Wells Fargo Paid Colleges To Aggressively Market Products To Students Pushing Them Into Debt (#Gotbitcoin?)
April, dubbed National Financial Literacy Month, is traditionally when the personal finance and banking industries celebrate the benefits of knowing how to manage your money. Wells Fargo Paid Colleges To Aggressively Market Products To Students Pushing Them Into Debt (#Gotbitcoin?)
A new report delves into the world of deals between colleges and banks.
This month, you’re likely to read many stories about the importance — particularly for young people — of understanding compound interest, budgeting and other concepts key to creating a healthy financial life.
But a new report suggests that at least for college students, knowing which tools are best for them can be a challenge because certain banks pay universities to advertise their products to students.
“Just because your school or this bank says we’re a great account for students, doesn’t mean you should take it at face value,” said Kaitlyn Vitez, the higher education campaign director at U.S. PIRG, a consumer advocacy group, and one of the authors of the report.
During the 2017-2018 academic year, banks including Wells Fargo, PNC and U.S. Bank USB, compensated 95 colleges across the country to allow the companies to market their debit card and checking account products to students, an analysis of a government database of the contracts by the Education Fund at U.S. PIRG and Frontier Group, a think tank that’s part of the Public Interest Research Network, which also runs U.S. PIRG.
‘We value the relationships we have with students and colleges and universities across the country.’
— Ed Kadletz, head of Wells Fargo’s Deposit Products Group
These agreements allow banks to send students pitches about their products through their school email addresses and acceptance and orientation materials. In addition, they often allow the bank to co-brand its account and card with the college or link students’ campus IDs to their bank account. And in many cases, the schools are incentivized to allow banks greater access to students — many of the agreements include revenue-sharing provisions that compensate schools based on the number of students who sign up for the bank’s products, the report found.
The efforts appear to be working, at least for the banks and colleges. For the students not so much. At 10 out of the 95 colleges where banks pay colleges for the opportunity to market to students, more than 50% of students have the campus debit card; at some schools, the share is as high as 80% of the student body.
But at schools with these agreements, students pay 2.3 times more in account fees than at schools that don’t use them. The average annual fee for students at schools with these types of deals and where there were more than 250 student accounts was $34.34, the report found. That’s compared to $15.11 at schools without these agreements.
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Students paid a total of $24.6 million in fees on these accounts last academic year, the report found. Often banks charge these fees when students overdraft on their bank account, use an out-of-network ATM or make a wire transfer. Given that college students are often managing their own money for the first time and that in many cases they’re working with limited funds, these fees can add up quickly, the report notes.
“Students are being driven to these accounts at a much higher rate for those handful of banks that operate under paid marketing agreements,” Vitez said. “It’s a recipe for disaster for cash-strapped college students.”
Marcey Zwiebel, a PNC spokeswoman, declined to comment on the study specifically, but in a email she wrote that their campus bank account has no monthly service fee or debit swipe fee. In addition, she said the bank waives the first overdraft fee for customers using the student account and refunds up to $5 per month in outside ATM fees. “PNC is committed to the educational and financial success of students,” she wrote in the email. (U.S. Bank did not respond immediately to a request for comment.)
Consumer advocates, regulators and others have been worried for years about the relationship between financial institutions and universities. College is often the first time students are managing their money on their own and signing up for financial products. That makes them an easily influenced and lucrative audience — a campus account can be the beginning of a lifetime relationship with a financial institution.
In 2015, the Department of Education issued new rules aimed at addressing these concerns. As part of the regulations, deals between banks and colleges that allow the companies to promote their products on campus can’t be “inconsistent with the best financial interests” of students.
Nonetheless, PIRG’s report and others indicate that schools and banks are still working together to push products on students that can put them at risk of incurring high fees. A report drafted by the Consumer Financial Protection Bureau in 2017, but only released to the public late last year after a Freedom of Information Act request, documented many of the same practices.
Wells Fargo Charged Nearly Half The Fees
Both reports indicate that Wells Fargo accounts for a large share of the fees students encounter. At 20 schools — of 331 where at least 250 students held a campus debit account — the average annual fee paid by students was $45 or more. Nineteen of those schools partnered with Wells Fargo, the report found.
During the 2017-2018 academic year, students with Wells Fargo campus accounts racked up $11.3 million in fees, the report found. That’s nearly half of the total fees incurred by students, even though Wells Fargo customers only make up one quarter of the campus account-holders.
And the bulk of Wells Fargo contracts with universities — 20 out of 24 — included revenue-sharing provisions that would incentivize schools to encourage students to sign up for the account.
“I don’t think a $45 fee being assessed at some schools on the majority of the student body is in students’ best interest,” Vitez said.
