CFCU Opinion Corner: Wells Fargo
By Stephen Lark, CFCU Vice-President of Marketing and Corporate Development
With the recent news surrounding Wells Fargo and allegations of deceptive business practices many financial institution customers are wondering if their bank or credit union is up to the same tricks. In the case of Wells Fargo, we haven’t seen the extent of harm actually done to consumers. When the dust settles, the actual financial harm to consumers could be minimal, with the larger impact being that of customer trust.
It appears that Wells Fargo had a culture in which sales goals drove employees to put the bank’s interest above customers’. From what we have learned, this involved over 5,000 Wells Fargo employees, who were involved in deceptive practices. So far, Wells Fargo has been ordered to pay $185 million in fines, with $100 million going to the Consumer Financial Protection Bureau, rather than to the customers who had fake accounts opened in their names. It’s yet to be seen how much will be paid to bank customers. The fines do send a message to financial institutions that deceptive practices will not be tolerated.
Our financial system relies on trust. Trust that we treat our members and customers fairly, trust that we look out for your best interest and trust that loans will be paid as agreed and accounts will be managed appropriately. Furthermore, banks have an obligation to look out for the interest of their stockholders, who invest to earn a profit. From this perspective as in the case of Wells Fargo, it looks like the juxtaposition of having to balance the interests of customers and owners might have been central to why this occurred and evolved into the bank’s culture. Although on a much larger scale, we saw the greed for profit cause the mortgage crisis of 2008 and “too big to fail” banks nearly cause a meltdown of our banking system. The current Wells Fargo issues simply add to mistrust of our financial system.
Fortunately, for those savvy consumers that understand credit unions, many see us as better alternative. The members of the credit union are the owners of the credit union, which eliminates the opposing forces of having to balance the interest of two separate groups. Credit unions simply operate for the good of the same group, our member-owners. Yes, credit unions do have to make money to cover operating expenses. Growing the credit union does take additional funding, but as a credit union grows, it can help more consumers and expand the services it offers to members. Credit unions also have goals to grow, much like Wells Fargo, but the test should be to not push products on members who don’t need them. Our goal at Communication Federal Credit Union is to offer products that help members and save them money, it’s that simple. If you visit a branch and we talk to you about a product, we think you would be better served to use our product than that of a competitor, which hopefully saves you money or makes your life more convenient. We also have safeguards in-place to help protect against unethical behavior.
What can you do? Tell your friends, family and co-workers about credit unions. Shockingly, less than 15% of the population actually knows that a credit union is organized differently that a bank and why we are more focused on our members. More consumers need to know about credit unions. To help put this in perspective, at the end of 2015, Wells Fargo held $1.9 trillion dollars in assets. In the fourth quarter of 2015, the total assets of every credit union in the US aggregated together surpassed $1 trillion, for the first time in our nation’s history. It’s pretty obvious that more consumers need to know about credit unions and our unique structure. Yes, we are tax-exempt, but so are many other not-for-profit cooperatives. As you can see, we’re not a threat to big banks – they are a threat to themselves.
The sad truth. The issues at Wells Fargo seem to have filtered through many facets of the organization. In reality, though over 5,000 employees seems like a huge number, it is less than 2% of the Wells Fargo employee base who scammed the system to open fake accounts, over a 5 year period. Wells Fargo seems to have terminated employees as they learned of unethical behavior. It does appear that additional safeguards should have been in place to keep this from reoccurring. Opening fake accounts without the owners’ knowledge is highly unethical. Wells Fargo should have done much more to protect its customers, who placed their trust in the bank. So far, we have not seen a good picture of the financial harm that was done these customers. They should be compensated to the extent that they were harmed. Unfortunately, most of the fines paid by Wells Fargo will probably go to government agencies and attorneys rather than the customers. With the current talk of additional regulation and increased opportunity for litigation and class action lawsuits stemming from the Wells Fargo issues, consumers will again suffer. Increased regulation and the potential for new litigation will drive-up expenses for all financial institutions, even not-for-profit credit unions, who did not cause these issues. All financial institutions will bear additional compliance costs, which will be passed to customers resulting in less money staying in the hands of consumers, where it belongs.
Posted on Thu, November 10, 2016
by Kara Barrett