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U.S. Federal CFPB regulators imposed the biggest fine in their history on Well Fargo, after the bank's employees secretly opened illegal accounts in customers' names to meet sales targets and get extra bonuses.

Yesterday, the third largest American bank, Wells Fargo (NYSE: WFC), received a fine for the total amount of $185 million from the Consumer Financial Protection Bureau ($100 million), the U.S. Office of the Comptroller of the Currency ($35 million) and the City and County of Los Angeles ($50 million). This was the largest ever fine imposed by the CFPB on any organization.

The investigation revealed that the bank's employees issued credit and debit cards as well as transferred funds from the real customers' checking accounts to the fake temporary accounts without permission, what often resulted in extra fees for the customers. Next to that, some employees went as far as to assign fake identification numbers, create PINs for unwanted cards and sign the customers up for online banking via bogus email addresses, reported the WSJ.

According to the regulators, this was going on for the past 5 years, yet thorough investigation started only in 2013 after LA Times' story on the bank's "pressure-cooker sales culture". Over these years, more than 5,300 Wells Fargo's employees have been fired for using illegal means to meet the bank's unreasonably high sales goals. However, Wells Fargo claimed that the number of violations they were dealing with in those years was far from being significant enough for any further investigations. To date, there are more than 400,000 people working for the bank.

“It’s outrageous for a bank to use a customer’s private information without permission to open an unwanted account. Customers must be able to trust their banks," Mike Feuer, Los Angeles City Attorney, told LA Times.

According to CFPB, the bank's employees have opened approximately 1.5 million checking and savings accounts, and issued over 500,000 credit cards, all without customers' consent. The regulators said that the amount of the fine imposed on Wells Fargo reflects the severity of the abusive practices towards customer and it should serve as a warning light for all other banks.

Even though Wells Fargo was not accused of purposefully encouraging its employees to illegally open accounts, the bank was criticized for setting immerse pressure on employees to keep up with unreasonable sales targets and not digging deep enough to uncover the violations earlier.

CFPB Director Richard Cordray told the reporters that Wells Fargo practiced a very competitive employee incentive program that rewarded them on the basis of the amount of banking products they sell. As employees' career prospects were dependent on their sales performance, the incentives program quickly got out of hand.

“Wells Fargo built an incentive-compensation program that made it possible for its employees to pursue underhanded sales practices, and it appears that the bank did not monitor the program carefully,” said Cordray.

Wells Fargo has been working to distinguish itself from other banks by positioning themselves as a leader in cross-selling or selling as many different banking products per household as possible. The bank was using such slogans as "Eight is Great" to draw attention to their success in cross-selling, reports Charlotte Observer.

However, cross-selling itself is not an not an illegal practice, yet the problem is that the bank has failed to monitor its implementation. This opened an opportunity for the employees to game the system in order to live up to the bank's ambitious public promises. Unlike most other banks, Wells Fargo always emphasized their cross-selling rate in the quarterly reports and disclosed the number of products their customers use simultaneously, positioning this as one of the bank's strategic points.

By now, the bank has not admitted or denied the regulators' allegations, yet they promised to pay over $5 million in settlements to customers for their misused accounts. The bank also said that they plan to issue an announcement to the customers inviting them to visit their local branch and seek help of the employees to eliminate all accounts and services they did not authorized for.

“It’s a major breach of trust if a bank transfers funds without the consent of consumers from an existing account to an unauthorized one. Any consumer should be outraged by that conduct,” Feuer said.

LA Times cites an interview with one of Wells Fargo's customers who recalls receiving a credit card that he did not ask for. As the customer couldn't close the unwanted account immediately, he later received fees for an overdraft amounts deducted from his credit card instead of his checking account, which he believes damaged his credit history.

“Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences,” Cordray said.

According to the WSJ, Wells Fargo has about 40 million retail customers, meaning that an average customer would receive a little over $20 as a compensation for unauthorized use of the account.

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