In response to a request from comment on some of the report’s findings Wednesday, Wells Fargo provided a press release dated Wednesday announcing changes to their campus banking program. The bank says it disclosed the changes to the universities it partners with in February and they took effect at the end of March. Now students with a Wells Fargo campus account will have one overdraft fee per month covered by the bank and be allowed to use non-Wells Fargo ATMs four times each month without incurring a fee from the bank, among other changes. Wells Fargo expects these changes will decrease the amount students incur in fees by roughly half.
The bank already doesn’t charge campus bank account users monthly fees.
‘Just because your school or this bank says we’re a great account for students, doesn’t mean you should take it at face value.’
— Kaitlyn Vitez, higher education campaign director at U.S. PIRG
“We value the relationships we have with students and colleges and universities across the country, and it’s important for us to make sure we are continually working to improve how we serve our student customers by listening to them and remaining competitive in the marketplace,” Ed Kadletz, head of Wells Fargo’s Deposit Products Group, said in a statement.
Vitez said she was pleased by the announcement and called it “a good first step towards addressing the high fees that we’re seeing.” Still, she said the bank could do more to help the most vulnerable students, including by eliminating overdraft fees on these accounts all together.
The years of relatively high fees faced by college students is why Vitez and other advocates would like to see the government take a more aggressive approach to regulating these agreements. In the past, the CFPB has monitored them and released reports highlighting what they viewed as troubling practices by banks and schools. But given that the 2017 report only surfaced after a public records request, it’s hard to say whether that will continue.
And indeed, Kadletz, the Wells Fargo executive, said in the release announcing changes to the campus banking program that the bank “benefited from the findings” of the CFPB study.
Federal regulators aren’t cracking down enough on these deals, critics say
The Department of Education, which has authority over the 2015 rules, hasn’t done enough to enforce them, Vitez said. Liz Hill, a Department spokeswoman, wrote in an email that “The Department has several tools at its disposal to help ensure schools adhere” to the rules, known as cash management regulations. Since 2016, the agency has assessed more than $6 million in liabilities over these issues.
Hill added that the regulations, “give students important visibility into the relationship between schools and financial services companies,” but at the same time, Secretary of Education Betsy DeVos believes it’s “vitally important” that students have a no-fee option available to access financial aid money that’s left over after they pay their tuition. That’s why the Department is in the process of developing its own banking product specifically designed to do that.
The product, which will be co-branded with the Department’s office of Federal Student Aid and a financial institution, will have no fees, at least in its pilot phase.
But that proposal worries Vitez and other advocates, particularly given the agency’s history monitoring the campus banking space.
“The Department of Education should enforce rules that are already on the books before they go after starting a national debit card pilot,” she said.
Wells Fargo, Stuck in ‘Wait and See Mode,’ Struggles to Boost Its Businesses
Scandals tainted the bank’s image; underneath, its units are also burdened.
Wells Fargo & Co.’s reputation has languished over the past 2½ years. Its key businesses aren’t doing much better.
The bank’s 2016 sales practices scandal has turned into a morass of regulatory problems that claimed the jobs of two CEOs and won’t go away. Behind the scenes, the bank’s business lines are also struggling. What was once an aggressive, fast-growing lender whose profits towered above those of rivals has become a firm with declining revenues that is leaning heavily on cost cuts.
Revenue fell in each of the bank’s three business lines—consumer banking, wholesale banking and wealth management—in 2018. Some areas have struggled to attract new customers made wary by the sales scandal. Investors will see how this affected first-quarter profits when the bank reports earnings Friday.
The bank’s chief executive, Timothy Sloan, stepped down last month. The former general counsel is interim CEO as the board searches for a permanent replacement. A spokeswoman said the bank “is focused on becoming the most customer-focused, efficient, and innovative Wells Fargo ever.”
But that continuing search makes it unlikely the bank will develop a plan to revive its business in the near future, analysts say.
“Without a permanent CEO the company has now moved to wait-and-see mode,” wrote Brian Kleinhanzl, an analyst at Keefe, Bruyette & Woods. “That is like a ship without engines in high seas.”
It has been a long fall from the days when Wells Fargo emerged from the financial crisis relatively unscathed. In the following years, the bank thrived while competitors struggled to rebuild profits and paid billions of dollars to settle legal charges.
As a result, Wells Fargo was also the only one that didn’t focus on cutting costs in the years just after the crisis, which means it has more fat to trim now. It is slashing spending on everything from meetings to doughnut budgets.
Despite the bank’s folksy image, it for years pressured branch employees to sell multiple products to each customer. The corporate-lending business also was aggressive, buying up billions of dollars of assets from General Electric Co. and expanding in areas like lending to nonbank lenders.
In 2014, Wells Fargo’s $23.1 billion profit topped JPMorgan ’s $21.7 billion and was more than quadruple Bank of America ’s $5.5 billion profit. For a period, Wells Fargo was the most valuable bank in the world by market capitalization.
