 million in fees (...)" 

At the same time, the CFPB concluded that Wells Fargo employees "submitted applications for 565,443 credit-card accounts that may not have been authorized by using consumers’ information without their knowledge or consent. That analysis determined that roughly 14,000 of those accounts incurred $403,145 in fees (...)"

Wells Fargo employees were opening phony accounts to boost their commissions. If you are among 40 million Well Fargo clients, you might have a few accounts you are not aware of.

How Did the Swindle Work?

It was a pretty simple scheme. Using customer's confidential information from the bank’s internal customer management system, Wells Fargo employees were opening additional accounts that customers neither needed nor authorized.

According to the Consumer Financial Protection Bureau filing:"

  • Respondent’s (Wells Fargo's) employees engaged in “simulated funding.” To qualify for incentives that rewarded bankers for opening new accounts that were funded shortly after opening, Respondent’s employees opened deposit accounts without consumers’ knowledge or consent and then transferred funds from consumers’ authorized accounts to temporarily fund the unauthorized accounts in a manner sufficient for the employee to obtain credit under the incentive-compensation program.
  • Respondent’s employees submitted applications for and obtained credit cards for consumers without the consumers’ knowledge or consent. 
  • Respondent’s employees used email addresses not belonging to consumers to enroll consumers in online-banking services without their knowledge or consent. 
  • Respondent’s employees requested debit cards and created personal identification numbers (PINs) to activate them without the consumer’s knowledge or consent."

This resulted in massive overdrafts and late fees that Wells Fargo collected from its customers. It is really hard to be current on a credit card account or to keep an appropriate balance on a deposit account when you are not aware of such an account even exists. So, why would an average  American  willingly participate in Wells Fargo account opening scam? The reason for such bizarre behavior was simple - for each additional opened account a Wells Fargo employee was entitled to additional compensation in accordance with the "incentive-compensation program" or the "Comp Plan".

The Comp Plan

The Comp Plan (short for the "compensation plan") is the language every sales organization is using to communicate with its sales force. Let’s say your company publicly states that its employees should introduce both Product A and Product B to the potential client, but Product B, if sold, pays twice as much as Product A would. Which product do you think will be recommended to the consumers more often? You are getting the picture, right? The Comp Plan is the core of all sales activities. It  often shapes the behavior of many sales floors.

In a nutshell, the Comp Plan is a manual on "how you make money in our organization?" The Comp Plan comes before any company’s official statements, policies and procedures, and it often takes priority over ethics considerations and the laws. By putting certain incentives in the right places, companies communicate their wishes to the foot soldiers in the field. In the case of Wells Fargo, wishes were communicated to the bankers and clerks at local branches. This is how an "Incentive Plan" is described on page 112 of the Wells Fargo Team Member Handbook.

"Some team members participate in incentive pay programs designed to support specific business objectives. These incentive plans provide compensation opportunities in addition to the base salary available to eligible team members in designated jobs for achievement of specific goals. Incentive compensation opportunities may be decreased or eliminated when individual, business group, or company goals are not met. (emphasis added)" 

The "Specific Business Objectives" mentioned above consisted mostly of making sure that every Wells Fargo customer had 8 (eight) or more accounts with the company. Why eight? Was this number somehow scientifically calculated based on the wishes and needs of a typical customer? Of course not. This number was in place because Wells Fargo’s CEO John Stumpf said so.

In his 2010 letter to Wells Fargo shareholders, Wells Fargo CEO wrote: " I’m often asked why we set a cross-sell goal of eight. The answer is, it rhymed with “great.”  - Page 6. As if forcing 8 (eight) accounts down the throat of an average American consumer was not enough, the very same Wells Fargo CEO used the same letter to set an even  stranger goal - 10 (ten) accounts per customer. He wrote:" Perhaps our new cheer should be: “Let’s go again, for ten!”. Just so you understand the level of arrogance this man has, he wrote this in his official letter to the shareholders, not in a confidential memo to his cronies.

Needless to say, every account comes with fees and other profit opportunities for Wells Fargo. Another very disturbing part here is: "Incentive compensation opportunities may be decreased or eliminated when individual, business group, or company goals are not met."  Translating from the "sales talk" into plain English, in many cases a sales person is in an "all-or-nothing" situation, where a bonus or an incentive is paid only when a certain threshold (goal) is met.

Let’s say, for example, that a sales person is paid $20 for each new account, but only if this sales person opens 10 accounts per week. In this situation, opening 9 accounts will earn nothing for the sales person, but the organization itself will still benefit from 9 new accounts. Now, imagine that you are a clerk at Wells Fargo at 4 PM on Friday night, and you already have 9 accounts opened. All you need is one more account to earn the bonus. In the situation like this, a sales person is under tremendous pressure to open this last 10th account to earn the incentive for the previous 9 accounts he or she opened earlier that week. In almost all cases when the scenario is like this, your client’s best interest, ethics and many other considerations go out of the window. And not because a bank employee at the branch is an evil person but because the Comp Plan is set up this way.

So, was a lower level bank clerk, who wanted to make an extra $20 or $200 a week for his family, the root of the evil? To answer this question, we will need to figure out who actually benefited the most from this fraud and who was in charge of Wells Fargo policies as well as of making sure that checks and balances were in place.

