Illinois state Treasurer suspended $30 billion of Wells Fargo's in state investment activity on October 3rd. A recent federal consent order found that their employees created around 2 million online accounts, credit cards, deposits and debit cards without their customers' knowledge. The employees charged fees and even damaged credit ratings to raise the interest rates on loans.
The state of Illinois hopes to set an example to other financial institutions that corrupt behavior will not be tolerated. Others have been taking action against Wells Fargo including California regulators and the government who fined the company $185 million.
This is not Wells Fargo's first instance of unscrupulous practice. The company paid $175 million in a law suit to settle allegations of racial discrimination against 3,000 mortgage borrows in 2012.
It will be interesting to see the effect of this scandal on consumers and other banks. Customers of Wells Fargo might consider switching to other banks and lose potential business from borrowers. This also negativity impacts their current investors since their stock price has fallen. Lastly, Wells Fargo has discouraged investments from future brokerage firms and state portfolios. The state treasurer in California has already announced last week that Wells Fargo would not be included in their $75 billion portfolio.
This is a great article first off, And it will be interesting to see if we see anymore allegations against other banks and institutions for the same reasons. This allegation is really going to hurt Wells Fargo as a bank I can see them losing a lot of customers from this allegation. It will be interesting to see how this affects future investments in banks and other financial institutions.
ReplyDeleteI wonder what this will do to the reserve requirement. This issue primarily stems from Wells Fargo employees felling pressured to meet sales quotas. Following the mortgage crisis, banks have had to fight to earn back the trust of the public. This is a huge hit to the banking sectors reputation. One punishment banks could now face is an increase in the reserve requirement. This would decrease the potential profit margin for banks. It will be interesting to see what these crimes mean for WF execs.
ReplyDeleteI agree with Rob's point. Banks have lost the publics trust. Banks have a duty to serve the public, but because of the mortgage crisis it has been a hard rehabilitation process. Every bank wants to expedite the process and return to its former good standing among the public, but haste means mistake. Wells Fargo gave up its ethics and is paying in numerous letigations, because of its foul business practices.
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