Why Wells Fargo keeps getting into trouble
Wells Fargo's customer account scandal is shaping up to be a blemish on the reputation of the nation's largest bank that doesn't appear to be clearing up anytime soon.
The San Francisco-based bank agreed to pay $185 million Thursday to settle a federal complaint that accused the nation's largest bank of creating 2 million fraudulent customer accounts.
More than 5,000 Wells Fargo employees were fired over the scheme in the last few years. The bank said it would implement new policies to prevent a similar incidents in the future.
Much has been said about the incentives-driven culture in the banking industry, which is believed to have motivated the customer-account scheme. Business Insider's senior editor, Josh Barro noted this week that plots to open and close unauthorized accounts generally do not do anything to boost the bank's profits.
In an interview with Business Insider, crisis management expert, Eric Schiffer with Reputation Management Consultants said,"[Wells Fargo] created an an environment where the profit machine overcame any type of questionable activity. When you turn a blind eye then you are endorsing the behavior."
This latest settlement follows a years-long string of legal battles the bank has faced. Some of those cases involved claims of discrimination, illegal fees imposed on customers, and predatory lending practices.
Here's a brief history of Wells Fargo's legal headaches:
Illegal fees charged to student loan borrowers
In August of this year, the bank agreed to pay $4 million in fines amid allegations that it illegally charged fees to student loan borrowers between 2010 and 2013, the Los Angeles Times reported. Wells Fargo did not admit to any wrongdoing.
The crux of the case, according to the Consumer Finance Protection Bureau, involved the manner in which the bank applied loan payments. The bank's methods allegedly caused some customers to be hit with multiple late fees.
Wells Fargo spokesman, Jason Vasquez, told the LA Times that the allegations were related to practices that were modified "several years ago."
Bad mortgage loans and the FHA
In a US Department of Justice lawsuit, Wells Fargo agreed to a $1.2 billion settlement and admitted responsibility for false claims that its home loans qualified to be insured by the Federal Housing Administration (FHA). The penalty was the biggest in FHA history as it relates to loan origination.
The lawsuit also showed the bank did not take steps to fix thousands of loans that were improperly underwritten. When the loans went into default, the FHA - and, by extension, taxpayers - were left to foot the bill.
Other US banks like Citigroup, Bank of America, and JPMorgan Chase faced similar lawsuits.
Accusations of predatory lending
In another federal lawsuit, the City of Baltimore claimed Wells Fargo targeted African-Americans with high-interest predatory loans.
The products - referred to as "ghetto loans" by some Wells Fargo employees - subsequently drove hundreds of borrowers into foreclosure and cost the city millions, the lawsuit said. The sales process in question was known as reverse redlining and involved selling defective and costly loans to African-American customers.
"Wells Fargo mortgage had an emerging-markets unit that specifically targeted black churches, because it figured church leaders had a lot of influence and could convince congregants to take out subprime loans," Beth Jacobson, a Wells Fargo loan officer told The New York Times.
Wells Fargo was among the banks named in a class-action lawsuit filed by the NAACP that accused more than a dozen financial institutions of discriminatory practices.
A similar lawsuit was filed in Chicago and Los Angeles, but was dismissed by a judge last summer.
The fallout
Since news of the the most recent case against Wells Fargo came out this week, the bank has publicly acknowledged the mistakes and announced it would provide training to employees in order to prevent fraud.
"Wells Fargo is committed to putting our customer's interest first 100 percent of the time, and we regret and take responsibility for any instance where customers may have received a product they did not request," the bank said in an emailed statement on Thursday.
Despite the fallout, some expect Wells Fargo will bounce back and repair its reputation.
"By no means am I trying to understate how significant this [crisis] is for Wells Fargo," Matt Rizetta, CEO of public relations firm, North 6 said in an interview with Business Insider, "but other brands have overcome much more adversity and much more severe crisis situations."