Wells Fargo Consumer Issues
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Wells Fargo Consumer Issues
Introduction
Wells Fargo has been involved in a scandal where it targeted Navajo and other minority groups who lacked English knowledge skills.
Wells Fargo is an American company that deals with financial services. It was founded in 1852Williams Fargo and Henry Wells. It offers various financial services, including loans and credit, banking and credit cards, wealth management, investing and retirement, and rewards and benefits. Its headquarters are in San Francisco, California, and it has offices throughout the USA and overseas countries. As of 2018, Wells Fargo has 8050 branches spread globally and 258 700 employees. Its total assets, as of 2019, amounted to $ 1.927 trillion. It is the fourth largest bank in the USA in terms of total assets and was ranked the 7th biggest public company by Forbes Magazine Global in 2016.
Legal and Regulatory Issues
Facts
In 2016, Wells Fargo was found to be involved in a cross-selling scandal, in which it was discovered that its employees opened accounts for customers without their authorization. The employees sold additional products to the customers to earn more income and achieve the targets they were forced to achieve. In a project referred to as Gr-eight Initiative, employees were needed to sell eight products to customers and were given outrageous daily targets to meet. Consequently, employees resorted to illegal practices, which involved creating fake checkings and savings accounts for their customers. They ordered preapproved credit cards for customers without consent or approval, and some used their personal details to open accounts for customers and prevent them from realizing the fraud.
The most affected in the scandal was the Navajo Nation, which spans Arizona, Utah, and New Mexico, which is the area mainly inhabited by the Native Americans and other minorities. Wells Fargo representatives were accused of taking advantage of the fact that most natives did not speak English to enrol them for services they did not need or want.
Legal and Regulatory Issues
The Bank violates several legal and regulatory issues in the cross-selling scandal that involved taking advantage of the Navajo Nation and other minorities.
Customer Financial Protection Act
The Customer Financial Protection Act of 2010 gave the Consumer Financial Protection Bureau authority to protect customers from unscrupulous, abusive, and unfair practices by firms that offer financial services. The Bureau ensures that there is transparency and fairness in lending and borrowing. Another Act that works together with the Consumer Financial Protection Act is the Dodd-Frank Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act is the principal regulatory that applies to the Wells Fargo scandal. It is in charge of punishing financial institutions that violate consumer protection laws and engage in unfair and deceptive practices. Consumer Finance Protection Bureau (CFFB) enforces the Dodd-Frank Wall Street Reform. Concerning Wells Fargo, the Bureau found the bank to have engaged in unlawful practices, including opening deposit accounts without authorization, applying for credit cards and transferring funds illegally, and using fake personal details to recruit customer for various financial services.
Federal Trade Act
Another Act that was violated by Wells Fargo is the Federal Trade Commission Act. The Federal Trade Commission Act also protects consumers from being preyed upon by firms. It protects consumers from any fraudulent practices in the marketplace. Section 5 of the Federal Trade Act outlines that customers should not be deceived or put at risks through unfair and fraudulent acts. The Navajo Nation residents trusted the bank with their personal information and finances, and the bank took advantage and preyed on them and their low understanding of the English language. Hence, Wells Fargo violated section 5 of the Federal Trade Act. The bank deceived customers and sold them products fraudulently that affected the residents negatively.
The GRAMM-LEACH-BLILEY ACT ( GBLA)
The GBLA, also known as the financial modernization act of 1999, requires all the financial institutions in the USA to explain how they handle and protect customer’s information. It restricts how banks and other financial institutions share consumer’s information with other parties. Wells Fargo’s employees violated this act because they misused customer’s information and used them to open accounts without their authorization.
Ethical Dilemma
The ethical dilemma that Wells Fargo presents an ethical dilemma where it is trying to satisfy the interests of one stakeholder at the expense of another. While trying to ensure they maximize the shareholder’s wealth, they compromised the interest of the consumers.
Ethical Framework
Ethical Egoism
The principal ethical framework that applies in the Wells Fargo scandal is ethical egoism. Ethical egoism is a normative ethical framework which states that individuals ought to act in their self-interest and that no one should pursue another person’s interests. This ethical framework was introduced by Henry Sidgwick, a philosopher, in 1874. According to him, all actions should be for one’s individual interests, and that if each person pursues their interests, it will promote the general good. When applied in business, this framework implies that one should make money in any way, regardless of the consequences of the actions on other people. According to Adam Smith, advancing one’s interests will benefit society and improve the effectiveness of production and goods distribution.
This theory explains the actions of the management and employees of Wells Fargo. Ethical egoism must have been applied in making decisions that resulted in the scandal. Each of them acted in their interests and did not care about others’ interests and the long term effects. The management was concerned about getting more revenues through the sale of more financial products. Even after realizing what the employees were doing and making sales through aggressive tactics, they did not stop them since they were after protecting their interests. Similarly, the employees engaged in these fraudulent and predatory practices, which included stalking members of the Navajo community during local events since they were trying to receive incentives. This theory will support their actions in that they were trying to meet their daily targets and avoid being sacked or face disciplinary actions. Each person involved in the scandal was trying to protect their interests. However, this doctrine encourages individuals to take a long term perspective that will maximize their self-interest and be willing to undergo challenges in the short term for the greater good. Smith implied that should be selfish but in an egoistic sense, and do that in a rational and prudent manner. Nonetheless, the Wells Fargo management and the employees did not try making money rationally or prudently.
