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Last week, Wells Fargo Bank agreed to pay $185 million in fines and refund customers some $2.5 million. Why?

Mellody: It’s pretty straightforward. Some employees at Wells Fargo were caught illegally signing customers up for products – credit cards, deposit accounts, other items – that they had not requested. According to Wells Fargo, the company’s management and leadership were not aware of this activity and did not condone it. In a letter to employees, CEO John Stumpf called the employees’ actions “inconsistent with the values and culture we strive to live up to every day.” But of course, this is still a big problem for a bank.

Wow! So employees opened deposit and credit card accounts without customer knowledge. Who uncovered this?

Contrary to some of the reporting, a source of mine with knowledge of this tells me that this was actually self-discovered. According to this source, Wells Fargo had actually discovered this internally, recognized they had a problem, and had started to take the necessary steps to address this before the story broke. In 2013, The Los Angeles Times reported on this issue from a whistleblower angle. However, Wells Fargo believes it was most likely a disgruntled employee from the team working to resolve these issues who had been fired, and then went to the authorities.

So how many of Wells Fargo’s customers were affected? It must have been a big deal to get hit with such a large fine.

It is always a big deal when a bank has bad employees. After all, this is people’s money we are talking about. However, this situation was far from pervasive. This was not a widespread problem inside Wells Fargo. Let’s put this in context. This is a company that has 40 million retail baking accounts. When it learned of this issue, it brought in third parties to conduct a review.

Of those 40 million, Wells Fargo identified just 1.5 million accounts where they could not rule out the possibility that something had occurred. And of THOSE 1.5 million accounts, they found just 100,000 accounts that had some sort of fee or charge associated with them at some point during the time period the illegal activities were going on.

Wells Fargo refunded all fees and charges on those accounts, regardless of whether they were improper or not. The average refund is $25 dollars, so that is where the total refunds of around $2.5 million comes from. In the context of a company with $90 billion in revenues, that is a very small amount. So while this was certainly a costly mistake, with the company being fined $185 million by regulators, the amount owed to customers because of mistakes was small.

But 5300 people were fired, which is a big deal, right?

Five thousand three hundred people is a lot of people. But again, context is important. Wells Fargo has 300,000 employees worldwide, and 100,000 employees working in retail banking, so 5,300 people represents under 2% of their workforce. That said, one person breaking the law is one too many, let alone 5,300. But when you put it in context, this was not widespread.

Companies, especially banks and financial firms, work very hard to screen employees who are working with your money. But some bad apples get through. Thankfully in this instance, and in the vast majority of companies, this is extremely rare.

Wells Fargo released a statement taking responsibility for this, but will this damage the company in the long run?

This is not the kind of statement any bank wants to make. People take their money very seriously, and banks are not popular institutions. But I think the great thing here is that Wells Fargo didn’t deny responsibility. Instead, they self-discovered, they self-reported, and they did not equivocate. They owned it.

This is a company that has 7 billion transactions every year. They could have dismissed or ignored this problem as mistakes that are going to happen. They didn’t. Instead, they said that they want it right 100% of the time. So while any mistakes around accounts are disconcerting, it is almost refreshing in this day and age where we are used to companies deflecting and denying any and all wrongdoing.

What if you were affected? How do you get refunded, and how do you protect yourself in the future?

If you are a Wells Fargo account holder and you were affected, you do not need to take any action. The regulators are doing the legwork for you. Under the enforcement agreement with the Consumer Financial Protection Bureau, Wells Fargo must refund all affected consumers the sum of all monthly maintenance fees, non-sufficient fund fees, overdraft charges, and other fees they paid because of the creation of the unauthorized products. But again, consumers are not required to take any action to get refunds.

In terms of protecting yourself, this occurrence is likely to spur greater oversight of employee practices by all banks. However, this comes down to a point I make all the time: you have to read the fine print and pay attention to your money. You need to regularly check your bank accounts online, understand the charges and fees, and read all those pieces of mail that you receive but ignore from your banks. If you do that, you are much more likely to catch any improper activity.

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Monday Mondays: Why Wells Fargo Had To Pay Back Customers  was originally published on