Wells Fargo (WFC) needs to win back loyalty and trust after the bank created up to 2 million accounts without customers’ permission. It bears repeating: The country’s third-largest bank by customer assets perpetrated identity theft, found out, and did nothing, potentially hurting its customers’ credit in the process.
Nevertheless, the company’s stock has jumped 23% since the election—along with the banking sector in general—recouping its 2016 losses. With the stock doing well and a new CEO installed after the dismissal and clawbacks from disgraced John Stumpf, things seem alright going into the new year—once the bank fixes its financial crisis contingincy plan.
But if Wells Fargo wants to retain customers over the long-term, the bank is going about it the wrong way.
This month, The New York Times reported that the bank has been asking judges to kill lawsuits regarding the fake account scandals and send them to arbitration instead, a non-public process.
Wells Fargo is arguing that the arbitration agreements customers made with the bank when they signed up for their legit accounts apply to the fake ones that were created without their permission—and those agreements remove the right to sue.
The move shows a new level of customer hostility from the bank. Binding consumers to arbitration for a product they sign up for is different than binding them to arbitration for a product they are given illegally and without their knowledge or consent.
If this represents the post-scandal Wells Fargo, it won’t bode well for the bank’s consumer retention or new accounts. While it’s bad from a customer point of view, common sense shows this is no recipe for keeping deposits and credit cards applications up. Should those numbers deteriorate, the bank would have to resort to other means to keep cash in the coffers. Some of those tactics, like offering generous interest rates on savings accounts, are costly.
Unless it changes its attitude, Wells Fargo could become a study in whether a bank will in fact get bitten in the rear if it scorns customers. Similarly, Wells Fargo’s behavior has harmed some of its relationships with state governments—California and Ohio suspended ties—and other businesses. Earlier this week, Prudential suspended Wells Fargo from selling its life insurance policies, pending an investigation of problematic sales tactics. With other, more consumer-friendly banks out there—that also offer higher interest rates on deposits—Wells Fargo may simply be giving consumers the kick in the pants they need to leave.
Correction 12/16: 2 million accounts were not confirmed as fradulent; up to 2 million may have been.