In a not-exactly-shocking development of the ongoing Wells Fargo account faking scandal (see our previous coverage here, here and here if you’re late to the party and need a quick catch-up) CEO John Stumpf, fighting a rear-guard action, is making outlandish claims about how, having begun the process of contacting customers who it has cause to believe may have either been mis-sold a product — or even not “sold” one at all and merely had an account opened without their knowledge on the back of faked paperwork and signatures — Wells’ is starting to conclude that only a relatively small minority of the cases they have reviewed have shown there was anything amiss.
According to Stumpf’s statement Wells Fargo has “talked” to 20,000 customers about their credit card product, but only 25% said they didn’t want a credit card or don’t recall asking for one. From the New York Times:
Wells Fargo has said it is contacting all of the customers who may have been affected. So far, the bank has contacted 20,000 customers with questionable credit cards. About a quarter of them have said that they did not apply for the card or could not remember if they had, Mr. Stumpf said at the hearing.
Stumpf brought up his outreach results at every possible juncture, to argue that the fake sales numbers from the earlier investigation were overly high estimates and the majority of customers had wanted the products.
So that just goes to prove that all is just fine and dandy then? No, anything but. There are two main problems with Wells’ tale of hearing no evil from its customers and contending that there is no evil to be seen.
Firstly, while the claim is that “only” 25% of customers who were contacted might need further follow-up because there is strong evidence of a fake account, this figure is definitely going to be an underreporting of the true proportion.
There’s nothing especially wrong with the premise – the trigger criterion being a customer stating that they did not want a Wells Fargo brand credit card, or had received one but hadn’t applied for it – because this is pretty conclusive that there was something seriously wrong with the sales process which generated the account opening. It is though tantamount to admitting to the lack of any waterproofing of what the employees of Wells Fargo had got up to by routinely sampling a percentage of claimed sales. The UK’s Financial Conduct Authority (FCA) regards monitoring of sales data as a basic foundation of any compliance checking. The present customer call-up is in essence a catching up on that activity, which Wells Fargo had failed to do contemporaneously with the sales being claimed.
But the real problem for regulators and lawmakers is that they will likely lack the level of subject matter expertise to challenge sophisticated and mercenary financial service industry players such as Wells Fargo and put the results being claimed by Wells’ into their proper context. Those running investigations into the Wells Fargo scandal would probably not think to check just how high the level of churn in this type of product (credit cards) is. According to the FCA, each year around 14% of customers with a credit card take out a new one. The figures for the US market are almost certainly higher, because there is less consumer protection around oversolicitation. Brand loyalty for credit card products is the lowest of any retail financial service. Customers, regardless of credit-worthiness, are constantly plied with new products with features like teaser offers, reward gimmickry and other similar a-la-carte product design such as fee waivers, insurance-add-ons or payment holidays.
This means that, if asked, many customers would be hard pressed to remember, for any particular brand of credit card, whether they had in fact ever applied for one or, if they hadn’t applied for a credit card product from that financial services provider, whether they’d received a card and had an account opened without their asking for it. No-one ever likes to admit they are disorganised in their own financial affairs but a combination of time stress and low prioritisation means the average person has a high probability of not being fully aware of precisely what products they hold and with which provider. So asking this sort of customer base to self-report and expecting to receive accurate results is doomed to failure.
Bad though that failing of investigative methodology is, the second glaringly obvious shortcoming is that the wrongdoer, Wells Fargo, is investigating its own wrongdoing by having its own staff call up their customers and, if we’re to believe Stumpf, “asking” for those customers to identify any issues they are aware of. Foxes are not traditionally put in charge of guarding henhouses.
Frankly, Wells Fargo has no business being involved in any investigations into the fake account opening. It is incentivised and motivated to apply the same varieties of inducements to the sales review call-handling teams contacting the customers to not find anything suspect with the credit card accounts that it applied to the sales staff who faked the sales in the first place.
