NEW YORK (AP) — The Biden administration eased some of the restrictions on banking giant Wells Fargo, saying the bank has sufficiently fixed its toxic culture after years of scandals.
The news sent Wells Fargo’s stock up sharply Thursday as investors speculated that the bank, which has been kept under a tight leash by regulators for years, may be able to rebuild its reputation and start growing again. The bank’s shares closed up 7.2% to $52.04, its highest level since March 2022, in extremely active trading.
The Office of the Comptroller of the Currency, the regulator of big national banks like Wells Fargo, on Thursday terminated a consent order that had been in place since September 2016. The order required the bank to overhaul how it sold financial products to customers and provide additional consumer protections, as well as employee protections for whistleblowers.
That consent order was put into place after a series of newspaper and government investigations in 2016 found Wells Fargo to have a poisonous sales culture that pressured employees into selling multiple products to customers even though the products were not needed. Employees — who worked at “stores” not bank branches — were forced to open millions of unauthorized accounts. Customers had their identities stolen and their credit scores impacted. Of the millions of customers effected, a disproportionate number were non-English speaking Americans.
The scandal severely tarnished the reputation of San Francisco-based Wells Fargo, which eight years ago was considered one of the best-run banks in the country by investors and analysts.
Since the scandal broke, Wells Fargo overhauled its board of directors and management, paid more than a billion dollars in fines and penalties, and has spent eight years trying to show the public that the bad practices are a thing of the past. The scandal led to unionization efforts at some branches as employees protested how managers pushed unreasonable sales goals.
In a brief statement Thursday, the Comptroller of the Currency said that Wells Fargo’s “safety and soundness” and “compliance with laws and regulations does not require the continued existence of the Order.”
The decision is a major victory for Wells Fargo’s management and Charles Scharf, who took over as CEO in 2019.
“Confirmation from the OCC that we have effectively implemented what was required is a result of the hard work of so many of our employees, and I’d like to thank everyone at Wells Fargo involved for their dedication to transforming how we do business,” Scharf said in a prepared statement.
Citigroup banking analyst Keith Horwitz said in a note that the OCC’s decision was “positive proof” that Wells Fargo’s management was making the right decisions to fix the company’s culture.
There remains in place a Federal Reserve consent order against Wells Fargo as well as a requirement by the Fed that bank grow no bigger than its current size until it fixes its sales culture. The Fed declined to comment, but the OCC’s decision is likely to pressure the Fed to make its own decision regarding its restrictions on Wells Fargo.
Including the Fed’s order, Wells Fargo still has eight consent orders that govern its operations. That’s down from 14 when Scharf took over the bank. Management says they still have work to do.
“We’ve changed the company across a number of dimensions,” said Scott Powell, Well Fargo’s chief operating officer, in an interview. Powell joined the bank roughly around the same time as Scharf.
We’re doing better for customers and employees and we keep working to address the risk issues that are still outstanding.”
FAQs
US Eases Restrictions on Wells Fargo After Years of Strict Oversight Following Scandal. Feb. 15, 2024, at 1:21 p.m. NEW YORK (AP) — The Biden administration eased some of the restrictions on banking giant Wells Fargo, saying the bank has sufficiently fixed its toxic culture after years of scandals.
What was the solution for the Wells Fargo scandal? ›
To address the scandal and prevent similar incidents in the future, Wells Fargo implemented a number of reforms and measures. These included strengthening its compliance and ethics programs, improving its customer service and communication practices, and increasing transparency and accountability within the company.
How Wells Fargo could have avoided a scandal? ›
10 Restructuring Incentive Systems The company's incentive system also fueled the Wells Fargo case scandal. Such scenarios can be avoided if organizations develop incentive systems that balance financial goals and ethical values.
What happened at Wells Fargo with regard to past activities that led to this major scandal? ›
The major scandal at Wells Fargo involved the creation of fake customer accounts to meet high-pressure sales goals. Salespeople within the company created around 2 million fraudulent accounts without the knowledge or consent of customers.
What did Wells Fargo do that encouraged unethical actions? ›
( Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unauthorized Accounts | Consumer Financial Protection Bureau , 2016) The event had a profound influence on Wells Fargo's rules and operations: Incentive Structure : The bank altered its reward ...