Utilitarianism
Utilitarianism theory is a doctrine that advocates that one should do what promotes happiness and pleasure for many people and minimize pain. If Wells Fargo had applied a utilitarianism approach in making decisions, the scandal could have been avoided. They were only focused on their interests and not on the majority. Under the utilitarian perspective, the management would have engaged in actions that would have ensured that most stakeholders. In the end, they created unhappiness for the shareholders, consumers, employees, and society. The Navajo Nation, among other minority groups, were affected significantly. The employees also lost their jobs, and some faced charges of fraud and theft. The CEO, whose idea of cross-selling resulted in the scandal, was affected. If they had applied the utilitarianism theory, they would have found ways to maximize shareholders’ profits and wealth without hurting customers. The method could have been slow and costly, but in the long term, it could have resulted in the happiness of everyone, and fewer people would have been hurt.
Securities Fraud
Securities fraud refers to any activity that breaches any federal and state laws concerning to trading of securities. Examples of securities fraud include insider trading, misrepresentation, and insider trading. The Securities Exchange Act of 1934 is an act created to respond to such fraud. Under the SEA, the Securities Exchange Commission oversees any illegalities related to selling unregistered stock, disclosing wring information, and manipulating investors.
Wells Fargo violated several sections of the Securities Exchange Act. The first is section 10 (b), which prohibits the “ use or employ, in connection with the purchase or sale of any security” a “manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe” (Tracy & MacChesney, 1934). Wells Fargo held back information concerning its business strategy. It failed to disclose that the cross-selling strategy was a fraud. The illusion of cross-selling misguided investors into thinking the company’s stock was performing well and was likely to rise in the future. They inflated the cross-selling metrics with fake checkings and savings accounts.
Another section applicable to the Wells Fargo scandal in the SEA is section 20, which states that “Every person who, directly or indirectly, controls any person liable under any provision of this chapter or any rule or regulation there under shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action” (Tracy & MacChesney, 1934). Wells Fargo allowed its employees to engage in unscrupulous practices and did not stop them.
Employment Issues
Health and Safety at Work Act 1974
The Health and Safety at Work Act of 1974 states the various duties of employers towards their employees. It requires employers to protect the health and safety of the workers at the workplace. Wells Fargo forced its employees into engaging in fraudulent practices by giving them unrealistic targets and goals. They were required to sell eight products to one customer in the cross-selling strategy and were expected to sell at least 20 products per day. Such demands affected the mental and physical health of the employees. The bank compromised the health of its employees by putting pressure on them. Some employees reported having drunk sanitizer to cope with stress. Any attempts to complain or raise issues regarding the company’s fraud resulted in being fired or no feedback at all.
Whistleblower Act
Whistleblower act protects employees from retaliation when they report any wrongful doing by their employer. Many employees who tried exposing the practice were fired. Additionally, these employees had difficulty finding work after being fired since the company issued U5 documents to employees being sacked. These documents were defamatory and indicated that the managers had been involved in the scandal. Wells Fargo fired the employees who tried exposing the fraud going on in the company. By firing the whistleblowers, Wells Fargo breached the Whistleblower Act.
Legal Issues
There is also criminal law applicable to Wells Fargo and its deception of the Navajo Nation. These laws include theft-state law and identity theft.
Identity Theft
Identity theft is considered criminal and happens when a person steals another person’s identification or other personal information and accesses one’s financial resources. Wells Frago employees admitted to having used customer’s personal information and opened fake checkings and savings accounts to meet their daily and weekly targets.
Theft-State Law
A theft crime is considered a felony, depending on the money stolen, and can occur in many ways. One of the ways in which theft occurred in the Wells Fargo scandal and the deception of the Navajo nation and other minorities is through forgery. Wells Fargo’s employees altered customer’s documents without their authorization or knowledge and personably benefitted from the act.
Recommendations
One of the lessons learnt from the Wells Fargo scandal that involved the Navajo Nation is that companies should highlight corporate social responsibility. They should consider that actions have consequences and that consumers are an integral part of an organization. Thus, they should always put the interests of consumers first or in line with other stakeholders. The actions of a company should be ethical and should not take advantage of vulnerable consumers.
Additionally, banks and other companies should ensure that all strategies set to be implemented are adequately evaluated. Leaders should also evaluate existing sales practices and incentives to ensure that they comply with the relevant state and federal laws. These sales practices and strategies should align with the objectives and mission, and principles of corporate governance.
Besides, leaders should ensure that they promote an ethical culture among their employees. Ethics should be incorporated in the recruitment, training, and firing of employees; this way, they are likely to avoid fraudulent or predatory practices against customers or the organization. Leaders and managers should lead by example by engaging in ethical practices if they want to establish an ethical culture within their organizations and prohibit any illegal or unfair practices.
From the lawsuit against Wells Fargo by the Navajo Nation and other groups, companies learn that they should adhere to legal and regulatory acts. The company faced several lawsuits and fines, on top of losing its long-built .reputation. Before engaging in any sales tactics, companies should ascertain whether they adhere to the laws and regulations or not.
Conclusion
Ultimately, Wells Fargo was involved in a lawsuit by the Navajo Nation and other minority groups amidst a cross-selling scandal of 2016. The bank was accused of engaging in unfair and predatory practices. They scammed senior members of the Navajo Nation who did not speak English and sold them fake financial products that they did not need and resulted in a tremendous financial loss for the victims. There are various consumer protection laws and regulation violated by Wells Fargo in the scandal. Nevertheless, it offers a lesson for the bank and other companies that they should be ethical in their dealings.