The banking industry demands the highest level of expertise and ethical behavior. One financial organization, Wells Fargo, defied these regulations by issuing credit cards and accounts to face clients. Through this practice, bank workers were able to increase profits at the expense of unwitting and innocent customers. Customers and investors who are worried about their money have filed numerous cases. Judges have mandated that Wells Fargo pay its clients back for the losses they suffered as a result of its contract violations. Despite the bank's best efforts to repair its image, identity fraud and theft have severely harmed both internal and external stakeholders. The federal government is also investigating the scandal since Wells Fargo went against the required ethical standards. Wells Fargo acts as a good example to other banks on the effects of unethical practices. The intervention of the judicial system has helped customers to recover their lost finances. The management should thus be responsible enough to address the concerns of its victims considering the losses they have experienced in the last decade.
Wells Fargo Fake Account Scandal
The fake account scandal at Wells Fargo is a controversy that ensued after the company created fraudulent checking and saving accounts. These accounts were created on behalf of the customers without their consent. The company realized that 3.5 million fake credit cards and bank accounts had been created by its employees. The complexity of the matter is that the accounts were capable accessing the customer's finances not only in their absence, but also without their knowledge. This scheme that was initiated back in 2002 enrolled customers in the online payment of bills without their permission. The reason millions of phony accounts were opened was to increase sales, and also to generate fees. Numerous legal and ethical requirements were violated by Wells Fargo in its quest to increase sales. In the long run, this action plan would benefit the bank from the charges emanating from the extended period. A tremendous harm has been felt by customers since they have been settling bank fees. As a result, 5,300 employees were fired for being at the core of fraud. Despite this move, Wells Fargo has ruined its reputation in the banking industry, while at the same time attracting numerous lawsuits.
Legal and Moral Aspects
Contract Breach
There exist numerous legal aspects that are evident in Wells Fargo's scandal. The bank breached the contract it had with its customers regarding offering exemplary services. Precisely, Wells Fargo and its customers were in a contractual relationship that excluded the unethical creation of accounts without their consent. Thus, the 3.5 million accounts that were opened by Wells Fargo's employees portray an extensive breach of contract (Cavico & Mujtaba, 2017). With the company being liable, it ought to compensate the victims for all damages caused. For instance, most customers suffered emotional distress after realizing the fraud they had been subjected to. Wells Fargo showcases a bad faith, as well as intentional wrongdoing that caused financial harm to its clientele. Thus, the company is liable for any legal decisions made to enhance the well-being of all affected customers.
Negligence
On a legal perspective, negligence can be termed as the failure to employ appropriate care in a certain situation. In Wells Fargo's case, the bank knowingly failed to take care of its customer's finances and personal details. The bank willingly manipulated the customer's details and finances to amass wealth for itself. Banks are required by law to employ the utmost professionalism in executing their duties. Wells Fargo is thus negligible for its inappropriate actions that affected its customers negatively (Cavico & Mujtaba, 2017). Since 2002, none of the executives exposed the fake accounts concept, hence committing negligence. Well Fargo's management is liable for negligence, since it failed to employ reasonable care in conducting their sales. Also, they were not prudent enough to guide their employees on how to enhance sales without interfering with the customers' finances. In this case, the bank has no other option rather than adhering to the judgments passed by the involved jury.
Fraud
The other legal element evident in Wells Fargo's case is fraudulence. It is the aspect of practicing deliberate deception to gain various benefits unlawfully. Wells Fargo deceived its customers to increase its profit margins without involving them. Financial institutions are required by law to maintain a fiduciary relationship with their customers. Wells Fargo's fake accounts qualify to be referred to as fraud since they omit both accuracy and full disclosure. Fir fraud to occur, the victim has to suffer harm (Cavico & Mujtaba, 2017). Wells Fargo's customers lost a lot of money to the bank as it sought to accomplish its unethical goals. The fake accounts stand as false information that was not only concealed, but also utilized to extract more money from the clients. Without a doubt, the bank's acquisition of wealth through fake accounts is an obvious fraud.
Identity Theft
Wells Fargo's crime is extensive considering the identity theft it practiced. This unethical aspect is well-explained by the use of an individual's financial and identification information to benefit financially. Wells Fargo's employees employed impersonation to make money for their employer. The stolen identity information was used to access accounts and also to make payments using fake credit cards (Cavico & Mujtaba, 2017). The investigating attorney issued search warrants to Wells Fargo based on the probable cause ideology. Since identity theft is a major crime in the U.S. Wells Fargo is answerable to the authorities for its offenses.