Even if, due to the difficulties in any external party being able to get the required data and resource up an operation to undertake the sales reviews which Wells Fargo is performing and there isn’t any reasonably practicable option to have the review done by a genuinely neutral third party, there absolutely has to be monitoring of Wells’ customer contact initiative. This is not difficult to put in place. Call centres are industrialised operations and the ability to monitor their activities or agent behaviour is similarly automated and mature.
In order to have even a shred of credibility, Wells Fargo should publish, alongside the promoted headlines about “only 25% of card accounts might be suspect” figure, full details of exactly what incentive scheme is in place for the team contacting customers alongside the approach it is using for employee performance management. If the call-handling teams are subject to carrots and sticks being wielded by Wells’ management, Wells Fargo should ‘fess up to exactly what those carrots and sticks look like.
And Wells’ should also publish the guidance it gives to the call handlers, supervisors and managers about call quality. What, from Wells Fargo’s standard procedures for those making the review calls, constitutes a high quality call? If, as is usual, there is a call script, what does the script say? For bonus points (no pun intended), Wells’ could also state if they collect Management Information — at an individual employee or team level — about the percentage of customers who did and did not report a problem and then look for spikes in particular employees or teams. That’s a good way to tell if anyone or any group within Wells Fargo is trying to play the system and achieve particular outcomes, for whatever reason.
Without this context, any figures bandied about from Wells Fargo’s already shop-soiled CEO lacks the credibility which the bank needs to even begin to restore its reputation.
Anybody who believes that every word, tone, cadence, nuanced expression, stance, placement, environment of any advertisement is not analyzed to death before production is a rube.
I think we can tighten that up a bit:
Years ago I paid off my student loan ahead of schedule and ruined my credit rating. Couldn’t get a credit card :-(((
The credit card plague in the US is IMHO related to checking. Checking is the 19th century’s gift to retail banking. It persists in the US despite powerful arguments against it, yes because of some interstate banking issues, and yes because the penalty income it generates is sweet. Most of all it persists because it facilitates the role of credit cards as an alternative to cash payment, allowing banks to keep consumers in the dark about low-cost (for the consumer) and reliable alternatives to cash like direct debit cards.
Be careful though about what you might wish for. Checks have some unique advantages (too many to list comprehensively here, but among many are):
1) total freedom for the payee as to where they pay the check in, into what account and so forth
2) inherent latency which means that you can write a check out but make an arrangement with the payee about when they present it or even having given a check — depending on the relationship and goodwill between the payer and the payee — say “hey, sorry, can you sit on that check I gave you until I get paid next week” etc. The payee also has similar freedom about when they wish to present the check, subject to some fairly loose constraints about making sure the check is still in date.
3) flexibility for distribution — you can post a check, hand it directly to the payee, use a go-between “give this to Fred when you see him, he’ll give you a receipt” to a virtually infinite degree.
And as for doing away with cash (sorry if that’s not what you were intimating), that has huge civil liberties, privacy and creepy-creeping-surveillance-state implications.
Thanks for your helpful points and “inherent latency”! aka kiting I presume, also used by bankers, also for sometimes shady purposes.
No “cashless economy” troll here, give me cash and a good alternative from the consumer’s perspective. A debit card with withdrawal limits and guarantees for example, like what dominates in Europe. Plus a credit card that dies as soon as the holder fails to clear a balance within 3 months.
How could this have happened? Did anyone at a bank explain the rationale for refusing a credit card to a person who was apparently a good credit risk?
Unfortunately a credit score isn’t always just used to determine credit worthiness; banks also use it to predict likely profitability. If they think based an a credit use profile that they will not make enough money on the account if offered to that particular customer — and a low activity credit card which is always paid in full (particularly if it is a product marketed with a “no annual fee” feature) is almost certain to lose the bank money — then you’ll get a decline decision.
