A number of senators grilled John Stumpf, the chairman and chief executive officer of Wells Fargo (NYSE: WFC). The questions probed into the two million accounts which were opened without proper authorization during his tenure. The list of questions asked also how the company could reassure its customers. During the September 20 hearing, repeated questions mostly referred to borrowing expenses and credit scores.
According to Senator Jon Tester, a Democrat from Montana, it is to be understood that this action by Wells Fargo is a pretty important deal. This is as there could be effects in the actual world for both old and young families. Stumpf, in reply, told the committee that his bank is at present solving the issues. He added that he has given instructions to make sure that no customer is affected. Needless to say, the lawmakers were not satisfied with answers given.
To understand what is going on, it is important to remember that a fine of $185 million was imposed on Wells Fargo by Consumer Financial Protection Bureau during the early days of September. The fine was a consequence of opening approximately two million credit card accounts without proper authorization. The company has previously implemented a number of cross selling goals, where a banker asks an existing customer to take in extra Wells Fargo accounts. The bank this incentivized the action of cross selling with the bonuses. The employees who were unable to meet their sales targets were told to leave. The number of employees fired for this reason was 5,300. These employees opened accounts and move the consumer’s money without the consent or knowledge of customers. All these took place from 2011 to 2015.
Stumpf’s claim to effectively manage the damage caused is easier said than done. When it comes to credit cards, the CEO said that it is checking with the customer to find out whether they actually want the card at all. Credit reports which were asked at first to issue these cards may potentially harm the credit scores. However, in a few cases, the removal of unwanted cards from the credit reports of customers could result in the further drop of the borrower’s credit score. This is as closing any unused card means that the borrower suffers from a overall lower credit line. During such cases, the balances on the other credit cards could account for more use in a person’s empirical credit cards limit. Credit scores could be hurt as a result.