Wells Fargo’s hopes that a $142 million June settlement of a class-action lawsuit over its agents creating up to 2.1 million unwanted checking, savings and credit-card accounts from 2011 to 2015 would end the iconic California company’s headaches have been dashed with a new report of a similar scandal involving auto loans and insurance.
The New York Times broke the story after obtaining an internal audit that showed more than 800,000 people who took out vehicle loans from the San Francisco-based banking giant “were charged for auto insurance they did not need, and some of them are still paying for it … . The expense of the unneeded insurance, which covered collision damage, pushed roughly 274,000 Wells Fargo customers into delinquency and resulted in almost 25,000 wrongful vehicle repossessions.”
Wells Fargo executives interviewed by the Times vowed to fully reimburse anyone adversely affected by its policy, but another class-action lawsuit with a massive payout seems likely. While bank executives suggested they deserved credit for having “self-identified” the problem, the size of the scandal seems likely to have a far-reaching effect on a company that has gone from being a stock analyst darling for its considerable long-term growth to a symbol of a banking industry seen as villainous by many Americans for its role in the economic meltdown that began in 2007.
In the previous scandal, besides the class-action payout, the company was fined $185 million by federal regulators in September 2016. CEO John Stumpf abruptly resigned soon afterward, voluntarily giving up $41 million in bonuses he was scheduled to receive.
Wells Fargo initially appeared to have shrugged off the scandal. While its stock price fell under $44 after Stumpf left, it topped $59 in March. Its market value remained well north of $250 billion, its profits were strong and it had a significant presence in all 50 states, employing nearly 270,000 workers.
Of late, however, Wall Street has soured on the company – even before the new scandal emerged. On July 21, CNBC reported a respected analyst predicted a more than 30 percent drop in Wells Fargo’s stock price, then in the $55 range. It plunged 2.6 percent Friday after the Times report came out and is now under $53.
Were wrong workers punished for first scandal?
The new scandal is likely to not only prompt regulators to take close looks at every aspect of Wells Fargo’s business but to re-examine how they dealt with the previous scandal.
Wells Fargo’s CEO may have left, but the company was partially successful in deflecting the idea that the setting up of unwanted new accounts by employees eager to meet quotas was the fault of the employees – not those who set the aggressive quotas. The company fired more than 5,000 mostly low-level workers who had set up the accounts, but the vast majority of managers were unaffected.
This was even though the initial Los Angeles Times investigation in 2013 that broke the scandal depicted the later-fired workers as doing the bidding of their mid-level bosses, who were facing pressure from their top-level bosses – suggesting the wrong people were paying the price for the scandal. The auto loan scandal only adds to the narrative that Wells Fargo’s ethical problems begin from the top down.
The New York Times report on the new scandal said the internal report only looked at “insurance policies sold to Wells customers from January 2012 through July 2016.”
This is likely to prompt calls for regulators and journalists to look back far earlier than 2012. Perhaps the biggest complicating factor in the $142 million settlement of the unwanted accounts scandal was the evidence offered by some plaintiffs’ attorneys that the scandal began in 2002, not 2011. They argued that the high-range estimate of unwanted accounts created by Wells Fargo agents was far too low and should have been 3.5 million, not 2.1 million.