Wells Fargo Settles Phony Bank Account Scandal for $142M

June 15, 2018 by Aparajita Saxena

Wells Fargo & Co said on Friday a district court in California approved a $142 million class-action settlement to compensate customers who were affected by a sales scandal related to the opening of phony bank accounts.

The United States’ fourth biggest bank is dealing steadily with the fallout of two years of investigations, agreeing in April to pay $1 billion to settle with regulators who say it layered insurance on hundreds of thousands of drivers and routinely hit homebuyers with excessive fees.

Last month, the bank also agreed to pay $480 million to resolve a securities fraud lawsuit filed with the District Court for the Northern District of California which alleged the bank made certain misstatements and omissions in disclosures related to its sales practices.

Chief Executive Officer Tim Sloan said Friday’s announcement was “a significant step forward in making things right for our customers and restoring trust all of Wells Fargo’s stakeholders.”

The settlement sets aside funds for compensating customers for whom the bank opened consumer or small business accounts, credit cards or lines of credit without their knowledge between 2002 and April 2017.

Customers have until July 7 to claim.

Announcing the settlement with regulators in August, the bank also said that the mortgage and auto programs together ensnared more than 600,000 customers and would require nearly $300 million in refunds.

Analysts worry the scandal has hurt Wells Fargo both by distracting executives with investigations and lawsuits and through its impact on the bank’s public image.

In February, the U.S. Federal Reserve imposed a consent order on Wells that restricted it to grow assets beyond the $1.95 trillion it had at the end of last year “until it sufficiently improves its governance and controls.”

Wells Chief Executive Officer Tim Sloan, since then, has reassured shareholders numerous times that the bank was stable and “open for business.”

Employees have also sought to downplay the scandal’s impact on profitability or market share, and have said that few customers have left the bank.

Wells Fargo’s shares were marginally higher in early trade on Friday while those in other leading U.S. banks fell.