Results
Customers' Lawsuits
Wells Fargo was sued by many of its customers for increased mortgage repayment periods. Most of the victims have been undergoing financial challenges due to prolonged repayment schedules. The worst aspect is that the changes were made in their absence, hence painting the move as illegal (Coffee, 2010). Precisely, Wells Fargo failed to seek the necessary approvals needed from customers and courts to interfere with mortgages. In total, Wells Fargo is facing 10 more class action trials from affected stakeholders (Banerji, 2017). This lawsuit focused on the company's internal control policies, since for over three years, it continued manipulating an innocent clientele. As more trials continue to trickle in, Wells Fargo ought to be prepared to lose more of its revenues (Glazer, 2017). The affected customers have been seeking compensation for the massive losses they have incurred without their knowledge. Despite numerous continuing lawsuits, the bank is still dealing with investigations that are pioneered by the government. In this case, digging itself out of lawsuits and negative publicity will not be easy.
Compensations
The lawsuits filed by customers were received with keen interests in the judicial system. To be precise, the bank was instructed to compensate customers whose details had been used to create the fake accounts. For example, the bank was fined $ 185 million to regulators in 2016 for opening accounts amounting to millions from 2011 to 2015. Senator Elizabeth Warren earlier this year called for the dismissal of Wells Fargo's board members. A preliminary approval was granted by a federal judge to pay $ 142 million to the victims. This compensation as termed as adequate, fair, and reasonable considering the losses that had been incurred by the affected people (Glazer, 2017). Also, they were justified since Wells Fargo sought to increase its revenue creation by utilizing unethical procedures that caused intentional harm to customers. The $ 142 million compensation is estimated to be completed in the first quarter of 2018. The company's CEO Tim Sloan embraced the court decision viewing it as a milestone towards straightening its relationship with its customers (McManus, 2017). Fees amounting to $ 3.26 million was paid to the affected customers in September 2016. An additional $ 1.8 million has also been paid to address the customers' complaints (Banerji, 2017). This outcome creates the impression that before the scandal is fully settled, Wells Fargo will have lost its position in the banking industry.
Divestitures
The outcomes of Wells Fargo's fraud are crippling its operations and stability in banking. A vast majority of affected and concerned clients has taken measures to safeguard their finances from fraudulent activities. In the past couple of years, numerous clients suspended their ties with Wells Fargo (McManus, 2017). For example, California terminated its relationship with the bank in 2016. California discontinued Wells Fargo's underwriting and broking services. The state treasurer of California John Chiang argued that the company failed to value the interests and well-being of the clients. Also, Chicago city withdrew $ 25 million that was invested in Wells Fargo. Other states such as Philadelphia and Illinois are preparing to drop any financial relationships they have had with Wells Fargo (Mims, 2017). Based on the magnitude of these divestments, the bank has lost the potential of recovering financially.
Conclusion
Wells Fargo employees conducted fraud by opening fake clients' accounts and debit cards without their permission. The bank's customers detected the fraud after receiving unanticipated bank fees. Since 2002, the Wells Fargo's employees have engaged in illegal activities such as identity theft, fraud, negligence, and breaching contracts. The worst outcome of this move is the numerous lawsuits that have emerged. Court rulings instructed the bank to compensate $ 145 million to its customers and $ 185 million to regulators. More compensations are expected in the future since there are lots of uncompleted lawsuits. The bank's stability is at stake since numerous divestments have occurred, and its customers have also relocated to other banks. Thus, it is the unethical opening of fake accounts will bring forth unmanageable financial damages.
References
Banerji, G. (2017). Wells Fargo to compensate clients for volatility ETPs after charges by regulator. Retrieved from https://www.wsj.com/articles/wells-fargo-to-compensate-clients-for-volatility-etps-after-charges-by-regulator-1508186070
Cavico, F. J., & Mujtaba, B. G. (2017). Wells Fargo's Fake Accounts Scandal and its Legal and Ethical Implications for Management. SAM Advanced Management Journal, 82(2), 4.
Coffee Jr, J. C. (2010). Litigation governance: Taking accountability seriously. Columbia Law Review, 288-351.
Glazer, E. (2017). Wells Fargo posts weaker earnings after sales-practices scandal. Retrieved from https://www.wsj.com/articles/wells-fargo-trying-to-move-past-its-sales-practices-scandal-posts-weaker-earnings-1507896680
McManus, J. (2017). A motion to compel changes to federal arbitration law: How to remedy the abuses consumers face when arbitrating disputes. Boston College Journal of Law & Social Justice.,37, 177.
Mims, J. H. (2017). The Wells Fargo scandal and efforts to reform incentive-based compensation in financial institutions. NC Banking Inst., 21, 429.