By 2018, Bank of America and JPMorgan both had higher profits than Wells Fargo, where the metric has fallen by 3% over four years even with the significant benefit of the 2017 corporate tax cut. Those two rivals became more efficient over that period, while Wells Fargo got less so, prompting the recent plans to cut $4 billion in annual costs by the end of this year.
“Our diversified business model has performed consistently over time and through a variety of economic and business cycles; we have industry-leading positions in many key businesses, strong credit discipline, capital and liquidity,” the bank’s spokeswoman said. “The company has transformed significantly” since 2016, she said, citing improved customer-satisfaction metrics.
That was the year Wells Fargo entered its fake-accounts settlement. Ensuing criticism from lawmakers and regulators prompted the ongoing overhaul. The bank eliminated sales goals in branches and replaced them with “activity goals,” which measure metrics like referrals to product specialists.
Key metrics in the consumer bank have steadily declined since then. Service charges on retail bank accounts fell 15% over the past two years. The bank attributes the declines to “customer friendly” measures and says more people are opening new primary checking accounts, a positive sign for the business’s future.
The bank’s large mortgage business also has become a weak spot as the housing market cools, though the sector showed signs of a revival at the end of the first quarter.
Then there is the problem of attracting customers, particularly in commercial banking and wealth management. “Existing clients really love the team that they work with at Wells. If you’re a new prospect, it’s a little harder to fall in love with us right now,” wealth management head Jonathan Weiss said at an investor conference in November. “You’re asking yourself or you’re explaining to your kids, ‘Gee, why are you working with Wells Fargo, aren’t they in the news a lot?’”
The continuing regulatory problems have led directly to some business restrictions. Earlier this year, parts of the wholesale unit temporarily halted the process of bringing on most new customers because the bank was behind on work needed to satisfy an Office of the Comptroller of the Currency order related to anti-money-laundering controls, people familiar with the matter said.
The bank is largely focused on delivering cost cuts promised to Wall Street. The first question on the analyst call announcing Mr. Sloan’s departure was about expenses.
Some savings will come from closing some of its roughly 5,600 branches, the most of any bank. Other cuts are coming in the form of tighter budgets and layoffs.
The bank’s board opted to give Mr. Sloan a 5% raise for last year’s work based in part on “strong financial results.” Many employees were angry about that development because they received no raises or, in the case of the bank’s investment banking unit, saw bonuses fall.
One manager had the roughly $100 monthly discretionary budget often used to buy doughnuts for high-performing branches slashed. Another was told that gatherings that for years have had dozens of attendees must now have fewer people.
Wealth management executives were recently given a new reorganization plan, according to an internal presentation. One slide mentioned something that could help those grappling with the changes: management book “Who Moved My Cheese?”
Wells Fargo To Pay $35 Million To Settle ETF Probe
SEC says sales controls weren’t sufficient over products called too risky for some investors.
Wells Fargo & Co. agreed to pay $35 million to settle regulatory claims that its financial advisers recommended exchange-traded funds that were too risky for some clients.
The Securities and Exchange Commission’s investigation targeted Wells Fargo’s sale of inverse ETFs, a type of fund that moves in the opposite direction of an index it tracks. Inverse ETFs can be used to hedge other positions or bet on a falling market, but the products are complex enough that regulators have warned for years they are unsuitable for many individual investors.
The sanction follows on an earlier blemish for similar conduct in 2012, when Wells Fargo paid $2.7 million to the brokerage industry’s self-regulator for selling inverse and leveraged ETFs without reasonable supervision. The SEC’s settlement order said Wells Fargo updated its policies for selling the products in 2012, but the controls still weren’t sufficient.
The deal comes one week after Wells Fargo resolved a bigger regulatory cloud, a multiyear investigation into how low-level employees who were stressed by high sales goals opened fake and unauthorized bank accounts. Wells Fargo paid $3 billion to settle those allegations.
Brokers and investment advisers have struggled for years with how to sell inverse and leveraged ETFs. Leveraged ETFs employ derivatives to deliver two or three times the daily price moves of benchmarks. The SEC approved the products over a decade ago and has been reining in their use by individual investors ever since.
Wells Fargo said Thursday that its advisory business “no longer sells these products in the full-service brokerage.”
The products are popular with some traders and are intended for daily, tactical trading. But many brokers have recommended the products to investors who held the funds for longer periods, which can lead to surprises.
For example, an inverse fund that should rise in value when the market declines can actually lose value during periods of sustained volatility. That outcome stems from the effects of daily compounding, which over longer periods produces returns that can vary from a leveraged or inverse ETF’s objectives.
The SEC’s settlement order said Wells Fargo’s employees advised clients from 2012 to 2019 to hold the funds “in many cases for months or years” in accounts, including those investors saving for retirement.
