Wells Fargo announced recently that former Federal Reserve Board Governor Elizabeth Duke will take over as chairman of the board next year. She is the first woman to hold the chairmanship of a major Wall Street bank. But that isn’t why Wells Fargo chose her.
Wells Fargo has been reeling from a series of scandals. It's most serious was perhaps the fake accounts scandal that was brought to light last year. Wells Fargo employees created millions of fake accounts in its customers’ names over a period of several years. The impetus behind the creation of those accounts was Wells Fargo’s emphasis on cross-selling, encouraging its employees to get customers to purchase multiple financial products from the bank. Pressure from higher-ups led to the establishment of sales quotas that in many cases were unattainable, leading to employees creating fake accounts in customers’ names in order to meet the quotas.
In all, the total number of fake accounts created was over 3.5 million. Many customers saw their credit ratings damaged due to accounts that they never knew they had. Wells Fargo ended up firing over 5,000 employees over the scandal, paid a fine of $185 million, and settled a class action lawsuit for $142 million.
Wells Fargo is back in the news this year with revelations that its auto lending branch forced unwanted and unnecessary auto insurance on up to 490,000 customers. In some case, the inability to pay that unneeded and unwanted insurance led to people having their cars repossessed, harming their credit scores.
All of these scandals have put tremendous pressure on Wells Fargo to clean up its act. Senator Elizabeth Warren (D-MA) even urged the Federal Reserve to clean house and fire Wells Fargo’s entire board. Mrs. Duke’s election to the chairmanship of Wells Fargo’s board must therefore be viewed in light of these recent events.
As a former Governor of the Federal Reserve Board, Mrs. Duke is obviously well-connected, having previously served on the Board with current Fed Chairman Janet Yellen. Duke’s election is undoubtedly an attempt by Wells Fargo’s board to forestall any Fed action against the board, allowing the firm time to clean up (or paper over) its mess before federal regulators step in to take action.