Wells Fargo’s reach, image in Arkansas damaged by ongoing financial scandals

Less than a decade after Wells Fargo began doing business in Arkansas in 2009, the West Coast financial giant’s growth in the state could be stymied by a number of financial scandals that have caused the company to shrink its U.S. footprint.

Based in San Francisco with $1.93 trillion in assets, the banking conglomerate serves one in three households in the U.S. and ranked No. 25 on Fortune’s 2017 largest U.S. corporations. With nearly 271,000 full-time employees, the financial giant is still the nation’s third largest bank behind JPMorgan Chase and Bank of America.

In Arkansas, where the bank only has two retail locations in Texarkana and Ashdown, Wells Fargo has still been able to grow its offering of banking products such as mortgages, credit cards and other traditional banking products online. The bank has also made inroads in the state’s commercial banking sector, opening an office in West Little Rock in 2013 to offer specialized lending for the state agriculture, food and government sectors as well as traditional business banking services.

Wells Fargo Advisors, the financial giant’s wealth management and investment, added satellite offices across the state from its West Little Rock headquarters. As the nation’s second largest brokerage firm, Wells Fargo retail brokerage operations has client assets of $1.57 trillion, up 8.3% from $1.45 trillion in 2016. According to media reports, several top Wells Fargo investment bankers recently left the company, often taking key wealthy clients and accounts with them.

In addition, the former Southwest regional executive vice president, John Sotoodeh was demoted and resigned in March as part of executive changes related to the ongoing fake account scandal. No replacement has been named for the region, which includes Arkansas, Texas, Arizona, New Mexico and Nevada.

More recently, Wells Fargo said it plans to accelerate the closing of 450 of the bank’s 6,000-plus community retail locations through 2019 to save $2 billion year, according to a company 10Q filing. That will likely mean that despite serving more communities in the U.S. than any other bank, the financial giant’s physical presence in Arkansas will remain scant.

Wells Fargo spokeswoman Natalie Brown would not make local company executives available for comment, and did not directly respond to Talk Business & Politics questions about the financial giant’s retail, commercial and investment banking practices that may have financially harmed consumers in Arkansas.

In recent weeks, state Insurance Department (ASID) regulators confirmed they are looking into allegations that Wells Fargo had illegally forced some of its Arkansas customers who had obtained a car loan to also buy auto insurance without their knowledge.

That revelation came on top of Wells Fargo’s market-moving announcement on the last day of August that it had completed its previously announced expanded third-party review of retail banking operations back to the beginning of 2009. Exactly a year ago, the Consumer Financial Protection Bureau (CFPB) and the U.S. Office of the Comptroller of the Currency found that Wells Fargo employees pressured by the aggressive sales goals created millions of fake deposit and credit card accounts in order to collect financial bonuses for themselves.

CFPB initially levied a $100 million fine against Wells Fargo for the widespread practice, and the company also agreed to pay $185 million in fines for the illegal actions of its employees. Wells Fargo later increased the payout of an earlier class-action settlement from $110 million to $142 million to customers nationwide impacted by the financial fiasco.

Wells Fargo’s original analysis reviewed 93.5 million current and former customer accounts opened from May 2011 through mid-2015, and identified approximately 2.1 million “potentially” fake accounts. The most recent internal probe was expanded to more than 165 million retail banking accounts opened from January 2009 through September 2016, identifying a new total of about 3.5 million bogus consumer and small business accounts.

“We apologize to everyone who was harmed by unacceptable sales practices that occurred in our retail bank,” Wells Fargo CEO Tim Sloan said in a statement on Aug. 31. “To rebuild trust and to build a better Wells Fargo, our first priority is to make things right for our customers, and the completion of this expanded third-party analysis is an important milestone.”

In both the wide-ranging fake account scandal and the smaller car insurance scam, Wells Fargo said it has already begun contacting customers with letters and refund checks. To date, the West Coast corporate giant has issued $3.7 million in refunds and credits to customers impacted by the fake account scheme for complaints and mediation claims from Sept. 8, 2016, through July 31, 2017. Customers also may receive extra compensation under the recent $142 million class-action settlement for claims dating back to 2002.

Nearly $64 million of cash remediation will be sent to the bank’s car loan customers in the coming months, along with $16 million of account adjustments, for a total of approximately $80 million in remediation.

Based on public information and company securities filings, for each one of the 3.5 million counterfeit retail and credit card accounts that Wells Fargo opened without customers’ consent and those affected by the car insurance scam, the payout for each counterfeit account would amount to less than $120 each. That does not include the attorney fees and other expenses related to litigation, based on details of the settlement that have been made public.

“(I) should clarify that parts of our remediation plan are still being evolved, so I am not able to share state-specific customer numbers at this time. Nor do I have the arbitration/mediation information you reference,” Well Fargo’s Brown said in a prepared response.

Federal banking regulators at U.S. Office of the Comptroller of the Currency (OCC), which is part of the U.S. Treasury Department, also would not comment on matters related to past or ongoing investigations of specific banks or their impact on Arkansas consumers, including Wells Fargo.

Earlier this year, former OCC Examiner-in-Charge Bradley Linskens, who oversaw the 2016 Wells Fargo probe, was demoted and put on administrative leave in May. Linskens, who stills works at OCC, has since filed an FOIA lawsuit in U.S. District Court seeking “records related to communications and documents regarding plaintiff’s suspension from his job responsibilities at the OCC,” federal court filings show.

“We do not comment on individual personnel matters,” Hubbard told Talk Business & Politics, in response to questions about the Wells Fargo investigation.
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Editor’s note: This is the second of three stories about alleged issues involving customer loans through Wells Fargo. Link here for the first report.