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On Tuesday evening, Wells Fargo announced that the bank’s CEO, John Stumpf, would forfeit $41 million in uninvested equity and forego his salary in the wake of a scandal that has hurt the bank’s reputation.
The news comes on the heels of a new Labor Department investigation into the bank’s practices, as well as the filing of a proposed $7.2 billion class-action lawsuit by several ex-employees who claim they were forced to “choose between keeping their jobs and opening unauthorized accounts,” according to CNN Money.
In early September, federal consumer protection regulators announced that thousands of Wells Fargo employees had temporarily opened at least 2 million fake accounts to goose their sales quotas by using real customers’ names without their consent, going so far as to move money from authorized accounts into unauthorized accounts to make them look real.
In some cases, the movement of money triggered overdraft and minimum balance fees for the customers.
About 500,000 of the fake accounts were credit card accounts—the rest were debit accounts.
In a hearing held by the Senate Banking Committee last week, Stumpf admitted that he was unsure if any of the fake accounts harmed customers’ credit ratings.
Around the time the scandal was made public, Wells Fargo said it fired 5,300 employees for opening unauthorized accounts. Only 10 percent of those employees were branch managers or higher in rank, and no senior executives were sacked.
At the Senate hearing last week, senators also demanded to know about the fate of Carrie Tolstedt, the head of community banking at Wells Fargo, in particular—she was the executive at the bank who would have overseen employee cross-selling techniques (cross-selling is the practice of selling other bank products to customers who already have one bank product).
Tolstedt retired a few months before the fake account scandal was made public, at the age of 56.
As a retiree she was entitled to severance and a bonus at the end of the year. Had she been fired, her compensation would have been dramatically lower.
Wells Fargo announced yesterday that Tolstedt would be forfeiting her severance as well as “$19 million in outstanding uninvested equity awards.”
According to The Wall Street Journal, the so-called bonus clawback for Strumpf represents about a quarter of his overall salary.
When it broke the news of Wells Fargo’s impropriety, the Consumer Financial Protection Bureau (CFPB) said that employees were motivated to make these accounts because of stringent sales quotas that upper management put on them.
In last week’s Senate hearing, senators read letters from constituents saying they had worked at Wells Fargo branches and were threatened with being fired if they didn’t meet their quotas.
CNN Money reported last week that several employees who called Wells Fargo’s anonymous ethics line to report that they were being encouraged to open unauthorized accounts were quickly fired for ostensibly unrelated reasons.
The Senate Banking Committee was especially concerned that Wells Fargo seemed to be scapegoating lower-level employees.
This Monday, the senators referred the issue to the US Labor Department, which will begin a full investigation into how Wells Fargo has treated its employees in the last five years. “A complete review of cases and complaints is needed to determine if the second-largest US bank violated the Fair Labor Standards Act,” the involved senators said, according to the Associated Press.
At the hearing last week, Stumpf apologized on behalf of Wells Fargo but insisted that there was no coordinated effort on behalf of bank management to get employees to pump up their numbers with fake accounts.
The bank has had to pay $185 million in fines as a result of this scandal.
But that fine could just be the beginning.
Earlier this week, ex-Wells Fargo employees filed a class action lawsuit for $2.6 billion claiming that the bank forced its workers to meet “unrealistic and impossible” sales quotas that gave employees little option but to create unauthorized accounts or lose their jobs.
Some employees claimed that they were told to open 10 new accounts per day, and if they refused to meet the quota by opening fake accounts, they were fired.
Employees who did open fake accounts were often promoted, according to CNN Money.