The SEC said the $35 million penalty would be used to compensate clients who had losses and held the funds for more than 30 days.
The order said some of Wells Fargo’s employees weren’t familiar with the company’s policies for selling inverse ETFs, or didn’t understand how the funds worked.
Wells Fargo Ex-CEO Settles SEC Claims, Former Consumer-Unit Head Faces Fraud Case
John Stumpf settles civil claims over his role in the bank’s fake accounts scandal.
Former Wells Fargo WFC 1.09% & Co. chief executive John Stumpf agreed Friday to pay $2.5 million to settle civil claims over his role in the bank’s fake accounts scandal, while regulators sued another departed Wells executive over fraud allegations.
Mr. Stumpf, who stepped down from his top post in 2016, neither admitted nor denied the Securities and Exchange Commission’s claims, which accused him of misleading investors about the success of Wells Fargo’s community banking business.
Mr. Stumpf was earlier barred from the banking industry and paid $17.5 million to settle claims from the Office of the Comptroller of the Currency. An attorney for Mr. Stumpf declined to comment.
Separately, the SEC sued former consumer-bank head Carrie L. Tolstedt, filing a civil fraud case against her in San Francisco federal court.
The regulators said Ms. Tolstedt publicly described and endorsed a key measure of Wells Fargo’s business, the “cross-sell metric”—or the number of products the bank sold to its customers—without disclosing that it was inflated by unused and unauthorized accounts and services.
The SEC’s lawsuit seeks a court judgment ordering Ms. Tolstedt to pay fines and barring her from serving as an officer or director of a public company. The OCC, another of the bank’s regulators, separately charged Ms. Tolstedt earlier this year, seeking $25 million and a lifetime ban from the banking industry.
Enu Mainigi, an attorney for Ms. Tolstedt, said the former Wells executive acted appropriately and would fight to clear her name.
“It is unfair and unfounded for the SEC to point the finger at Ms. Tolstedt when her statements were not only true but also thoroughly vetted by others as part of Wells Fargo’s policies, procedures and systems of controls,” Ms. Mainigi said.
The nation’s fourth-largest bank and its former executives have been under regulatory scrutiny since its fake-accounts scandal came to light more than four years ago. The bank has been hit with billions of dollars in fines. Executives have paid penalties and had compensation clawed back. The scandal badly tarnished the bank’s reputation and weighed on its financial performance.
For years before the scandal became public, the bank said that a key to its success was its ability to sell many accounts and other products to its customers. For a time, it targeted eight products on average for each customer. In the bank’s 2010 annual report, Mr. Stumpf said he often was asked why Wells Fargo had set a cross-selling goal of eight. “The answer is, it rhymed with ‘great,’” he wrote.
The SEC said that Mr. Stumpf and Ms. Tolstedt approved disclosures to investors that included inflated or misleading figures because many of the accounts were unauthorized or unused. Mr. Stumpf “learned of facts that put, or should have put, him on notice” about inaccuracies related to the cross-selling metric from 2015 to 2016, the SEC said in a settlement order. Ms. Tolstedt also touted these numbers when speaking publicly to investors, the SEC said.
The SEC’s order against Mr. Stumpf said he learned in 2013 of sales-related misconduct, after the Los Angeles Times published articles about Wells Fargo employees ordering credit cards without customers’ permission, forging client signatures and asking their own family members to open “ghost accounts.”
Executives such as Ms. Tolstedt played down the extent of wrongdoing in presentations to Wells Fargo’s board members, the SEC’s order said, while Mr. Stumpf relied on those assurances when he signed off on the bank’s financial disclosures.
At the same time, many inside the company were allegedly raising alarms about the company’s reliance on cross-selling. One banker who resigned in 2014 told Ms. Tolstedt: “I have spent a majority of my time here at Wells Fargo closing accounts for customers” who didn’t need or use them, according to the SEC’s complaint.
“If executives speak about a key performance metric to promote their business, they must do so fully and accurately,” said Stephanie Avakian, director of the SEC’s enforcement division. “The commission will continue to hold responsible not only the senior executives who make false and misleading statements but also those who certify to the accuracy of misleading statements despite warnings to the contrary.”
Wells Fargo agreed in February to pay $3 billion to settle civil and criminal investigations with several regulators into the long-running fake accounts scandal, closing the door on a major portion of the legal problems.
The Justice Department, in its agreement, heavily criticized Ms. Tolstedt without mentioning her name. It said that by 2012, regional executives “were regularly raising objections” to her about “unlawful and unethical sales practices.” Her lawyer said at the time that “the effort to scapegoat her is both unfair and unfounded.”
About a year ago the bank brought in a new CEO, Charles Scharf, who has given priority to appeasing regulators and cutting costs.
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