January 11, 2017

Banking Committee Democrats Question Surge in Wells Fargo's Overdraft Income

WASHINGTON, D.C. – A group of Senate Banking Committee Democrats today asked Wells Fargo’s chief executive to explain whether the bank’s recent surge in income from overdraft charges had any connection to the scandal over its fraudulent sales practices.

In their letter to Wells Fargo Chief Executive Timothy Sloan, the Senators expressed concern with a recent Financial Times report on how the bank’s income from overdraft charges grew by 7.5 percent between July and September. That was five times faster than the rate of Wells Fargo’s main U.S. competitors – including JPMorgan Chase, Bank of America, TD Bank, and US Bank – which had an average increase of 1.3 percent during the same period, according to the Financial Times.

The Senators noted that Wells Fargo’s rise in overdraft over occurred at the same time the bank reached a $185 million settlement with the Consumer Financial Protection Bureau and other government entities over its phony accounts scandal. Wells Fargo was fined for illegal sales practices that included opening as many as two million fake accounts without customers’ knowledge or consent.

"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.”

Sherrod Brown (D-OH), the Banking Committee’s ranking member, and Elizabeth Warren (D-MA) led the letter, which was also signed by Jack Reed (D-RI), Robert Menendez (D-NJ), Mark Warner (D-VA), Brian Schatz (D-HI), and Chris Van Hollen (D-MD).

In September, Banking Committee Democrats asked Wells Fargo to answer dozens of questions for the record to clarify and supplement the Sept. 20 testimony of the bank’s former chief executive, John Stumpf, before the Banking Committee. One of the questions addressed the bank’s sales goals and company policies for overdraft products. Wells Fargo's response on Nov. 15 to that question and several others was vague and incomplete. In several instances, Wells Fargo declined to provide direct answers, citing the ongoing investigation that its board launched on Sept. 27.

In their letter today, the Senators pressed Mr. Sloan for more information on Wells Fargo’s overdraft products, including a monthly breakdown of the bank’s overdraft income since 2007, and any policy changes dating over the last 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.

The full text of the Senators’ letter follows:

Mr. Timothy Sloan
Chief Executive Officer
Wells Fargo & Company
420 Montgomery Street
San Francisco, CA  94104

January 11, 2017

Dear Mr. Sloan,

We read with great concern a Financial Times report indicating that Wells Fargo’s income from overdraft fees increased at a rate five times higher than the company’s banking industry peers.[1]

This increase in overdraft fees occurred at the same time Wells Fargo reached a $185 million settlement with the Consumer Financial Protection Bureau and other government entities over charges that the company created over two million fake bank and credit card accounts in customers’ names.[2] Given Wells Fargo’s broadly advertised commitment to “making changes to make things right,” we are writing to request additional information related to this matter.[3]

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.[4] For example, the Wells Fargo’s overdraft income has increased disproportionately to the rest of the banking industry in the same way that Wells Fargo’s cross selling exceeded that of its competition.[5] And the compensation incentives for overdraft services, in some cases, had similar structure as those for banking accounts and credit cards. [6] Finally, there have been reports by former employees of improper sales tactics related to overdraft protection services, as there were with deposit account products.[7] 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.[8]

After your predecessor John Stumpf testified before the Senate Banking Committee about the fake account scandal, we requested responses to a number of questions. To date, these questions have not been answered sufficiently.[9] One of these questions addressed the bank’s sales goals and company policies regarding overdraft products.[10] Wells Fargo’s answer to that question was vague and incomplete.  In order for the Committee to discern whether the growth of overdraft fees at Wells Fargo is in any way related to, reflective of, or a response to the fraudulent creation of accounts, we request that you respond to the following questions no later than February 14, 2017:

  1. As previously requested on September 28, 2016, please provide specific information related to overdraft protection products, including sales goals related to overdraft protection products, dollar amount of overdraft fees charged to consumers, and company policies regarding disclosure of overdraft protection products and fees.
  2. Please provide a breakdown of the monthly income received by Wells Fargo from overdraft fees from 2007 to present. Has this number increased or declined in the fourth quarter of 2016 relative to the third quarter of 2016, as account openings have reportedly declined?[11]
  3. Please provide any policy changes made with regard to fees, refund requests, or any other issue related to overdraft charges in the last 18 months.  Please include an explanation as to whether these changes were related to the September 2016 settlement for the creation of false accounts or to the loss of customer accounts following the announcement of the September 2016 settlement.
  4. Please provide, on a monthly basis from 2007 to present: the amount of overdraft income which has been generated by accounts advertised as “free checking;” and the number and proportion of overdraft charges that were equal to or greater than the overdrawn amount.
  5. Please provide the number of customers who were signed up for overdraft protection programs without their explicit consent, through a checking or debit account or as a credit-linked account from 2007 to present, and Wells Fargo’s plan to reimburse any customer that was charged for or incurred any fee from such overdraft product.
  6. Please provide the number of employees who received increased compensation for meeting sales goals related to overdraft products, as well as the number of employees disciplined for failing to meet such goals, from 2007 to present. Does Wells Fargo continue to employ sales goals or other incentive compensation structures for overdraft products?
  7. You have said that Wells Fargo’s top priority should be “to take care of customers,” and that “regaining the public trust is invaluable.”[12]  Is the sudden surge in overdraft income consistent with these goals? If not, what specific steps do you plan on taking to address this increase?
  8. Please provide any other information which would aid the committee in ascertaining, or which you believe explains, the reasons why the growth in overdraft revenues at Wells Fargo vastly outpaced the industry average.

We look forward to your prompt and thorough response to these questions.

Sincerely,

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