Read the attached enforcement notification dated September 08, 2016, by CFPB of the action it
has taken on Wells Fargo Bank, N.A in regard to widespread illegal practice of secretly opening
unauthorized accounts and answer the following questions.
1.
Explain in your own words, the details of alleged illegal practice of opening credit card
accounts on behalf of consumers without authorization
2.
What would you consider to be a well-designed internal control that would have
prevented such unauthorized openings by the employees of the bank? Discuss in detail.
3.
Discuss a detective control that could detect such unauthorized openings and alert senior
management.
There are a number of articles on the Wells Fargo case. Feel free to refer to any two of them and
cite the references if you use information from any of them.
Your answers should be original, specific and well-reasoned showcasing your understanding of
internal controls. Bullet points will not do. Do not just quote from the case or a web page, or
recycle a paper from an earlier class. Include a cover page and bibliography (APA Style).
Your response (for all the three questions together), excluding the cover page and bibliography
should be one to two pages long (singe spaced and Time New Roman 12 font).
PLEASE READ BELOW FOR WELLS FARGO Consumer Financial Protection Bureau Fines Wells Fargo $100
Million for Widespread Illegal Practice of Secretly Opening
Unauthorized Accounts
Bank Incentives to Boost Sales Figures Spurred Employees to Secretly Open
Deposit and Credit Card Accounts
SEP 08, 2016
WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) fined Wells
Fargo Bank, N.A. $100 million for the widespread illegal practice of secretly opening
unauthorized deposit and credit card accounts. Spurred by sales targets and compensation
incentives, employees boosted sales figures by covertly opening accounts and funding them by
transferring funds from consumers’ authorized accounts without their knowledge or consent,
often racking up fees or other charges. According to the bank’s own analysis, employees opened
more than two million deposit and credit card accounts that may not have been authorized by
consumers. Wells Fargo will pay full restitution to all victims and a $100 million fine to the
CFPB’s Civil Penalty Fund. The bank will also pay an additional $35 million penalty to the
Office of the Comptroller of the Currency, and another $50 million to the City and County of Los
Angeles.
“Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive
bonuses,” said CFPB Director Richard Cordray. “Because of the severity of these violations,
Wells Fargo is paying the largest penalty the CFPB has ever imposed. Today’s action should
serve notice to the entire industry that financial incentive programs, if not monitored carefully,
carry serious risks that can have serious legal consequences.”
The full text of the CFPB’s Consent Order can be found at:
http://files.consumerfinance.gov/f/documents/092016_cfpb_WFBconsentorder.pdf Wells Fargo, headquartered in Sioux Falls, S.D., is one of the biggest banks in the country and
offers many consumer financial products and services, including savings and checking accounts,
credit cards, debit and ATM cards, and online-banking services. In recent years, the bank has
sought to distinguish itself in the marketplace as a leader in “cross selling” these products and
services to existing customers who did not already have them. When cross selling is based on
efforts to generate more business from existing customers based on strong customer satisfaction
and excellent customer service, it is a common and accepted business practice. But here the bank
had compensation incentive programs for its employees that encouraged them to sign up existing
clients for deposit accounts, credit cards, debit cards, and online banking, and the bank failed to
monitor the implementation of these programs with adequate care.
According to today’s enforcement action, thousands of Wells Fargo employees illegally enrolled
consumers in these products and services without their knowledge or consent in order to obtain
financial compensation for meeting sales targets. The Dodd-Frank Wall Street Reform and
Consumer Protection Act prohibits unfair, deceptive, and abusive acts and practices. Wells
Fargo’s violations include:
Opening deposit accounts and transferring funds without authorization: According to the
bank’s own analysis, employees opened roughly 1.5 million deposit accounts that may not have
been authorized by consumers. Employees then transferred funds from consumers’ authorized
accounts to temporarily fund the new, unauthorized accounts. This widespread practice gave the
employees credit for opening the new accounts, allowing them to earn additional compensation
and to meet the bank’s sales goals. Consumers, in turn, were sometimes harmed because the bank
charged them for insufficient funds or overdraft fees because the money was not in their original
accounts.
Applying for credit card accounts without authorization: According to the bank’s own
analysis, Wells Fargo employees applied for roughly 565,000 credit card accounts that may not
have been authorized by consumers. On those unauthorized credit cards, many consumers
incurred annual fees, as well as associated finance or interest charges and other fees.
Issuing and activating debit cards without authorization: Wells Fargo employees requested
and issued debit cards without consumers’ knowledge or consent, going so far as to create PINs
without telling consumers.
Creating phony email addresses to enroll consumers in online-banking services: Wells Fargo
employees created phony email addresses not belonging to consumers to enroll them in onlinebanking services without their knowledge or consent.
Enforcement Action
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the
authority to take action against institutions violating consumer financial laws, including engaging
in unfair, deceptive, or abusive acts or practices. Today’s order goes back to Jan. 1, 2011. Among
the things the CFPB’s order requires of Wells Fargo: Pay full refunds to consumers: Wells Fargo must refund all affected consumers the sum
of all monthly maintenance fees, nonsufficient fund fees, overdraft charges, and other
fees they paid because of the creation of the unauthorized accounts. These refunds are
expected to total at least $2.5 million. Consumers are not required to take any action to
get refunds to which they are entitled. Ensure proper sales practices: Wells Fargo must hire an independent consultant to
conduct a thorough review of its procedures. Recommendations may include requiring
employees to undergo ethical-sales training and reviewing the bank’s performance measurements and sales goals to make sure they are consistent with preventing improper
sales practices.
Pay a $100 million fine: Wells Fargo will pay a $100 million penalty to the CFPB’s Civil
Penalty Fund. Today’s penalty is the largest the CFPB has imposed to date. ###
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance
markets work by making rules more effective, by consistently and fairly enforcing those rules,
and by empowering consumers to take more control over their economic lives. For more
information, visit www.consumerfinance.gov.

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