For at least five years, Wells Fargo was quietly making off with customers’ money and using it to open new accounts in the customers’ names. The bank didn’t seek customers’ permission, and many customers had no access to the new accounts they supposedly owned. It was all a hare-brained scheme to create ghost accounts to make the bank look more successful than it is. An estimated 2 million unauthorized accounts were created, but the money involved was smaller than that makes it sound. Most accounts were created without balances, and some were funded for only one day, after which the money was returned. The bank has agreed to stop this practice and pay restitution to customers whose money was taken either for the new accounts or in subsequent fees. Based on the bank’s public statements, the restitution required could be around $5 million. The $5 million figure might be too low because of customers who were charged overdraft fees after money was taken from their checking accounts. The bank will also pay $185 million in fines, or close to $100 for each unauthorized account. The bank has fired 5,300 employees, or 2 percent of its total work force, but has not taken any action against the executives who set up this scheme. It will have to advise all consumer and small business customers to visit their local branches to review their accounts and close any unrecognized or unwanted accounts. Workers and managers will be retrained. Conspicuously absent from the settlement is the requirement of any specific change in the bank’s incentive program which requires aggressive cross-selling by customer-contact employees. The bank in its business plan set an impossible goal of eight accounts per customer and fired branch employees who did not meet monthly quotas. Those policies apparently remain in place as of this writing, and though the bank has promised to review them, it has not committed to changes. Few consumers have so many bank accounts, so that business goal will have to be reconsidered along with the incentive program that is based on it.
The previous story is reason enough to repeat the most important advice I can offer to banking customers, which is not to have all your accounts at one bank. It is easy enough to think of scenarios in which you might have 8 or more personal accounts, as suggested by Wells Fargo’s business plan — think of credit cards, a savings account, a checking account, CDs, and loans — but you put your financial future on the line in a completely unnecessary way by having all or nearly all of the accounts at the same bank. That would be a form of putting all your eggs in one basket, or to say it another way, concentration of risk. Concentration of risk is the same error you might remember seeing ten years ago in banks that put 90 percent or more of their portfolios in real estate loans. In case anyone has forgotten, when times got tough, most of those banks failed.
Monte dei Paschi, the oldest bank in Italy, saw its CEO resign. This might have been a cost-cutting move, or it might reflect a sense of desperation about finding buyers for the €5 billion in new stock needed to keep the bank going through next year. The bank hopes to announce a new CEO within days.
A lawsuit claims that Mastercard improperly charged international transaction fees on substantially all U.K. in-store purchases it processed over a 14-year period.
The FDIC’s Deposit Insurance Fund, the fund that guarantees U.S. bank deposits and pays the costs of bank failures, has nearly recovered to its statutory level after going negative for a few years. It passed a statutory threshold of 1.15 percent in June. This triggers a change in risk-based assessment levels, which means all but the most risky banks will be paying less for deposit insurance. Another change in rates will take place when the fund reaches its statutory minimum level of 1.35 percent.
