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Published onOct 02, 2016

Wells Fargo, the San Francisco-headquartered banking titan, has come under fire from seemingly all angles after creating nearly 2 million fraudulent bank and credit card accounts for customers without their permission. Lauded above competitors for its ability to remain profitable following the 2008 financial crisis, performance supposedly fueled by Wells’ operational discipline and internal controls, Wells Fargo has significantly undercut the goodwill its name had as a bank by creating sham accounts and charging customers fees on these accounts. In the wake of its fraud, Wells Fargo has been through the ringer. The Bank has settled civil charges with the city and county of Los Angeles, been charged with $185 million in fines, refunded close to $2.5 million to customers for the wrongful fees it charged, and received subpoenas from three different United States Attorneys’ offices. But the worst may still be yet to come for Wells Fargo.

What has been Wells Fargo’s internal response amid this scandal? The Bank terminated the employment of 5,300 employees, many of whom worked at the retail branch level of the Bank. Even after CEO John Stumpf was grilled in a hearing before the Senate Banking Committee, Wells Fargo has refused to identify any senior executives that were either terminated or held responsible for letting this systematic and substantial fraud go on under their watch. Instead, the Bank has taken a “bottom-up” approach to address its blatant operational and ethical retail banking shortcomings by firing hourly employees who were held to near impossible standards and encouraged by their management to cut corners.

Wells Fargo’s current and former employees claim an inconsistent company culture was the driving force behind the creation of the nearly 2 million sham accounts that resulted in nearly 5,300 employees’ terminations of employment. While Wells Fargo promoted a culture of integrity and honesty in serving its clients and training its employees in ethics workshops, in practice the pressure from bank managers and senior members of the Bank to find “solutions” to meeting astronomically high sales figures was nothing short of cutthroat. Further, branch managers who hit their sales targets were rewarded handsomely, sometimes with bonuses of up to $10,000.

Faced with unreasonable performance expectations, in need of the job they had, and pressured constantly by managers to perform so those managers could “earn” their performance bonuses, many employees turned to fraudulent account creation as a way to hit their goals and keep their jobs. Wells Fargo’s unrealistically-high expectations, constant pressure from above to meet those expectations, and unverified performance-based compensation structure were the perfect storm encouraging corner cutting, and left employees lower in the hierarchy with seemingly little recourse if they hoped to keep their jobs.

Wells Fargo markets itself as the “Main Street” bank, offering a broad range of financial and banking solutions to its nearly 40 million customers; indeed, one of the Bank’s main value propositions has been cross-selling customers on the many services it provides. In wake of the sham account scandal, though, that reputation has taken a hit. Customers are reeling from being charged improper fees on accounts opened without their permission, and in some cases, having their credit scores negatively impacted.

At its core, a bank is an institution built on the trust of its customers, and Wells Fargo has a long road ahead if it wants to begin rebuilding lost trust. Manipulating customers’ trust by opening fraudulent accounts without their permission is a gross breach of Wells Fargo’s duty to its customers, and doing so for the sake of hitting targets and putting a little more money in lower-level managers’ pockets is flat out egregious. Wells Fargo needs to implement some serious changes to ensure this type of predation on customer trust is never repeated. A bank must be held to and satisfy a higher ethical standard than simply growing its bottom line, especially when that bank purports to serve the needs of everyday people and businesses.

The Consumer Financial Protection Bureau (CFPB) fined Wells Fargo $100 million in addition to the $85 million Wells Fargo settled with Los Angeles city and county for its illegal banking practices, the largest fine issued in the CFPB’s history. Regulators believe Wells Fargo’s behavior to be evidence of a systematically-flawed internal culture and compensation structure coupled with lax or purposefully-ignorant oversight. The fine reflects regulators’ shock and rejection of the way Wells Fargo has been doing business internally and is aimed at forcing necessary internal changes to be brought to the forefront and addressed. Whether or not this fine is enough remains to be seen, though further legal action from U.S. Attorneys offices does promise to keep a conversation of accountability and change going at the very least.

Three different U.S. Attorneys’ offices have issued subpoenas to Wells Fargo in wake of its fraud settlement; the U.S. Attorneys in Manhattan, San Francisco, and the Western District of North Carolina have all begun the early stages of investigation against the bank for defrauding its customers. While it remains unclear which office will take the lead on the investigation and prospective legal action, it is very clear the embattled bank’s problems are just beginning. Reportedly, the U.S. Attorneys are considering bringing both civil and criminal charges against Wells Fargo and its employees at this time. While the Deputy Attorney General may be the final authority on which U.S. Attorney’s office takes the lead on this investigation, all three appear committed to going after Wells Fargo to bring the Bank to justice.

Wells Fargo has gravely wronged its customers and stakeholders, but it has not yet done enough to make up for its blatant breach of trust. Surely the fine Wells Fargo will pay and the return of wrongly-charged fees is a financial hit to the Bank, but these punishments (or in the case of the returned fees, returning what is essentially stolen money) do not address the fundamental issues that led to the fraud in the first place. Taking a “bottom-up” approach by firing employees at the retail banking level does not solve the problem of pressure from above to cut corners. Rather, Wells Fargo needs to consider changing itself, its culture, its compensation practices, its commitment to ethical banking, from the top down. Top down change starts with an assumption of responsibility by the Bank’s senior leadership. Only when those with the power to effectuate change at Wells Fargo take responsibility to do so will constructive change happen.

Zack Young is a third year JD/MBA candidate at Wake Forest University. He has undergraduate degrees in Political Science and Philosophy from Marquette University. Zack hopes to practice as an investment management attorney upon graduation.

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