This week we take a look at the Wells Fargo banking scandal, how the fallout may affect you, and what to consider if you want to switch banks.
The Story
For years, some Wells Fargo employees have been secretly setting up sham accounts in customer’s names. They did it to meet sales quotas and receive bonuses.
The news gave the banking industry yet another black eye. It left consumers wondering who they can trust anymore.
Key Details
Since at least 2011, Wells Fargo employees issued 565,000 credit cards without customer consent. They created another 1.5 million bogus bank accounts on the sly using fake email accounts.
Employees usually deleted these sham accounts within a few weeks. Still, thousands of accounts remained open, charging customers unnecessary fees and damaging their credit. Wells Fargo has agreed to refund $2.6 million in fraudulent fees.
The illegal banking practices also cost Wells Fargo $185 million in fines. The bank fired 5,300 employees who were involved, and just earlier this week, CEO John Stumpf stepped down.
The Bigger Picture
While most Americans were shocked to learn about the fake accounts created by Wells Fargo employees, people who work at other banks weren’t surprised at all.
An investigation by CNN Money reports that similar practices exist at many national and regional banks such as Bank of America, Citizens Bank, PNC, SunTrust, and Fifth Third.
The complaint database run by the Consumer Financial Protection Bureau also shows that Wells Fargo certainly isn’t alone in its sales abuse complaints. In fact, Citibank and Bank of America received more complaints than Wells Fargo over the last three years.
And while the Wells Fargo scandal is fresh on our minds right now, you might recall that just last year, Citibank was forced to return $700 million to its customers and faced a $70 million fine for a scandal that was even broader than the recent Wells Fargo mess.
Winners and Losers
The shareholders of Wells Fargo stock are clear losers. The stock fell as much as 12 percent after the misdeeds became public, and has lost 16 percent during all of 2016.
The big banking industry is also a clear loser as public trust erodes rapidly.
A biennial study released earlier this month by the Brunswick Group found significant distrust toward large financial institutions. 73 percent of Americans favor more bank regulation and 65 percent favor smaller banks operating in local communities.
Here’s a snapshot of the key findings:
So who are the winners?
The big winners may be smaller banks, online banks, and credit unions, as more people look to move their money to a smaller institution.
Other winners include those who take the time to explore other ways to safely store their money outside the banking system.
How To Make The Switch (And What to Watch Out For)
If you are one of the millions considering a bank switch, here are some possible options:
Credit Unions – unlike large banks, credit unions are nonprofit cooperatives that exist to serve their members. In some cases you may have to qualify to join. Ask about ATM availability and fees, and make sure they offer the online services you want (such as bill pay or remote deposit). The Credit Union National Association also offers a search tool to help you find a nearby credit union.
Smaller, Local Banks – Once the staple of American life until they got swallowed up by Big Bank expansion in the 1990s and 2000s, small, local banks are enjoying a comeback. This is an especially popular option for small businesses or medical practices since you can establish a personal relationship with your banker. You may not get all the convenience and online services you get with a big bank, so be sure to compare. You can do a quick search at Independent Community Bankers of America. For international (and other U.S.) options, you’ll want to check out the Global Alliance for Banking on Values.
Online Only Banks – these have no physical locations, so you can’t go into a branch to make a deposit or talk to a banker face-to-face. Yet, many people like the convenience and low fees. If this interests you, this article compares 5 popular online-only banks. Another online banking service to watch out for is Zero Financial which is set to debut next year.
If you already have an account at a big bank, the transition to a new bank may be harder than you think.
Consider all the automatic deposits and ACH withdrawals you have set up. And remember that any automatic bill pay services you have set up will have to be re-entered with a new bank.
What To Do Next
At Wealth Factory, we feel liquidity is a critical measure of your financial strength and readiness. It’s especially important during times of economic uncertainty like we live in right now.
For quick and convenient access to small amounts of cash, a bank or credit union account is fine. We also recommend having at least a month’s worth of physical cash or precious metals kept at home in a safe for emergencies or times of chaos.
For larger amounts of savings, we recommend using the Cash Flow Banking system. This gives you liquidity for larger purchases or investments, yet has arms-length access restrictions so you aren’t tempted to spend it frivolously.
If you’re not sure what Cash Flow Banking is all about, watch your weekday inbox over the next couple of weeks. We’ll be showing you how it works and giving you valuable resources so you can put it into practice in your life if you want.
Your Action Plan:
- Investigate whether or not it makes sense to switch banks
- Make a plan to keep some of your money at home, either in cash or precious metals
- See if Cash Flow Banking makes sense for you, and watch for the upcoming emails and resources we’ll be sending you
That’s it for this week.
Build the life you love,
The Builders at Wealth Factory
What is Living Wealthy Weekly?
Each week we share timely trends, news stories, and current events that affect your life. We help you see the impact, personally and socially, and give you possible solutions to avoid any negative effects. We also give you additional links and resources if you want to investigate further. The purpose is not to be the last word on any topic. Rather it’s to help us all stay informed of what’s going on in the world without letting those events negatively impact your lifestyle. Our goal is to help us all live richer, fuller lives from a position of financial strength. This allows you to weather economic hard times, and seize whatever new opportunities arise in our changing world.
