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The latest ethics scandal to hit the banking world demonstrates the importance of ethical influences in regard to company culture, risk evaluation, employee incentives, and more.
WELLS FARGO BANK (WFB) reached an agreement with regulatory agencies to pay $185 million in penalties for engaging in fraudulent marketing practices. Bank employees are alleged to have used existing customer names and accounts to (1) open new checking accounts and transfer funds to them (known as "simulated funding"), (2) create new credit cards, (3) enroll in online banking, and (4) order and activate debit cardsall without customer knowledge, authorization, or consent. Depositors who didn't need or want these products were hit with late fees, overdraft charges, annual fees, and other costs.
The wrongdoing appears to be spread throughout the retail operations of the bank. Blame is being placed on the bank's marketing incentive plan, which set extremely high sales goals for employees to cross-sell additional banking products to existing customers whether or not the customers needed or wanted them. WFB management had knowledge of the existence of the potentially unethical and illegal problem since 2013 but failed to make any public disclosures since, as WFB CEO John Stumpf told a U.S. Senate panel, the amounts involved were seen to be immaterial to the bank's size. Senior management also failed to make any changes to the incentive program before the regulatory actions.
Sen. Richard Shelby (R.-Ala.), chair of the Senate Banking, Housing and Urban Affairs Committee, said, "In a 2010 letter to shareholders, WFB CEO and Chairman John Stumpf wrote that Wells Fargo's goal was...