Wells Fargo & Co.
reached a $110 million settlement with customers nationwide over claims
its employees set up fraudulent accounts to boost their own pay. In response to the Wells Fargo employees that may have opened more than 2 million deposit and credit-card accounts without customers’ permission, the bank eliminated a system of sales targets that regulators said encouraged workers to create fake accounts. The Office of the Comptroller of the Currency is even claiming that Wells Fargo has been engaging in an “extensive and pervasive pattern” of discriminatory and illegal lending practices for years. What are you opinions on this? Do you think it is possible that other banks are doing similar things?
https://www.bloomberg.com/news/articles/2017-03-28/wells-fargo-reaches-110-million-settlement-over-fake-accounts
I can't imagine that it is possible for other banks to do otherwise. It sounds like a big settlement until you look at the size of their profits.
ReplyDeleteThis is unfortunate, however not surprising. From working at large retail stores, I know from experience that customers are often tricked into applying for credit cards without being fully informed that it is a credit card and not just a loyalty program. This is not just a practice done by individual sales associates to increase their own gain, but encouraged by management in the way that they train employees to interact with customers. I would not be surprised if banks are doing similar things.
ReplyDeleteLike Dr. Apps said, I would find it hard to believe if a bank claimed that they didn't engage in similar practices. Other banks are most likely doing this at a much smaller scale. I wonder what the best way to disincentivize such behaviour would be. Clearly, the benefits of fraudulent acts outweigh the costs of getting caught, otherwise they wouldn't do it in the first place.
ReplyDeleteI definitely agree with Kriti that this is probably taking place on a smaller scale. We have often seen financial institutions do what they can to maximize profits until they get caught. I think what is more frequent these days is getting friends to open checking accounts at other banks in exchange for a cash reward.
ReplyDeleteOn Wednesday in my economic development class, the question of the proper incentives came up in regards to growth, and while it was asked in the context of nation-states in that class, here I think is a good application of questioning incentive structure on the scale of a firm.
ReplyDeleteRegulation seems a bit beyond our grasp in the United States at the moment, but a place to start might be examining the incentive structures that banks put in place to encourage employees to market their products, and figure out which ones are "toxic" and encourage unethical behavior.