Troubles have been intensifying at Wells Fargo & Company WFC following its $190-million settlement to resolve regulators’ claims of illegally opening millions of unauthorized accounts. On Friday, three customers in Utah filed a lawsuit against the banking giant for fraud, breach of contract and invasion of privacy.
The lawsuit, the first one that emerged tied with the scandal, was filed in the U.S. District Court in Utah, and seeks class-action status on behalf of thousands of customers.
According to the complaint, the "abusive and fraudulent tactics" undertaken by the bank’s employees in order to meet sales targets has hurt customers. The plaintiffs noted, “Those failing to meet daily sales quotas are approached by management, and often reprimanded and/or told to ‘do whatever it takes’ to meet their individual sales quotas.”
The plaintiffs alleged that the bank has invaded customers’ privacy and failed to protect their confidential information. The plaintiffs further claimed that though the bank executives were well aware of employees misusing the system, they failed to take proper action. In fact, several executives were awarded promotion for shoring up the bank’s figures. The plaintiffs referred Wells Fargo’s firing of around 5,300 employees as “cosmetic” with the bank’s intention to offer “plausible deniability.”
Notably, The U.S. Department of Justice has also launched an investigation that may result in civil or criminal charges.
In further fallout from the fake account scam, the U.S. House Financial Services Committee, announced earlier on Friday, that it has commenced an investigation into the bank. As part of the probe, the committee intends to call John Stumpf – Chairman and CEO of Wells Fargo – to testify at a hearing later this month.
Chairman of the committee – Jeb Hensarling – in a letter to James M. Strother, Senior Executive Vice President, General Counsel at Wells Fargo, stated “The Committee is very concerned by these serious allegations and is investigating Wells Fargo’s questionable sales practices and corresponding agreements with federal regulators in order to evaluate the application, administration, execution, and effectiveness of Federal laws.”
Apart from seeking all records related to the timing and detection of the unauthorized customer accounts, the committee will also ask several corporate officers to appear for interviews. Additionally, the committee may mull over further actions, including subpoenas.
The monetary fine by the regulators, including Consumer Financial Protection Bureau (CFPB), will have no material impact on Wells Fargo’s financials. However, the company continues to come under fire from several quarters, which undoubtedly tarnishes the reputation of one of the largest banks in the nation.
Last week, Democratic senators – including Elizabeth Warren and Sherrod Brown – wrote a letter to the U.S. Senate Banking Committee Chairman Richard Shelby, calling for an investigation of the matter and asking Wells Fargo CEO, John Stumpf, to testify.
Further , the bank’s scam drew attention of rating agency Moody’s Investors Service which noted “…[T]he regulators’ revelations are highly disturbing; they highlight that Wells Fargo’s vaunted cross-selling capabilities were inflated, its incentive structure had led to pervasive inappropriate practices, and its retail banking sales process lacked adequate and effective oversight. As such, the implications of this announcement are credit negative.”
Wells Fargo, known for setting aggressive sales goals for its employees, announced last Wednesday that it will remove all product sales goals in retail banking, effective Jan 1, 2017.
Notably, since the announcement of the settlement, shares of Wells Fargo lost nearly 9%. Year-to-date, the company fell more than 16%.
WELLS FARGO-NEW Price
Currently, Wells Fargo carries a Zacks Rank #3 (Hold). Some better ranked stocks in the finance space include Meta Financial Group, Inc. CASH, Flagstar Bancorp Inc. FBC and LPL Financial Holdings Inc. LPLA, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Zacks Investment Research