Top US lawmakers are challenging Wells Fargo to explain a recent rise in overdraft charges, signalling a new regulatory battle for the bank still reeling from a fake accounts scandal.
On Wednesday a group of Democrats on the Senate banking committee wrote a letter to Tim Sloan, the bank’s chairman and chief executive, asking him to explain whether the bank’s recent surge in income from overdraft charges had any connection to the furore over its fraudulent sales practices. Last autumn Wells paid a record $185m fine and shook up its senior management, having admitted that it allowed managers to create up to 2m accounts without customers’ permission.
The letter — signed by seven senators including Sherrod Brown from Ohio and Elizabeth Warren from Massachusetts — was prompted by a Financial Times story last week, in which the FT noted that overdraft income at Wells rose 7.5 per cent in the third quarter from a year earlier, to $471m. That was more than five times the average 1.3 per cent increase at JPMorgan Chase, Bank of America, TD Bank and US Bank, which round out the big five fee-earners from overdrafts in absolute terms.
“Even if these overdraft revenue increases are not directly related to the fraudulent account openings, we are concerned that they may reflect similar troubling consumer sales practices,” the senators wrote, citing Wells Fargo’s “aggressive” cross-selling strategy, compensation incentives, and “abusive” sales tactics.
“It would be particularly distressing if Wells Fargo were pursuing an increase in revenue from overdraft fees to compensate for the bank losing customers as a result of the fake accounts scandal,” they wrote.
Wells said it had not made any changes to its practices that would result in more or higher overdraft fees for customers, and said the bank had not had any banker incentive compensation or sales goals that encourage customers to have overdrafts.
With respect to the yearly change, the bank said it was important to note that 2015 charges were lowered by a feature launched in late 2014, when Wells began notifying customers of items due to be processed that night.
Recent growth in overdraft charges across the US banking industry has been a concern to the Consumer Financial Protection Bureau, which is due to produce new rules on overdrafts in the second half of 2017. Public policy groups say the move is long overdue, as a lack of clear standards has allowed banks to offset pressure on fees in other areas of their businesses.
Fees tend to apply every time an account lacks the funds to cover a debit-card transaction, an ATM withdrawal, an electronic bill payment, or a payment by cheque. Wells charges $35 a time, broadly in line with other big banks.
In their letter, the senators pressed Mr Sloan for more information on Wells’ overdraft products, including a monthly breakdown of the bank’s overdraft income since 2007 and any policy changes over the past 18 months. The senators also requested details on how many employees received pay raises for meeting sales goals related to overdraft products, and the number of employees disciplined for not meeting those goals.
They reminded Mr Sloan that they had sought information on Wells’ sales goals and company policies for overdraft products in September, after the appearance of John Stumpf, Mr Sloan’s predecessor, before the banking committee. Wells’ response in mid-November was “vague and incomplete”, the senators said.
Consumer groups welcome attention to overdrafts. Mike Calhoun, president of the Center for Responsible Lending, notes that the largest category of overdraft charges is from point-of-sale debit-card transactions, where the typical overspend is less than $20.
“And they hit you for $35,” he said. “That is not providing credit — it’s really a ‘gotcha’ by the banks to pile on, to impose this fee that really has no connection with the cost.”
Sample the FT’s top stories for a week
You select the topic, we deliver the news.