WASHINGTON, D.C. — Today the Consumer Financial ProtectionBureau (CFPB) fined Wells Fargo Bank, N.A. $100 million for thewidespread illegal practice of secretly opening unauthorizeddeposit and credit card accounts. Spurred by sales targets andcompensation incentives, employees boosted sales figures bycovertly opening accounts and funding them by transferring fundsfrom consumers’ authorized accounts without their knowledge orconsent, often racking up fees or other charges. According to thebank’s own analysis, employees opened more than two million depositand credit card accounts that may not have been authorized byconsumers. Wells Fargo will pay full restitution to all victims anda $100 million fine to the CFPB’s Civil Penalty Fund. The bank willalso pay an additional $35 million penalty to the Office of theComptroller of the Currency, and another $50 million to the Cityand County of Los Angeles.
“Wells Fargo employees secretly opened unauthorized accounts to hitsales targets and receive bonuses,” said CFPB Director RichardCordray. “Because of the severity of these violations, Wells Fargois paying the largest penalty the CFPB has ever imposed. Today’saction should serve notice to the entire industry that financialincentive programs, if not monitored carefully, carry serious risksthat can have serious legal consequences.”
The full text of the CFPB’s Consent Order can be found at:http://files.consumerfinance.gov/f/documents/092016_cfpb_WFBconsentorder.pdf
Wells Fargo, headquartered in Sioux Falls, S.D., is one of thebiggest banks in the country and offers many consumer financialproducts and services, including savings and checking accounts,credit cards, debit and ATM cards, and online-banking services. Inrecent years, the bank has sought to distinguish itself in themarketplace as a leader in “cross selling” these products andservices to existing customers who did not already have them. Whencross selling is based on efforts to generate more business fromexisting customers based on strong customer satisfaction andexcellent customer service, it is a common and accepted businesspractice. But here the bank had compensation incentive programs forits employees that encouraged them to sign up existing clients fordeposit accounts, credit cards, debit cards, and online banking,and the bank failed to monitor the implementation of these programswith adequate care.
According to today’s enforcement action, thousands of Wells Fargoemployees illegally enrolled consumers in these products andservices without their knowledge or consent in order to obtainfinancial compensation for meeting sales targets. The Dodd-FrankWall Street Reform and
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Consumer Protection Act prohibits unfair, deceptive, and abusiveacts and practices. Wells Fargo’s violations include:
Opening deposit accounts and transferring funds withoutauthorization: According to the bank’s own analysis, employeesopened roughly 1.5 million deposit accounts that may not have beenauthorized by consumers. Employees then transferred funds fromconsumers’ authorized accounts to temporarily fund the new,unauthorized accounts. This widespread practice gave the employeescredit for opening the new accounts, allowing them to earnadditional compensation and to meet the bank’s sales goals.Consumers, in turn, were sometimes harmed because the bank chargedthem for insufficient funds or overdraft fees because the money wasnot in their original accounts.
Applying for credit card accounts without authorization: Accordingto the bank’s own analysis, Wells Fargo employees applied forroughly 565,000 credit card accounts that may not have beenauthorized by consumers. On those unauthorized credit cards, manyconsumers incurred annual fees, as well as associated finance orinterest charges and other fees.
Issuing and activating debit cards without authorization: WellsFargo employees requested and issued debit cards without consumers’knowledge or consent, going so far as to create PINs withouttelling consumers.
Creating phony email addresses to enroll consumers inonline-banking services: Wells Fargo employees created phony emailaddresses not belonging to consumers to enroll them inonline-banking services without their knowledge or consent.
Enforcement Action
Under the Dodd-Frank Wall Street Reform and Consumer ProtectionAct, the CFPB has the authority to take action against institutionsviolating consumer financial laws, including engaging in unfair,deceptive, or abusive acts or practices. Today’s order goes back toJan. 1, 2011. Among the things the CFPB’s order requires of WellsFargo:
? Pay full refunds to consumers: Wells Fargo must refund allaffected consumers the sum of all monthly maintenance fees,nonsufficient fund fees, overdraft charges, and other fees theypaid because of the creation of the unauthorized accounts. Theserefunds are expected to total at least $2.5 million. Consumers arenot required to take any action to get refunds to which they areentitled.
? Ensure proper sales practices: Wells Fargo must hire anindependent consultant to conduct a thorough review of itsprocedures. Recommendations may include requiring employees toundergo ethical-sales training and reviewing the bank’s performancemeasurements and sales goals to make sure they are consistent withpreventing improper sales practices.
? Pay a $100 million fine: Wells Fargo will pay a $100 millionpenalty to the CFPB’s Civil Penalty Fund. Today’s penalty is thelargest the CFPB has imposed to date.

Read the above enforcement notification dated September 08,2016, by CFPB of the action it has taken and answer the followingquestions:
1. Explain in your own words, the details of alleged illegalpractice of opening credit card accounts on behalf of consumerswithout authorization
2. What would you consider to be a well-designed internal controlthat would have prevented such unauthorized openings by theemployees of the bank? Discuss in detail. You should identify aspecific internal control.
3. Discuss a detective control that could detect such unauthorizedopenings and alert senior management. You should identify aspecific internal control.