Who Benefited the Most

Wells Fargo Fraudulent Accounts Scandal

Some people may think that charging overdraft and late fees on unauthorized bank accounts and credit cards to make more money for Wells Fargo was the main goal of the scam. This is not the case. The real goal was to show the Wall Street that Wells Fargo was doing better than it really was. The Wall Street loves better-than-expected quarterly numbers and rewards the company with higher share price.

This higher share price is all that Wells Fargo top executives ever wanted. Wells Fargo management  could not care less about consumers and their bank accounts, whether opened legitimately or not. Their interest was solely in better quarterly results and higher share price, so their take-home pay increased exponentially.

If showing more newly opened accounts was what it took to show better results to investors and boost the price of Wells Fargo shares, so be it. Here is why – most, if not all, top executive compensation plans are connected to the company performance which in most cases is measured by increased share price. Unfortunately, in most American corporations, building a long term value for a shareholder is not worth much. Most corporations live from quarter to quarter and rarely look beyond quarterly numbers. All that matters is share price from quarter to quarter. In short, if share price is going up - executives are doing a good job and shall be rewarded, regardless of what happens year or two down the road.

When share price goes above a certain pre-determined target number, all kinds of incentive payments are set off, stock options owned by top executives become "in the money" and very valuable, and so on. For example, Senator Elizabeth Warren estimated that Wells Fargo CEO John Stumpf alone took home approximately $200,000,000 (two hundred million dollars) as a result of increased share price of Wells Fargo, which in part was fueled by phony results of operations. Now, take 2 million dollars that Wells Fargo, as a company, received from overdraft fees on unauthorized bank accounts and compare this number to 200 million dollars that Wells Fargo CEO John Stumpf took home largely as a result of the scam.

Do you see the real winner here? Another real winner is a former Wells Fargo Consumer Banking Chief Carrie Tolstedt. She was running the department where Wells Fargo employees opened more than 2 million mostly unauthorized customer accounts. She recently retired from Wells Fargo and walked away with a 124.6 million paycheck according to the story.

And, of course, Wells CEO and former Consumer Banking Chief are not accepting any blame for what has happened.

Who Is to Blame?

The amazing thing here is that public outcry is directed towards rank-and-file Wells Fargo employees or a company in general, while top-level executives are mentioned only as those guilty of a sloppy oversight. In reality it should be the other way around. As Senator Elizabeth Warren put it while grilling Wells Fargo CEO during the Capitol Hill hearings: "Your definition of "accountable" is to push the blame to your low level employees who do not have money for a fancy PR firm to defend themselves." (1:50 here).

Lower level employees did not create a Comp Plan for Wells Fargo - top management did. Lower level employees were not responsible for checks and balances within the organization - top management was. Lower level employees did not go home with millions of dollars in severance pay - they went home with the brochure on how to apply for unemployment and public assistance. So, how does it happen that lower level employees are always blamed for everything? Good question.


Wells Fargo agreed to pay a 185 million dollar fine as a result of the investigation. Now, keep in mind that not a single dollar of this fine will be paid by top Wells Fargo Executives – this money will be paid by Wells Fargo Bank and, ultimately, by Wells Fargo shareholders. The same shareholders Wells Fargo top executives were hired to serve. Shareholders, and not the individual criminals, are stuckwith the bill. Nothing new - business as usual. Approximately 5,300 Wells Fargo employees lost their jobs for doing exactly what Wells Fargo wanted them to do - cross-sell the heck out of every client at any cost. The State of Illinois together with California yanked all the state banking business from Wells Fargo.

Wells Fargo Bank will deal with the fallout of this disaster for years to come. How about top executives, who have designed and approved the compensation plan encouraging the "8 accounts per client" mantra? The same executives who made hundreds of millions on the wave of Wells Fargo over-exaggerated "results of operations"? Are they hurting? Well, they are doing just fine. No need to worry about them being late on a mortgage or looking for a payday loan. Anyone from the top management was fired like 5,300 rank-and-file employees were? Anyone returned one red cent of theill-gotten profits? Of course not. Moreover, Wells Fargo CEO is much better off retiring or even being terminated. According to story, Wells Fargo CEO would walk away with 102.7 million dollars even if fired. With this kind of "golden parachute" and "continued pay provision", resignation or termination is the thing to wish for.

Takeaway - What to Do Going Forward

How to avoid similar problems in the future? Well, an early warning system is usually a good thing to have for a large organization. Sometimes an organization is getting so big that all lines of communication are clogged with bureaucracy. Consumer review websites like can be an early warning tool that would help companies avoid unnecessary risks and save money and customers in the long run. Because posting review on is a simple, free and effective way for consumers to voice their concerns, this website is one of the first places where problems get voiced.

In many cases, when different consumers report similar problems, patterns can be detected early, and a company can be warned about something that may become a costly multi-million dollar class action lawsuit and a PR disaster tears down the road. Setting up a warning system directly with consumer review outlets is a very good idea for any company that is serious about staying away from the kind of attention Wells Fargo is getting today.


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