By AnnaMaria Andriotis and Emily GlazerWells Fargo & Co. managers pushed bankers to sign up customers for potentially costly overdraft protection that they didn't always need or realize they were getting, according to current and former bankers and managers.
Members of Congress expressed concern about potential overdraft problems at the bank during two hearings last month with Wells Fargo Chief Executive John Stumpf. He was called to Capitol Hill after the bank in September agreed to a $185 million fine and enforcement action over what the Consumer Financial Protection Bureau called the "widespread illegal practice" of opening unauthorized accounts.
The CFPB is also reviewing overdraft-fee practices broadly at banks, the agency has said.
A Wells Fargo spokeswoman said the bank has adhered to a 2010 regulation that requires customers to opt into overdraft protection. She added that procedures "all clearly demonstrate" to customers that "this is an optional service that requires specific customer consent prior to enrollment."
Overdraft protection allows customers to complete a transaction even if they don't have enough money in a checking account. The largest banks charge a fee, typically about $35, per overdrawn debit-card or automated-teller-machine transaction.
Among the CFPB's concerns: how consumers agree to opt into the potentially costly service. Earlier this year, the CFPB sent a letter to the 25 largest U.S. retail banks, urging them to offer accounts that don't permit customers to spend more money than they have. The agency is also considering further regulation of overdraft services, it has said.
Overdraft fees have been a concern of regulators for some time. This is because of costs and moves by some banks in recent years to reorder transactions, posting larger transactions against an account first to increase chances a customer will overdraw the account and be charged numerous fees.
In 2010, a Federal Reserve regulation took effect requiring banks to get customers' permission to opt into a service that would allow debit-card and ATM transactions to clear, and a fee to result, even if a checking account doesn't have sufficient funds.
Before 2010, banks didn't need customers' permission in most states for the service and welcomed the fee income. Banks became concerned the regulation would crimp this income stream.
That prompted individual managers at Wells Fargo to push personal bankers, staff in bank branches who deal with retail customers, to find new ways to get customers into the service, according to current and former personal bankers and managers in Florida, California, Georgia, Nebraska, Virginia and Texas.
At a Tucker, Ga., Wells Fargo branch, managers told personal bankers in staff meetings to present debit-card overdraft protection as a requirement for checking-account customers, according to Oscar Sevilla, a Wells Fargo personal banker from 2012 to 2013.
"We just used to say it comes with it to basically suggest that there wasn't an option," said Mr. Sevilla, now self-employed in the exporting business. He is also one of six named plaintiffs in a recently filed federal class-action lawsuit in California against Wells Fargo alleging employees were "encouraged and directed" by managers "to use various illegal schemes to open accounts fraudulently."
The bank said it disagrees with the allegations and will vigorously defend against the suit.
The overdraft protection didn't count toward bankers' daily sales goals, so it didn't affect bonuses. But there were smaller incentives: In at least one branch, there were at times a daily $15 gift card to Subway for the personal banker who got the most customers to opt in and gift cards of as much as $100 for the banker with the highest quarterly figure, said Matt Boisdore, who worked as a personal banker in a San Diego Wells Fargo branch from 2009 to 2011.
The Wells Fargo spokeswoman said bankers were never compensated for getting people into a debit-card overdraft service. She said the bank encourages branch managers to reward teams at their discretion with food or gift cards "for going above and beyond for a customer."
On a Wells Fargo employee conference call in 2011, Jodi Blackwood, then a product manager for consumer deposits and now a national sales manager for the bank, told Richmond, Va., area employees to put aside worries they were putting customers into a bad product, referring to overdraft protection, according to a recording of the call reviewed by The Wall Street Journal. "I think we get a little nervous when we talk about it [because] we think we're going to be talking about something that's going to be bad for the customer, but customers just want a choice," she said.
On the call, she told employees to make 100% of customers aware of overdraft protection, including those who struggle to keep a balance in their accounts and for whom "it might be bad." She coached employees to present strategies in which signing up for overdraft services would help customers get their transaction approved, including how it could help them pay for a dinner out and avoid "an embarrassing situation."
A former branch banker in Richmond who was on the call described it as "fear-based selling." After the call, bankers were told they had to report at the end of each day how many customers they persuaded to opt in and felt "major pressure" to do so, he said, though that requirement later ended.
"You have to realize, people who walk into the branch are typically...very unsophisticated financially, so when their banker tells them to do something, they usually did," he said.
Ms. Blackwood declined to comment through a bank spokeswoman. "This is from a time period where this was an entirely new service," said the spokeswoman. "It was a very large shift [and] we were talking to customers in a very different way, so there were calls around the new offering."
Some bankers placed customers into overdraft services without them realizing it, said Jan Taylor, who was a banker at Wells Fargo from 2006 to 2014 in Texas.
After the opt-in regulation, she said, employees would often tell customers to "sign this and this and this" when opening an account, failing to explain what they were signing. And most customers didn't ask, said Ms. Taylor, who said she was fired from the bank for failing to meet sales goals and now works at a credit union.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
October 10, 2016 14:45 ET (18:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
