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What got into Wells Fargo?

Blame management hubris

A prominent La Jolla resident, who does not want her name used, knows what led Wells Fargo down the crooked path: management hubris.

In 2009, her daughter was headed for college. Mother and daughter went to Wells Fargo, where the family had banked for years. They were told (erroneously, as it turned out) that if the daughter exceeded her debit card balance, her card would be automatically refused. It didn't work out that way. She made many small purchases with the card. Soon, the daughter got a bank statement indicating she was being charged $35 per overdraft, and owed Wells Fargo $260 in overdraft charges on $11.94 of purchases.

Indignantly, the mother went to the bank. A customer service representative took off one of the overdraft charges, but the daughter still owed 20 times the amount of her purchase. By registered mail, the mother wrote the Wells Fargo chairman, the predecessor of the chairman who swiftly departed this week. The mother heard from no one at Wells.

The mother was a good friend of one of La Jolla's most prominent citizens, now deceased. That lady was a good friend of the Wells regional manager. So the mother wrote the regional manager. Once again, Wells Fargo did not reply.

At one point in her ordeal, the mother was told by a Wells employee, "We have the right to do this." Says the mother, "Having the right and doing what is right are two different things." The family pulled its accounts from Wells.

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The abuses by Wells that we've heard about actually earned the bank nothing, and cost it plenty. They represent a current approach to business that pressures the front-line people to accomplish super-human goals.

As I look at the accounts of the things that were done, all seem so obviously stupid and counterproductive that is hard to imagine how they started, let alone how they persisted. Did the guy at the top know? Maybe not. After setting the stage for these things, he might have just let field managers figure out how to make it happen. And they did, but not in any way that benefited anyone, except to keep the pressure off for a few more days, weeks, months or years.

As to your anecdotal evidence, there are always cases of deaf management. For a long time we have avoided the big banks, dealing with a local credit union, and getting credit cards through offers, or other affiliations.

For anyone seeking a local "bank", I'd strongly suggest finding a credit union. Steer clear of any of the big banks, and be skeptical of the smaller banks.

I suspect the abuses earned WF A LOT or they wouldn't have kept doing it. The big banks MO for all these fake accounts, nitpicking service fees, etc, is that the customer is ALWAYS wrong and they won't reverse charges unless the customer has absolute proof that the bank is wrong.

I think BofA is similar to WF. I'd be willing to bet that BofA has pressured many low level employees to set up fake accounts. Maybe not bad enough to get caught however.

In my experience, credit unions have more integrity and have far more concern for treating customers fairly than the big banks do.

I also strongly suggest credit unions over big banks.

ImJustABill: The earnings per share boosts from the Wells Fargo scam would likely have been very important to the company. The reason companies diddle with revenue and earnings is that Wall Street does flips over pennies per share.

I suggest you turn on to a business TV channel such as Bloomberg or CNBC. The benchmark is anaysts' consensus forecasts for earnings per share and revenue. If the company beats the consensus forecast, the shares usually rise, often stoutly. (It is disgusting that TV talking heads don't compare newly-annonced results with the previous year's results for the same period.)

Thus, an improvement of a penny a share in earnings can be very important for the price of the stock.

And unfortunately, most American companies focus on the price of the company's stock, rather than on the long-term health of the company. Pleasing Wall Street is the main management objective. This is one reason so many scams come to light. It is the reason for the Wells Fargo scam. Best, Don Bauder

I agree about the credit unions. I've dealt with banks and learned early on how predatory they are. For example, when they process checks, they start with the largest checks first so if the account gets over-drafted, the remaining smaller checks rack up non-sufficient fund fees - instead of processing all the smaller checks first and bouncing that one large check last. Debit overdrafts fee, credit card over-limit fees, 24% interest credit cards, ATM fees (paying them to get some of your own money back!) Plus the time people waste at waiting in line at banks.

I have been a credit union member for years. I rarely go to the bank anymore, depositing most checks with my smartphone, online or auto-deposit. I never use a debit card except for cash withdrawals (which are free at many ATM's). I use a couple of points/rewards credit cards, (mostly American Express) for almost every purchase I make and then pay off the balances at the end of the month. I visit my credit union about four times a year.

Ponzi: Yes, that is what happened in this case. The daughter's last purchase with the debit card was larger than the several small ones made earlier.

Wells put that larger purchase first, although it was made later in the day. The larger purchase triggered the overdraft, which then was applied to the smaller ones that had been made earlier. So the daughter was hit for $35 for each earlier transaction because of an overdraft on the last purchase. But the account had NOT been overdrawn for those smaller, earlier ones. So Wells Fargo was deliberately fleecing its client.

This is a scam. Period. Banking regulators should ban the practice. Best, Don Bauder

Visduh: The guys or gals at the top practice "plausible deniability." Say, John Moores would duck out of a room when his top managers at Peregrine were discussing an illegal action that would boost profits and please Wall Street. When an employee would complain about phony sales being recorded, Moores would write a note that he didn't know what the hell the guy was talking about.