While it might feel that you’re getting a raw deal, any business will, if it is sensible, only want profitable customers and will anticipate ditching a few percent of its customer base every year because they simply do not create any value. That is fair enough. Actually, Wells Fargo could have used a bit more of that sort of strategy. Giving execs mega bonuses based on pure new business volume measures alone was shockingly inept. It really was a looting-enabler. The measure should have been around profitability and average long term yield per customer and per product line.
The problem for the banks is, of course, they are so much now the unacceptable face of capitalism that we, quite justifiably, beat them up for doing what are fairly standard and expected business practices. The industry really has sunk to such a low level that it’ll be a huge undertaking to ever get it back on a normalized customer/business relationship.
I have millions in the bank and no debt, and I get relatively few credit card offers. I think I get just as many private jet share offers. Clearly, the banks are skilled at recognizing the people who will use the card as a convenience and pay it off every month, which makes them unprofitable as customers.
That’s true only if they don’t use their cards much. If they use their cards enough, the bank earns a nice income stream from transaction fees. I’ve never carried a balance on my credit cards but the issuers keep renewing them.
Banks refer to customers who always pay off their cards on time and avoid all interest and fee charges as “deadbeats”. Nice, huh?
That’s the derisive term. The polite term is “transactor.”
Debit cards, unlike credit cards, are not insured. Someone gets a hold of your number, they can empty you out and it will be on you to get that back. One thing credit card companies are pretty good at is protecting their customers from fraudulent charges.
It’s because by law the credit card company, not the customer, is on the hook for fraudulent charges. They’re protecting themselves.
/hence why the fraud dept deactivates mine when I buy a coffee at whole foods to drink while I shop (two charges at the same place within an hour!! fraud!) but once when I had a problem getting the electronic payment to work they let the card go well over the supposed limit without it deactivating, in the hopes that I’d dig myself into some interest payments I guess
Yes, never use debit cards linked to your bank accounts. Pre-paid “burner” debit cards, where one has a set dollar amount on the card, could be useful for reducing risk in on-line transactions… but they tend to have high fees. Credit cards put the risk of loss on the seller – if someone steals your credit card and buys something before you report the card as stolen, the card issuer doesn’t pay the seller who accepted the card.
but, but, but …. Markets are self-regulating! Wells “guarding the hen house”, er, internal investigation and corrections, is proof that self-regulation works! Sure, they can cherry pick data points and which customers they call; they can make all sorts of unsubstantiated claims – not verified by independent 3rd parties; they can generate lots of smoke and mirror illusion to show “good faith”. Why would you doubt their word? /end snark
Wells’ new scheme sounds like their earlier mortgage forclosure / HAMP frauds (er, internal investigation and corrections). And *that* worked out so well – for Wells.
Thanks for this post.
Clive – Excellent post. Your expertise in banking (and Japanese culture) is a great addition to NC.
I suspect there may also be people who were glad to get a new card, even if they didn’t ask for it, especially if it had a lower interest rate (or other benefits) than cards they already possessed. They would be unlikely to say they really didn’t want it, thus skewing the results further away from reality.
Which is why NC performs such a valuable service in helping reduce the information asymmetries.
Wells Fargo’s financial rapacity makes it abundantly clear that the TBTF model of banking needs to go into History’s Dustbin. Wells Fargo’s fraud — inadvertently! — makes a strong case for some kind of Postal Banking: in many respects, money is actually a utility.
Bankers have so thoroughly mystified money that Congress seems to have caved to the presumed economic expertise of bankers. This has made getting, using, saving, or exchanging money more complicated and expensive than it ought to be for a hundreds of millions of people.
I swear, if my water district were operated by bankers (rather than being a public utility), instead of being able to pay a fixed utility rate to use water, I’d have to:
– select a ‘special water product’ to determine which volume of water would come out the tap
– pay an additional fee to get the volume high enough to fill my tea kettle before noon
– if the water district wanted to pump up their stock so the execs had bigger bonuses, I’d be charged an additional fee to use my kitchen tap between 3 pm and 6 pm
Meanwhile, for my shower tap, I’d probably have some bizarre ‘adjustable rate’ of water flow, depending on how much I was able to pay on any given month; more money, faster flow.