How did Wells Fargo change after the scandal? ›
Since the scandal broke, Wells Fargo overhauled its board of directors and management, paid more than a billion dollars in fines and penalties, and has spent eight years trying to show the public that the bad practices are a thing of the past.
What is the Wells Fargo scandal over the years? ›
Wells Fargo Scandals Timeline
- Wells Fargo Fake Accounts Scandal.
- Member Car Repo Scandal.
- Community Lending Test Fail.
- Whistleblower Firing.
- Overcharging Small Businesses.
- Discrimination of Black & Latino Borrowers.
- Billion Dollar Mortgage Settlement.
- Modifying Client Information Without Approval.
The Federal Reserve Board on Thursday announced that it has fined Wells Fargo & Co., of San Francisco, California, $67.8 million for the firm's unsafe or unsound practices relating to historical inadequate oversight of sanctions compliance risks at its subsidiary bank, Wells Fargo Bank, N.A. Wells Fargo & Co.'s ...
What did Wells Fargo do illegally? ›
February 2020Perhaps the company's most notorious scandal, Wells Fargo employees were caught creating millions of savings and checking accounts for customers without their knowledge or approval after being pushed by their superiors to cross-sell products and meet quotas, ultimately culminating in a $3 billion ...
What mistake did Wells Fargo make? ›
More than 16 million accounts at Wells Fargo were subject to their illegal practices, including misapplied payments, wrongful foreclosures, and incorrect fees and interest charges.
Wells Fargo & Company and its subsidiary, Wells Fargo Bank, N.A., have agreed to pay $3 billion to resolve their potential criminal and civil liability stemming from a practice between 2002 and 2016 of pressuring employees to meet unrealistic sales goals that led thousands of employees to provide millions of accounts ...
Who was punished for the Wells Fargo scandal? ›
The scandal also toppled former Chief Executive John Stumpf, who in 2020 paid a $17.5 million civil fine and accepted a lifetime industry ban, and led the Federal Reserve in 2018 to cap Wells Fargo's assets, limiting the bank's growth. That cap remains in place, though Wells Fargo remains the fourth-largest U.S. bank.
What was one of the underlying causes of the Wells Fargo scandal? ›
The Wells Fargo cross-selling scandal was caused by creation of millions of fraudulent savings and checking accounts on behalf of Wells Fargo clients without their consent or knowledge due to aggressive internal sales goals at Wells Fargo.
Why does Wells Fargo have a bad reputation? ›
Wells Fargo employees engaged in decades of illegal behavior by secretly opening credit cards, checking and savings accounts and other services without permission for customers who didn't want or qualify for them - sometimes leading to their cars being incorrectly repossessed and their homes foreclosed upon.
What was Wells Fargo's strategy for recovering from this scandal? ›
Restoring Trust
As it was mentioned earlier, the resulting scandal prompted Wells Fargo to change their approach and pay penalties for their illegal activity. The bank's subsequent promise to focus on serving the client rather than selling products to them was an appropriate strategy and could potentially be effective.
Who was to blame for the Wells Fargo scandal? ›
After previously denying any wrongdoing, Tolstedt becomes the first Wells Fargo executive to be held criminally culpable for a scandal that resulted in the firing of 5,300 employees for falsifying bank records and other ethics violations.
How did Wells Fargo respond to the cross selling scandal? ›
Initial response from Wells Fargo and management
After news of the fines broke, the bank placed ads in newspapers taking responsibility for the controversy. However, the bank rejected the notion that its sales culture led to the actions of employees, stating "... [the fraud] was not part of an intentional strategy".
What were the consequences of the Wells Fargo fake account scandal? ›
The scandal has led to billions of dollars of fines, the toppling of two chief executives, a guilty plea by a former retail banking chief to an obstruction charge, and a Federal Reserve cap on assets that remains in place.
What should business leaders take away from the Wells Fargo scandal? ›
Employees in Well Fargo were pressured to make sales, and this led to the creation of fake accounts. Leaders should focus on of setting goals that are achievable and will not encourage unethical methods of making sales. Also, leaders should apply ethical considerations in business.
What could Wells Fargo have done differently to avert this cultural meltdown? ›
If frequent conversations existed within Wells Fargo, it would have allowed managers to provide feedback to their employees and adjust expectations as they saw fit.
