[9/9/16] Two basic principles of management, and regulation, and life, are:
- You get what you measure.
- The thing that you measure will get gamed.
Really that’s just one principle: You get what you measure, but only exactly what you measure. There’s no guarantee that you’ll get the more general good thing that you thought you were approximately measuring. If you want hard workers and measure hours worked, you’ll get a lot of workers surfing the internet until midnight. If you want low banking bonuses and measure bonus-to-base-salary ratios, you’ll get high base salaries. Measurement is sort of an evil genie: It grants your wishes, but it takes them just a bit too literally.
Anyway, yesterday Wells Fargo was fined $185 million by various regulators for opening customer accounts without the customers’ permission, and that is bad, but there is also something almost heroic about it. There’s a standard story in most bank scandals, in which small groups of highly paid traders gleefully and ungrammatically conspire to rip-off customers and make a lot of money for themselves and their bank. This isn’t that. This looks more like a vast uprising of low-paid and ill-treated Wells Fargo employees against their bosses. The Consumer Financial Protection Bureau, which fined Wells Fargo $100 million, reports that about 5,300 employees have been fired for signing customers up for fake accounts since 2011. Five thousand three hundred employees! You’d have a tough time organizing 5,300 people into a conspiracy, which makes me think that this was less a conspiracy and more a spontaneous revolt. The Los Angeles City Attorney, which got $50 million (the Office of the Comptroller of the Currency got the other $35 million), explained the employees’ grievances in a complaint last year:
Wells Fargo has strict quotas regulating the number of daily “solutions” that its bankers must reach; these “solutions” include the opening of all new banking and credit card accounts. Managers constantly hound, berate, demean and threaten employees to meet these unreachable quotas. Managers often tell employees to do whatever it takes to reach their quotas. Employees who do not reach their quotas are often required to work hours beyond their typical work schedule without being compensated for that extra work time, and/or are threatened with termination.
The quotas imposed by Wells Fargo on its employees are often not attainable because there simply are not enough customers who enter a branch on a daily basis for employees to meet their quotas through traditional means.
So they resorted to non-traditional means. Like:
In the practice known at Wells Fargo as “pinning,” a Wells Fargo banker obtains a debit card number, and personally sets the PIN, often to 0000, without customer authorization. “Pinning” permits a banker to enroll a customer in online banking, for which the banker would receive a solution (sales credit). To bypass computer prompts requiring customer contact information, bankers impersonate the customer online, and input false generic email addresses such as 1234@wellsfargo.com, noname@wellsfargo.com, or none@wellsfargo.com to ensure that the transaction is completed, and that the customer remains unaware of the unauthorized activity.
Is it not weird that all the fake e-mail addresses were Wells Fargo addresses? I mean “noname” is obviously a weird e-mail address, but maybe the customer was Norbert O’Name. But surely all the “@wellsfargo.com” accounts were a tip-off that the requests were coming from inside the building. Anyway, it’s all pretty much as dumb as that, but on a scale that is magnificently, hilariously dumb. From the CFPB’s consent order:
Respondent’s analysis concluded that its employees opened 1,534,280 deposit accounts that may not have been authorized and that may have been funded through simulated funding, or transferring funds from consumers’ existing accounts without their knowledge or consent. That analysis determined that roughly 85,000 of those accounts incurred about $2 million in fees, which Respondent is in the process of refunding.
And:
Respondent’s analysis concluded that its employees submitted applications for 565,443 credit-card accounts that may not have been authorized by using consumers’ information without their knowledge or consent. That analysis determined that roughly 14,000 of those accounts incurred $403,145 in fees, which Respondent is in the process of refunding.
So that’s about 2.1 million fake deposit and credit-card accounts, of which about 100,000 — fewer than 5 percent — brought in any fee income to Wells Fargo. The total fee income was $2.4 million, or about $1.14 per fake account…CONTINUE READING