The infamous Wells Fargo’s (WFC - Free Report) fake accounts scandal has now extended to other major banks as well, per the Office of the Comptroller of the Currency (OCC), the federal bank regulator. Though the OCC refrains from disclosing the names of the banks involved, it claims having evidences related to sales practices of these large- and mid-sized banks creating unauthorized accounts.
During the congressional hearings this week, Joseph Otting, the U.S. Comptroller of the Currency, revealed that the findings are the part of the OCC’s review of more than 40 banks, which was initiated following the disclosure of the Wells Fargo scandal in 2016. He disclosed that around 10,000 unauthorized accounts were opened during the three-year period without customers’ consent. Moreover, these banks lacked papers authenticating customers’ authorization for these accounts.
Notably, the review ended in 2017, following which banks were sent letters in early 2018, stating their detailed issues.
Per Otting, the new mortgages, auto loans, credit cards, checking, savings and money market accounts represent just a meagre part of the nearly 600 million accounts opened by the banks during the three-year tenure.
"The OCC did not find pervasive or systemic issues in regard to improper account openings but did find the need for banks to improve their policies, procedures and controls," Otting told the Senate Banking Committee.
Reimbursement to affected customers due to such practices is likely to take place "if they can document an account was opened inappropriately," Otting added.
Though Republican members of House, and Senate banking and finance committees were not keen in getting into the issue, some Democratic members of the panels insisted on a detailed disclosure.
"We are concerned that the decision to keep the specific findings of the review private leaves consumers exposed to past and future predatory behavior and impedes our ability as lawmakers to effectively conduct oversight over the banking industry," eight Senate Democrats wrote in a Thursday letter to Otting.
However, per Otting, the recently reviewed banks’ issues are not that stern as compared with Wells Fargo’s failures.
For this Wall Street giant, troubles mounted following the revelation of opening of millions of unauthorized accounts in 2016. ‘Cross-selling’, which has been the company’s key strength in recent years, drew regulators’ attention as they discovered that thousands of employees of the bank had unlawfully enrolled consumers in products and services without their knowledge or consent, in order to receive incentives for meeting sales targets. Apart from being penalized by the regulators with a fine of about $185 million, the bank had to undergo a massive restructuring.
Though Wells Fargo is taking necessary steps to address the issue, the company’s financials are undoubtedly under pressure.
Broadly, if big names, including Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and JPMorgan (JPM - Free Report) , come under the purview of such a scandal, the banking sector will lose its momentum, paralyzing investors’ confidence.
Currently, all the above-mentioned banks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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