On ad infinitum…. complex fees and rate structures would require me to pay absurd fees, and add layers of hidden costs simply to use something that everyone needs, everyone uses, and is in many respects a Public Good.
There’s no technical reason that borrowing, using, transferring, or exchanging money should cost so much in the US. Congress (and the Fed!) needs to stop being so embarrassingly gullible about the TBTF model of finance.
Just wait. That which you talk about will happen in due course! :_-(
… shortly after the US moves to full Chip+PIN, or the heat death of the Universe, which ever comes sooner.
Wells Fargo took advantage of both those people organized and disorganized in their financial affairs.
Like the managing editor of ProPublica: Steve Engelberg.
In his case, the disorganized aspects of moving from Oregon to New York created an opportunity for Wells Fargo to exploit him and his family. His “failure” to pay charges (bills were sent to his old address and never caught up with him) for an account he had already closed resulted in penalties and a report to a credit agency.
Wells Fargo eventually dropped the penalty charges, but left him on his own to deal with credit agencies.
I’ve said before that with Citi in 2002 I had a similar incident…except the bank went to extraordinary lengths to deal with the credit card fallout. The rep I dealt with must have sent at least 5 letters to each of the three credit agencies to get them to correct the record. It was also an appalling example of how the credit agencies don’t give a rat’s ass about the accuracy of the information they provide. Here the bank was saying they’d made a mistake yet the credit agencies couldn’t be bothered to fix it.
Mind you I have no idea whether Citi does this now, but I was impressed by how hard this rep worked to remedy the error.
Where is the accredited unbiased third party verification? I might believe it could happen before the days of Arthur Anderson’s untimely, although righteous, death. Now, is it even available for enforcement to rely on?
For that matter – the best spin that Wells could put on these frauds was one out of four? Here’s an idea: ask the Wells Fargo top executives whether it would be OK for one out of four of them to have their total assets seized and put into a reparations fund… would they all agree that this was no big deal?
(Kicker: due to an “oversight”, all of them would have their total assets seized… and they’d have to present their complaints individually in an arbitration proceeding, where the arbitrators are selected from a panel of people who were all former “Occupy” members. They wouldn’t be able to bring the suits together, each would have to bring an individual suit and prove that they personally weren’t selected as one of the 25% without referring to any of the other executives’ situations.)
Wells calling on their own is just another entry to a scam outcome.
According to the Stumpfer the NEW goal is customer loyalty and satisfaction.
They are cold calling thousands a day anyway , what better way to “penetrate” their customers than to call people who already have or had products with them.
It will be a bait and switch operation all the while Wells will get to play the “helpfull” financial angel who is only interested in making it right by YOU , their valued customer.
A joke if done internally.
Why is he bragging that only 5,000 customers were scammed? “Oh, Officer, I only broke into and robbed 5,000 houses, and I’m real sorry.” “But Your Honor, I only mugged 5,000 people. I called and checked. And really, that’s not a lot.”
Not “only 5000 customers were scammed.” We don’t have customer numbers but over 2 million fake accounts were created.
They claim 5.300 employees were fired as a result of the scam. I suspect those numbers include whistleblowers. Stumpf keeps going on about how that’s only 1% of their employees as if that means it’s not that bad. And he assumes that Congresscritters are math challenged, since 5,300/268,000, Wells’ total headcount, is quite a bit higher than 1%.
The fact that he can say that sort of thing with a straight face is presumably why he gets his ridiculous pay.
But he said yesterday that they have 100,000 people in their branches. so the relevant metric is 5,300 v. that, or 5.3%.
Only (only!) 25% of the 20,000 customers contacted had accounts opened without their knowledge or permission. That’s 5,000 instances of fraud. Where are the indictments?!!