Wells Fargo was fined $185 million in September by federal regulators for opening credit card, debit card and checking accounts without the authorization or knowledge of customers. While it will be fairly easy for the bank to refund fees to its customers, it will be a lot harder to undo the damage to customers’ credit scores, including the knock-on effects, that resulted from the scandal.
The primary damage to credit score ratings arose from customers’ money being moved into the new accounts, resulting in possible late fees and insufficient funds. Many customers may have also been dinged for failing to make annual payments on credit cards that they didn’t know even existed. Credit scores can also fall when consumers receive too many new credit cards and lines of credit within a short time period.
Lower credit scores can result in reduced access to credit and higher interest rates for mortgages, auto loans and new credit cards. In some cases, consumers will have to settle for credit cards that have fewer rewards and perks. In the most serious cases, banks may not be willing to extend you a mortgage if your credit score falls below certain thresholds.
>> Read More: What Affects Your Credit Score?
Not only do these black marks lower consumers’ credit scores, they also wreak damage by showing up in their credit histories. Those histories are routinely checked by landlords, creditors, cell phone companies and employers to make decisions that can adversely affect future plans.
Wells Fargo is being asked by regulators, legislators and consumer advocates about how it will remediate all the damage caused by its fake account scam. For example, it is hard to assess whether a bad credit report caused a job candidate to miss out on an employment opportunity or a renter to be denied a lease for an apartment. The cost in extra interest paid on a 30-year mortgage can run into the thousands or even tens of thousands of dollars.
According to the Consumer Financial Protection Bureau, Wells Fargo employees, in a five-year period commencing in 2011, opened approximate two million deposit accounts and credit cards not authorized by bank customers. The practice started when top management put pressure on bank managers to increase the average number of accounts held from two to eight per customer. In turn, bank managers pressured lower level employees to push new accounts. At least 5,300 employees have been fired for opening up unauthorized accounts in order to make quotas. The scam, which included the creation of phony email addresses and PIN numbers, boosted sales figures, increased the bank’s revenues, drove up the stock price and resulted in bonuses and other rewards to employees.
During the period, bank employee submitted more than half a million bogus applications for credit cards, causing about 14,000 unauthorized accounts to trigger more than $400,000 in late fees, interest charges and overdraft protection fees.
In addition to a $185 million fine, Wells Fargo agreed to pay out $5 million in customer refunds. Initially, no senior executives suffered any consequences from the scandal, but then Congress, led by Senator Elizabeth Warren, held hearings that singled out Wells Fargo CEO John Stumpf for censure. Senator Warren called for the firing of Stumpf and the return of all the money he made since Wells Fargo began fabricating accounts.
The bank agreed to claw back $41 million of Stumpf’s compensation, but the CEO has so far been able to keep his job. Warren is also calling for sanctions against other top executives and directors, including ones who retired with large packages since 2011.
Wells Fargo has now eliminated its sales quota program. The affair has given a black eye to the entire banking industry, causing additional scrutiny and new calls to break up the biggest banks.
What You Can Do
Here are some tips if you were a victim of Wells Fargo’s fraud:
- You should receive a refund from Wells Fargo for all charges associated with unauthorized accounts. You don’t have to do anything – the bank should contact you – but it couldn’t hurt get in touch with the bank and ensure that they are working on your case.
- You can sue Wells Fargo if you claim damages not covered by the refund, although you might have to settle for arbitration instead.
- You need to get copies, examine and correct your credit reports from the three major credit bureaus – TransUnion, Equifax and Experian. Each credit bureau has procedures that allow you submit corrections and clarifications to your report. If necessary, demand that your credit score be reinstated to its value before the start of abuse by Wells Fargo.
- Have the credit bureaus send out corrected versions of your credit reports to any person or business that has pulled your report since you were first affected.
- If you’ve opened any credit card accounts after you were victimized by Wells Fargo, contact the card issuer and ask for a lower interest rate. Do the same for a mortgage issuer or a landlord if you feel you were overcharged because you were deemed to be less creditworthy.
- You can ask for help from a non-profit credit counseling agency to make sure you’ve taken all steps necessary to re-establish your good name.
One last warning to all consumers: Other banks besides Wells Fargo might have participated in similar schemes, so check with your bank and verify that all the accounts you have are authorized.