Wells Fargo must act now to restore customer confidence

 A recent Wall Street Journal article highlighted the challenges Wells Fargo faces in cleaning up its self-inflicted account-opening mess by citing the experiences of a few Wells customers. They are not pretty stories. 

Briefly, for a number of years, Wells employees opened numerous types of bank accounts and purchased financial products — checking and savings accounts, credit cards, insurance products, etc. — in the name of bank customers without those customers’ explicit consent.  

{mosads}Wells employees engaged in these improper activities in order to meet sales targets and to earn bonuses. According to Wells Fargo data reported by the Journal, there may have been as many as 1.5 million unauthorized bank account openings and 565,000 unauthorized credit cards issued to Wells’ customers. 

In light of the extensive bad publicity Wells received after these unauthorized activities came to light, it has had no choice but to move expeditiously in identifying potentially improper account openings and other unauthorized transactions with its customers.  

Much more importantly, Wells must rectify these improper actions as quickly and fairly as possible, even if that means giving customers, or former customers, the benefit of the doubt.        

These unauthorized accounts generated fees and penalties for Wells even when customers did not know they had the account or credit card. Unfortunately, Wells sometimes resisted when customers sought to close those accounts and obtain refunds for unjustifiable fees and penalties. 

Worse, Wells periodically turned unpaid fees and charges over to debt collectors and sent negative credit reports to consumer credit-rating bureaus.

Even the act of canceling an unauthorized credit card can register as a black mark on a person’s credit record, which in turn could lead to a higher interest rate on a home mortgage or car loan. It could even make the difference between getting a loan or not. 

Wells has suffered from the revelation of these activities, but it will suffer even more if it drags its feet in cleaning up this self-inflicted mess, a mess no other bank has created for itself.  

While Wells’ share price has largely recovered from the initial damaging news of the unauthorized account openings and the embarrassing House and Senate testimonies of former Wells CEO John Stumpf, new account openings and new applications for credit cards are down substantially — almost half in some months — from the year before.  

Wells surely is losing market share to other banks, large and small.  Employee morale at the bank has undoubtedly suffered, too. 

According to news reports, Wells often forces customers to go to arbitration to obtain refunds for unauthorized charges. Wells would help itself immensely if it stopped forcing customers to arbitrate these refund requests.  

Simple fairness says that it should refund those charges even if there is some doubt as to whether the account opening or credit-card issuance was unauthorized.

Simplifying the process for rectifying customer complaints about these charges also would lower Wells’ administrative expenses in cleaning up this mess while speeding up the restoration of customer goodwill. 

Looming on the horizon is a potentially more costly problem for Wells then simply refunding unauthorized fees — compensating customers for the damage to their credit scores caused by negative reports Wells improperly sent to the credit bureaus.  

First, Wells must be thorough in identifying the many instances where the negative information sent to the credit bureaus can be traced back to an unauthorized account opening.

Second, Wells must work with the credit bureaus to remove negative reports that stem from closing unauthorized accounts or canceling unwanted credit cards as well as reports of unpaid fees and charges, which should not have been levied in the first place.  

Although the credit bureaus did not cause this mess, it is in their self-interest to work with Wells to remove negative reports from consumers’ credit records that should never have been submitted in the first place. 

Third, Wells must compensate customers who are paying a higher interest rate on loans and home mortgages than they would have paid had Wells not improperly sent a negative report to the credit bureaus.  

According to the Journal article, Wells said it plans to compensate borrowers for paying a higher rate than they should have but, according to the Journal, “it hadn’t handled any of these situations as of early December.” 

Even tougher will be determining how much compensation Well should pay when a customer could not get a loan they likely would have obtained absent the negative information Wells sent to the credit bureaus.  It will be in Wells’ long-term self-interest, though, to master this compensation challenge and get past it. 

Wells’ management has only itself to blame for the wide-scale unauthorized opening of customer accounts. Now it must move expeditiously in cleaning up this mess, without hassling its customers, if it is to regain its status and reputation as one of the nation’s premier consumer banks.  

Whether Wells’ management is up to that task is still an open question.

Bert Ely is a financial institutions and monetary policy consultant in Alexandria, Virginia. Ely has given expert testimony before Congress as well as in litigation proceedings on a number of banking issues, including regulatory negligence and deposit insurance reform. In the 1990s he developed, and helped draft legislation to enact, the cross-guarantee concept for privatizing banking regulation and deposit insurance. 

The views expressed by contributors are their own and not the views of The Hill.