I have always stood up for credit unions rather than banks, but I confesses I have never used one. Best, Don Bauder

I think the laws need to be written to eliminate plausible deniability for very senior executives. I think that at a very minimum the fraud at Wells Fargo should be considered an act of criminal negligence by senior leadership. I think that if a senior executive wants to claim (like Moores did) that they were so stupid and/or incompetent or naive that they didn't notice major criminal fraud taking place that should be considered a crime punishable by prison. That way they can't use the ignorance defense.

I don't know if that type of law would hold up in court but that's what I would like to see.

ImJustABill: The biggest joke is Enron. Not long before it became clear that the company was basically a hoax, the chief executive, in a puff piece written by Business Week, boasted that at any given time, top management knew exactly what was going on everywhere in the company.

When it was clear that Enron was a big fraud, that same chief executive said that he just didn't know a thing about all the fraud going on right under his nose.

The Moores case is a blot on San Diego. As chairman, Moores knew what was going on. That was clearly established by testimony in civil suits. But in San Diego, the chief executive who owns the local baseball team and much downtown real estate was going to get off the hook.

In the criminal case, lawyers for lesser executives tried to introduce the fact that the big winner in all this was Moores. He had dumped more than $600 million of stock, mostly in the fraud period, and mostly when he was chairman. The ones who went to prison had sold a mere fraction of what Moores had dumped. Local judges would not let the lawyers for lower-level executives introduce Moores' massive windfall in the courtroom.

This was representative of San Diego justice. The same went on with C. Arnholt Smith for decades. The law wouldn't touch him. (Smith had appointed some of the top legal officials.) It took an organized crime task force based in Los Angeles to bring Smith down, and then he only got a month tending a garden as punishment, not actual time behind bars. Best, Don Bauder

I had a similar experience at WF - although there was less money involved. A long time ago I had an account at 1st Interstate with no monthly service charge. After WF acquired 1st Interstate they promised us there would be no additional charges, but about a year later they started charging monthly fees for accounts below a certain amount. By the time I realized this my account had dropped from around $100 to a negative balance - and they wanted me to pay them the negative balance.

Of course, I should have been more diligent checking statements and caught the monthly fees earlier - but this is the sort of "nickel and diming" fees that WF has made a fortune charging.

ImJustABill: That sounds exactly like Wells Fargo -- and most of the big banks. Who has time to pore over every monthly statement when there is little money in the account anyway? Best, Don Bauder

Flapper: You are right. The word "negligence" lets top management off too easily. For that matter, so does the word "arrogance." Hopefully, in the Wells Fargo case, the right words will be "criminal fraud." Best, Don Bauder

I agree it is arrogance but I think the law should hold senior officials accountable for negligence in cases like this. In my opinion the law should state that if a large corporation does something criminal on a large scale then senior leadership should automatically held responsible - even if the senior leadership had absolutely no knowledge of the criminal activity.

In Japan, if there's a mistake made, or the company does something wrong, the president usually resigns in disgrace, after making some humiliating apologies. A little of that approach would go a long way to cleaning up some corporations in the US, but will likely never take hold. But every time one of these CEO types bites the dust after a scandal, I let out a little cheer (too faint to be heard by others), and smile. Now if we could fix it so that no bonuses are paid to these miscreants when their heads roll, we would be on the way to reform.

Visduh: Right on. In Japan, the chief executive who has failed, or cheated the shareholders, not only departs. He publicly bows down to express his shame. Best, Don Bauder

ImJustABill: Senior leadership -- particularly the board -- should be held accountable for any untoward activity. Best, Don Bauder

Flapper: There is now an agency in the federal government that looks into bank scams such as these. That agency should look into this practice.

No wonder the San Diegan did not hear back from Wells Fargo. There is no defending such duplicity. Best, Don Bauder

Too bad Warren isn't running, but she's doing her best where she is.

Flapper: Agreed. It's too bad she is not running. Best, Don Bauder

The Democrat machine would not allow it. But she could trounce Trump in a trice. So could have Bern, but I suspect she's the brighter of the two. 2020?

Flapper: If Hillary wins, as it appears she will, I suspect she will want to run for a second term in 2020, if her health holds up. Best, Don Bauder

Don't be too sure. Some of my hardest-boiled Democrat friends are not voting for her.

If she does win, what will she do about the thieves of Wall Street, etc? What Obama did?

Flapper: She will do nothing to reform Wall Street, or deal with the severe imbalance of wealth and income. Those in the upper 1 percent are her people. They are safe. Best, Don Bauder

Mike Murphy: CEOs know that the board will look the other way, because board members do the same thing at their companies. Best, Don Bauder

If We, the People do not hold our representatives accountable, who will?

Flapper: At least, we know that a large number of Americans are aware of the scams against the middle class. Bernie almost beat Hillary and many Americans would like to see Elizabeth Warren run. Best, Don Bauder

I'd like to know why she didn't run. Democrat Machine?

Mike Murphy: CEOs know they will get away with it with their board of directors. But we're hoping that in the future, CEOs will go to prison for the scams they have willfully and with no fear of government interference been pulling. Best, Don Bauder

In the housing bust and other examples, almost no one -- if anyone -- goes to prison. The fine paid is way less than the profits made. In a couple of years Smells Cargo (Wells) will have record year profits as this error is in the rear view mirror.

chriscarmichael: Are you calling Wells Fargo's obvious scam an "error?" Best, Don Bauder

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