A study (pdf) of an international bank published in the online journal Nature in 2014 generalized from the data that bank employees, unlike other types of employees, are shaped by their jobs in such a fashion that “a significant proportion of them become dishonest.” 

Los Angeles City Attorney Mike Feuer would like to add a case study of Wells Fargo Bank to that report.

Using 2013 Los Angeles Times stories (here and here) as a template, Feuer filed a 19-page civil complaint against the bank, alleging management pressures its sales force to commit “unlawful and fraudulent” acts that hurt customers.

Feuer cited specific cases of “pernicious and often illegal sales tactics” in the lawsuit, and organized them by category among various methods of “gaming” that bank employees have named, like “bundling,” “sandbagging” and “pinning.” The scope of the allegations is not spelled out in the complaint, which Feuer would like to address during the discovery process.

Wells Fargo says the city is wasting its time. The bank got rid of the bad apples back when the Times stories came out and vigilantly enforces an upstanding code of conduct.

The city attorney’s investigation found otherwise. “While Wells Fargo has ostensibly terminated a small number of employees who have engaged in gaming, other employees have been rewarded for these practices, and even promoted, perpetuating the problem,” the complaint says.

No bank in the nation sells as many add-on services to its customers as Wells Fargo. The bank prides itself on “cross-selling” products. Customers opening a checking account are more likely to end up with several types of accounts, credit cards and, hey, if the bank is lucky, a mortgage. Or they may end up with more than one of the same type of account. One homeless woman ended up with six fee-generating checking accounts, according to the Times.

Fees are a big part of the bank’s bottom line. The complaint says they are a “virtual fee-generating machine.” To facilitate payment, the suit alleges, Wells Fargo moves customer money from one account to another without permission, puts customers in the hands of collection agencies when unauthorized account fees go unpaid and fouls up their credit ratings with derogatory comments to credit agencies.     

Feuer, the Times and a number of present and former employees have described in detail how bank salespeople would saddle customers with this detritus, sometimes feeding them wrong information about the product benefits and costs, or stealing their personal data to surreptitiously sign them up.

The lawsuit alleges Wells Fargo violates state and federal laws using unfair business practices and cites the misuse of confidential customer data. Feuer is using a law that allows city attorneys in large municipalities to sue on behalf of victims statewide. The lawsuit asks that they be made to stop doing what they shouldn’t be doing and not do it in the future.

That might be easier said than done.

The study published in Nature suggested that the only way to prevent dishonesty in the banking industry was to change the norms associated with a profession devoted to the greedy accumulation of money. The authors recommended that banks give employees ethics reminders and “encourage honest behavior” and that bankers take a professional oath similar to the Hippocratic Oath for doctors.

But a norm change would also require “that companies remove financial incentives that reward employees for dishonest behaviours.” That sounds like a bit of a reach.

–Ken Broder

To Learn More:

Wells Fargo Plays Its Clients for Sales, LA Says (by Matt Reynolds, Courthouse News Service)

L.A. Sues Wells Fargo, Alleging “Unlawful and Fraudulent Conduct” (by E. Scott Reckard, Los Angeles Times)

Business Culture and Dishonesty in the Banking Industry (by Alain Cohn, Ernst Fehr and Michel André Maréchal) (pdf)

People of the State of California v. Wells Fargo & Company (Los Angeles County Superior Court)