Wells Fargo: wtf?! (…why the fraud?!)









Read time: ~5 minutes

Like the rest of the business world, I have watched the Wells Fargo “account-gate” saga unfold during the past few weeks.  In case you somehow missed it, thousands of Wells Fargo employees were engaged in fraudulently opening up deposit and credit card accounts in customers’ names without their knowledge or consent.  More than 2 million fraudulent accounts were opened over a five-year period.  Wells Fargo fired 5,300 employees for this—the equivalent of 5% of the staff working in the bank’s branches.

Much ado is being made about how and why this happened: another scandal in the seemingly scandal-plagued financial services industry. Congress is involved, having set up an investigation and hearing into the fraud.  Wells Fargo’s CEO has been summoned to Capitol Hill to testify.  The Department of Justice says it too is now investigating.

While much has been written about the presumed profit motive that drove this PR and public trust catastrophe, Wells Fargo executives insist that this wasn’t about the bank incentivizing employees to take advantage of unsuspecting customers for the bank’s benefit.  These fake accounts reportedly generated just $2.4 million for the bank.  To put that into perspective, Wells Fargo generated more than $22 billion in total revenue in 2015.  So this effort pretty much yielded bubkes for them.

Which leads me to my question:  wtf?! (…why the fraud?!).  Investigations, hearings and hand-wringing aside, the answer to this question really isn’t complicated.  Nor is it deeply profound (or terribly shocking).

As the wise Jedi Master Yoda said, “The fear of loss is a path to the dark side.” Apparently at Wells Fargo, the fear of (job) loss loomed large for employees who were under tremendous pressure to sell eight “solutions” (new checking accounts and other products) to their customers every day.  Some reported that their managers held meetings four times a day to check the status of these sales and that they were yelled at when they didn’t hit their targets. In a September 13th appearance on CNBC, John Shrewsberry, Wells Fargo CFO had this to say: “These bad practices were not a revenue-generating activity. It was really more at the lower end of the performance scale where people apparently were making bad choices to hang on to their job.” (Emphasis added.)

Under the threat of loss, people make all kinds of bad decisions.  In fact, psychologist and behavioral economist have a term for this: Loss Aversion.  Put simply, for human beings, the fear of loss has a stronger emotional impact than the expectation or possibility of gain.  We are more likely to engage in unethical behavior to avoid losing something than we are to gain the very same thing.  The fact of the matter is that most workers in this country are living paycheck to paycheck. A system like the one Wells Fargo had in place brought together a perfect storm of factors that could only lead to widespread unethical behavior.  This isn’t meant to excuse the individual workers from accountability for their actions. It’s merely meant to address why it happened.  The question of individual accountability and why Wells Fargo couldn’t anticipate this disaster before it unfolded are questions that would take up an entire blog post on their own.

Now, many of you are likely saying, “but somebody had to make money off of this”.  And, of course, you are right.  The kind of pressure that was rained down upon employees to meet these goals emanated from a source that had something to gain.  Maybe the bank didn’t make any money but someone (or perhaps many people) did.  Well, according to some reports, at least one person is walking away from all of this having earned  $93 million in compensation as a result of sales targets being hit.   So yes, greed is always lurking somewhere in these situations.