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Wells Fargo scandal may slow big banks’ sales pitches


Bank customers may soon hear fewer sales pitches for new credit cards or other accounts when they visit their local branch.

Many banks are likely to back off on sales pressure, people in the industry say, thanks to $190 million in fines and restitution imposed on Wells Fargo this month for alleged abuses by thousands of its employees.

The federal Consumer Financial Protection Bureau and other agencies alleged that the San Francisco bank’s employees broke the law by opening more than 2 million credit card, checking and savings accounts without customers’ knowledge, in order to meet sales quotas and win bonuses.

Some metro Atlanta Wells Fargo customers expressed outrage at their bank’s alleged abuses, but said they didn’t think they had been affected directly.

“What they did is so disgusting,” said retiree Carol Hoefs, of Tucker. She is especially outraged that the Wells Fargo executive who headed retail banking operations, Carrie Tolstedt, will retire at the end of the year with almost $125 million in company stock and options.

The executive “should end up paying that (money) to the people that got scammed,” said Hoefs. She plans to drop her Wells Fargo account when she and her husband move to Texas next year, but said it would be “too much hassle” to switch banks now.

Hall Penn, of Atlanta, said he wants to see more than just fines imposed on Wells Fargo. “The people that did these things need to be held accountable,” he said, from executives to rank-and-file employees.

Last week, federal prosecutors in New York and California also reportedly opened an investigation into Wells Fargo’s sales practices. Wells Fargo is the third-largest bank in metro Atlanta, accounting for almost one-fifth of local customers’ deposits.

The CFPB, the federal Comptroller of the Currency and the Los Angeles city attorney launched their probe after the Los Angeles Times published an investigation of the bank’s sales practices and employee firings in 2013.

Pitching products

Wells Fargo’s legal troubles will likely prompt other banks to take a closer look at how they use so-called “cross-selling,” say industry experts.

The practice, widely used for years at many banks, involves using quotas and bonuses to push tellers and other employees to pitch products to existing customers at branches and drive-thrus.

“The reality is that banks have been (awarding) their employees to sell things for years. That’s just the culture of America,” said Chris Marinac, managing principal at FIG Partners, an Atlanta bank advisory firm.

But some employees at Wells Fargo, long known for its aggressive and highly successful sales culture, apparently drifted into outright fraud to meet sales goals, he said. The bank has fired more than 5,000 employees over the past few years for alleged infractions. CEO John Stumpf has been summoned to a congressional hearing on the matter.

Marinac doesn’t think many banks have crossed the line with such selling, but he expects more investigations.

“If there’s going to be more regulatory scrutiny, you know what’s going to happen,” he said. He expects banks, especially the largest ones, to reduce or eliminate sales quotas and incentive payments.

That could make it tougher for big banks to keep top sales performers, added Marinac. “Bank employees (who are) worried that they can’t make as much money” may bolt for better-paying jobs, he said.

Local banks were reluctant to talk about the Wells Fargo case or their own sales practices. SunTrust Banks, Bank of America, Synovus Financial Corp., United Community Bank, BB&T Bank and Regions Bank, all major banks operating in metro Atlanta or Georgia, declined to comment publicly, or didn’t return a reporter’s calls.

Banks on a tightrope

The main reason for such cross-selling, which is common in other industries as well, is that it’s easier to drum up business among existing customers than to recruit new ones.

Cross-selling by banks has been fueled in recent years by several factors. Banks have walked a tightrope since the Great Recession, with low interest rates making it tough to make money on loans, so they rely more on fees generated from new accounts and services.

Meanwhile, regulatory costs are up, online competitors are growing and customers make fewer branch visits as they bank from home computers or on mobile phones. That raises the stakes to make sales when customers do visit.

Wells Fargo has been known for refining its cross-selling programs. That’s one reason it has been known as the blue-chip bank for investors in recent years. Warren Buffett’s Berkshire Hathaway is a huge shareholder.

“Wells Fargo has been bragging about their (new) account openings for years,” said Marinac.

Now, he said, the company will need to do better training about “what’s right and what’s wrong,” he said. It’s also an open question whether Stumpf will be able to keep his job, said Marinac. Shares are down about 8 percent since the scandal broke.

“I think at the end of the day, this is a company that will do the right thing,” Marinac said.

Not ‘its best’

Wells Fargo said last week that it will eliminate employee sales quotas on Jan. 1.

“Last week’s news did not reflect Wells Fargo at its best,” Stumpf said in a message to customers.

Stumpf said the bank will reimburse affected customers and make other changes to head off potential sales abuses.

Employees will be compensated based on “what matters most: delivering great experiences and ensuring positive outcomes – not on product sales,” he said.

The bank said it will automatically send letters or emails to customers to confirm they wished to apply for credit cards and savings or checking accounts.

The controversy apparently prompted the head of another bank known for its cross-selling prowess, BB&T, to speak at length about the need for honesty in a bank’s employee culture.

“Honesty is the bedrock value,” said CEO Kelly King, although he didn’t refer specifically to Wells Fargo. Speaking last week at Barclay’s conference in New York for investors in financial firms, King said BB&T employees can make bonuses of up to 10 percent of pay through product sales, but he added it would be “financial malpractice” to push employees to sell products that customers don’t want or need.



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