Recently, it was announced that Wells Fargo, a giant banking provider, had reached a settlement of $37.3 million to resolve the accusations of the government of the US in connection with the fraudulent overcharging of hundreds of commercial customers who used the services of the foreign exchange offered by the company.
It was announced that the settlement had been filed with the US District Court in Manhattan on Monday and now it required approval from the judge. As a result, the civil fraud charges against the fourth-largest US bank will be resolved. On Monday, the shares of the company were down about 2 percent after the settlement was announced.
Last year was quite scandalous for the San Fransisco-based bank, most of which were about its treatment of customers. The papers of the case indicate that the company had defrauded about 770 customers from 2010 to 2017. This was done by systematically charging higher spreads on foreign exchange transactions than it was initially promised. It had provided financial incentives to salespeople for the overcharges.
Wells Fargo will pay $37.3 million to resolve U.S. government claims it fraudulently overcharged commercial clients on foreign exchange services, the latest in a string of scandals over the bank's treatment of customers
— The Dive Feed (@TheDeepDiveFeed) September 28, 2021
Wells Fargo Case
Previously, it was also announced that the company had already returned $35.2 million to customers in a form of restitution. The total payout of the company due to the activities are about $72.7 million. The Justice Department also said that the sales specialists of the company had jokingly used different types of expressions, such as “back the truck up” and “when in doubt, spread them out” when they were overcharging customers.
Since 2018, the bank has been a subject of a Federal Reserve cap on assets. This will remain below $1.95 trillion until the company improves governance as well as risk control.
The company had already paid over $5 billion since the beginning of the scandal in 2016. According to the details of the case, the company was doing the spread overcharging systematically. The company had even encouraged the overcharges by linking the bonuses of their specialists to how much revenue they would generate for the company.
The Account Fraud Scandal
The Wells Fargo account fraud scandal has already had its impact on the company, costing it a lot of money. The company was creating millions of fraudulent savings and checking accounts on behalf of the clients without their consent. The news about the fraudulent activities became known at the end of 2016, with numerous regulatory agencies becoming involved to investigate the case.
The clients of the company started noticing the fraudulent activities after being charged unanticipated fees on trading activities. Initially, the individual branch workers of the company were blamed for the problem. However, this blame quickly shifted towards the higher-level management.
The company had enjoyed very much a stable reputation in the industry, which was damaged a lot due to the recent scandal. The controversy resulted in the resignation of the company CEO John Stumpf. The employees of the company were encouraged to order credit cards for pre-approved clients without having their consent, they also were creating fraudulent checking and savings accounts.
Almost five years have passed since the scandal erupted, however, the company still continues to suffer from it. The company had been posting quarterly losses for a long time now. The sanctions against the company limit the ability to lend money and require it to spend more to resolve the compliance problems, which is leading to hundreds of the company branches being closed.
In 2020, the company had reported average loans of $900 billion, which is 6 percent down from the year prior. In addition to this, there also is additional pressure from Wall Street to cut costs, and the company had aimed to cut another $1.5 billion of expenses in 2021. This included firing some of the workers.
As a result of the many scandals, once a giant and leading company is suffering a lot. Many experts are saying that the hard times are yet far from being over.