MARK KARLIN, EDITOR OF BUZZFLASH AT TRUTHOUT
Stressing out underpaid bank staff to hard-sell products -- even fraudulently -- to achieve bonuses is reminiscent of the sub-prime mortgage loan scandal that nearly imploded the US economy in 2008. Yet, that is exactly the process that resulted in the recent Wells Fargo scam that was covered by BuzzFlash on September 9. It is now a full-blown national story, with Elizabeth Warren leading the charge and calling for a Department of Justice (DOJ) and Securities and Exchange Commission (SEC) investigation of the latest big bank illegal swindle.
To recap, approximately 5,300 Wells Fargo bank staff members -- many paid around $12 an hour -- had been fired earlier this month for allegations of creating millions of fraudulent credit card and savings accounts. It appears that the Wells Fargo employees were feverishly trying to meet high marketing quotas to receive bonuses. It also appears that Wells Fargo executives overlooked the rampant illegal behavior, amidst a climate that emphasizes increasing the number of accounts without scrutinizing the tactics used to do so. The scheme was discovered and investigated by the Consumer Financial Protection Bureau (CFPB), the brainchild of Elizabeth Warren. Wells Fargo was fined a mere $180 million (plus $5 million in refunds to defrauded clients), which was not much more than the $120 million Carrie Tolstedt -- who heads the Wells Fargo division overseeing the fraudulent activity -- will retire with in the near future.
As I noted in a column last Friday, Warren was having none of the tactics of Wells Fargo executives firing low-level subordinates to escape blame. As she told CNBC last week: "There's a serious problem with senior management at Wells Fargo.... All they do is fire the low-level employees. You can't run a bank like that."
In a Senate Banking Committee hearing on September 20, Warren bluntly raked Wells Fargo CEO John Stumpf over the coals,
Warren said that cross selling, the practice of getting customers to sign up for new products from Wells, was designed just to "pump up the stock of Wells Fargo" and increase the value of Stumpf's stock-based compensation.
"You should resign, you should give back the money you made while this scam was going on, and you should be criminally investigated by the Department of Justice and the Securities and Exchange Commission," said Warren.
Stumpf appeared unfazed by Warren's scolding and admitted that he has not fired any high-level Wells Fargo executives over the incident, just the low-paid workers seeking bonuses.
Columnist Dana Milbank recounts that "Stumpf informed the senators that what Wells Fargo did "was not a scam,' disputed that 'this is a massive fraud' and said he had no idea 'why people did this.'"
That sort of smugness and arrogance is not an exception in the big banking CEO stratosphere. Indeed, Stumpf is expected to leave Wells Fargo -- at a time yet unknown -- with at least $200 million in bonuses, according to CNN Money. In the world of banking executives, overseeing illegalities pays. In fact, it pays handsomely.
Not only will Stumpf and the head of the division that oversaw the pressured "target bonus" quotas receive lavish compensation for their work, the bank ironically may face a Department of Labor investigation for not paying overtime and for other exploitation of the 5,300 employees who were fired.
One of the questions raised by the latest flouting of laws by a big bank is to what extent the financial world creates a corporate culture that tolerates and encourages corruption.
Earlier this summer, the National Employment Law Project released a study on the practice of hyper-aggressive sales quotas in the banking industry. The report is appropriately titled, "Banking on the Hard Sell: Low Wages and Aggressive Sales Metrics Put Bank Workers and Customers at Risk." The executive summary of the analysis concludes that although some rogue banking practices leading to the 2008 economic crisis were reined in, other banking scams arose in their place:
These new rules diminished the income streams from these practices. However, big banks continue to implement practices and policies that hurt customers and boost profits. Among these lucrative practices is the use of aggressive sales metrics and incentives programs to encourage front-line workers to push multiple banking "solutions," or products, on often unwitting customers. As each product comes with its own set of rules and fees, customers' financial standing can be damaged and their credit rating destroyed, and they can spend years paying for products they didn’t really need. At the same time, workers laboring under these onerous quota systems experience hostile work conditions, excessive stress, and uncertain incomes that make caring for themselves and their families nearly impossible....
We find that workers suffer harassment and threats in order to make ever-changing over-aggressive quotas, and that low base wages mean they need to put their own financial interests above those of the customers.
Published before the Wells Fargo revelations broke, the National Employment Law Project presciently noted the bank's large financial benefit from high-pressure sales.
The report identifies only one major US bank -- Amalgamated -- as not engaging in the high-pressure quota bonus practices similar to those that were exposed at Wells Fargo. In short, what happened at Wells Fargo was likely not the exception to the rule.
Not to be reposted without permsission of Truthout.