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Customer Service: Heads I win, tails you lose

Customer Service: Heads I win, tails you lose

It’s another day, and we see another new scandal unfold. This time around, it’s Wells Fargo, which up until the scandal broke recently, was the largest bank in the world based on market capitalization.

To put it in simple terms, Wells Fargo acted like a petty thief committing forgery and identity theft. But unlike a petty thief who gets sent to jail, no such fate awaits Wells Fargo, because this is a “too-big-to-fail-bank.” The details and the factors that led to the scandal follow:

Like its peers in the banking industry, Wells Fargo pushed cross-selling of multiple products to its customers to increase sales and profitability at a time when both have been squeezed from a sluggish economy and historically low interest rates. But according to the regulators, the sales tactics and practices, which were fueled by an incentive structure that rewarded employees on the more products they sold, got out of hand.

This “coffee is for closers” mentality put a lot of pressure on the employees at the retail-level to produce, which led them to create 1.5 million unauthorized retail bank accounts and 565,000 unauthorized credit applications. To put it bluntly, bank employees faked applications to open accounts that customers didn't ask for, and then they billed those customers for the bank fees.

To settle charges with the regulators, Wells Fargo fired 5,300 managers and staff and agreed to pay a fine of $185 million. And as is the standard practice these days for any too-big-to-fail bank that settles with the government’s regulatory agencies, they were not required to formally admit guilt. Thus putting more hurdles for the customers who got the short end of the stick to sue and win. To call the above fine a slap on the wrist is not an exaggeration, because the $185 million fine cost represents less than 1 percent of the bank’s 2015 net income.

The bank’s reaction to the scandal was predictable. In a statement, the bank said it is “committed to putting our customers’ interests first 100 percent of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request.” John Stumpf, the bank’s chairman and chief executive, denied that the company’s culture is obsessed with nonstop selling that ran amok. “Could we have done more, faster, better? Of course,” he says. Mr. Stumpf said he “feels accountable” but added that some employees didn’t honor the bank’s values.

If you, even for a second, fall for the “I was unaware of my underlings’ shenanigans” act by Mr. Stumpf, you would be naïve. This isn’t Mr. Stumpf’s first rodeo. Under his helm, Wells Fargo not only accepted $25 billion in TARP funds during the bank bailouts of 2008, but under the terms of the bailout, bought distressed Wachovia bank for pennies on the dollar, and got a special tax break at the expense of the US taxpayers, which some reports say was worth as much as $25 billion.

Next, Wells Fargo was sued by the State for the vast fraud in the mortgage markets. In the settlement, Wells Fargo agreed to pay $1.2 billion and admitted, acknowledged and accepted responsibility for, among other things, certifying to the Department of Housing and Urban Development (HUD), during the period from May 2001 through December 2008, that certain residential home mortgage loans were eligible for FHA insurance when in fact they were not, resulting in the Government having to pay FHA insurance claims when some of those loans defaulted. In an another case, Wells Fargo was asked to pay a $3.6 million fine for actions that Federal Consumer Protection officials say misled student loan borrowers and resulted in some paying unnecessary fees. Detailing the scheme, the Consumer Financial Protection Bureau said the bank acted illegally, charging on-time payers with late fees, failed to inform borrowers of steps that could take to minimize fees and left credit report errors uncorrected.

Such utter disregard for the law does not happen in a vacuum. It only happens when such behavior is encouraged, enabled, and allowed by senior management. Commenting on the creation of the fake accounts and credit cards scandal, Richard Cordray, the director of Consumer Financial Protection Bureau said, “It is quite clear that these are unfair and abusive practices.” He further went on to say, “Wells Fargo built an incentive-compensation program that made it possible for its employees to pursue underhanded sales practices, and it appears that the bank did not monitor the program carefully.”

“Greed. Dishonesty. Betrayal.” was the title of a full-page advertisement that appeared in The Charlotte Observer, Dallas Morning News, San Francisco Chronicle and the New York Times (on the 6th of October, 2016), and it was bought by Lacy Harber, an 80-year-old entrepreneur and philanthropist from Denison, Texas.  In the advertisement Mr. Harber says “Wells Fargo’s publicized betrayal of its customers and the American public brings to light years of corporate greed,” and that “…the recent disclosures about Wells Fargo are only the tip of the iceberg.” He further states “I was a long-time customer of Wells Fargo Advisors. As one of their largest individual clients, Well Fargo Advisors profited greatly from me, while I lost millions of dollars.” Ouch!   

Similar sentiment was expressed by an ex-employee in the comments section of a post about Wells Fargo in the online edition of the Wall Street Journal. She said there was a famous saying making rounds during her tenure at Wells Fargo that said “If only 10% of our customers complain, we are still 90% ahead of the game.”

You have to hand it to the top brass at Wells Fargo, though, because, they did a phenomenal job of covering their tracks by creating a trial of evidence to show they repeatedly warned their employees not to create fake bank accounts. But in the reporting since the scandal broke, the common theme that emerged from interviews with the bank employees was that they were stuck between a rock and a hard place. They say, despite the warnings, the pressure to meet their performance goals or get fired put them in the helpless position of breaking the law. Bravo! Wells Fargo, for showing us how it’s done. You know, to have your cake and eat it too.

In his comments mentioned above, Mr. Stumpf, took partial responsibility but shifted most of the blame to his rank and file. This, more than anything burns me. Why’s that when things go well, the CEO is the smartest guy in the company and singularly basks in personal and financial glory? But when things go bad, he is the last one to know about the goings-on? All these scandals had one thing in common – they happened over years.

So when Mr. Stumpf went before Congress to face the music, I hope he was not taking his Congressmen and fellow citizens for fools when he made rhetorical statements like “Could I have done ‘more?’ and ‘Sooner?’” Yes. Absolutely! He could have. He just chose not to, because he was a repeat offender who chose to look the other way so that he could line his pockets.

For corporations, good customer service is nothing more than being the best fiduciary to their customers. Trust is the basis on which relationships are built. For a customer, there is no bigger betrayal than when corporations trade their trust to make a few bucks. So, Wells Fargo, for once make it right. Put your customers’ interests ahead of yours. Otherwise, the tagline from your advertisements: “Together we’ll go far,” will, actually, be the end of the road for you.

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Last Updated: 2017-10-26 20:07:42


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