Over the course of four years, at least 5,000 Wells Fargo employees opened more than a million fake bank and credit card accounts on behalf of unwitting customers.
Although many bank accounts were deemed “empty” and closed automatically, employees sometimes transferred customer funds to the new accounts, triggering overdraft fees and hurting credit ratings.
This scandal feels different from the mortgage crisis because it was not carried out by the 1 percent – such as wealthy investment bankers indifferent to the effects of their actions on regular homeowners – but by “$12 an hour employees,” as one lawsuit alleged. Even if supervisors encouraged or directed the fraud, it was likely these low-wage workers who actually clicked the button to open those accounts.
These workers likely knew better than most what it’s like to be slapped with unfair overdraft fees or undeserved hits to their credit rating.
So why did they do it?
Social science research suggests that ethical behavior is not about who you are or the values you hold. Behavior is often a function of the situation in which you make the decision, even factors you barely notice.
This makes cheating more likely to happen in some situations than others. Although many honest Wells Fargo employees realized that opening fake accounts was wrong and refused to do so, it is also the case that other employees who considered themselves honest participated in the fraud.
What would it mean to apply these behavioral insights to the Wells Fargo situation? Here, I draw from White House guidance on how to implement lessons from behavioral science into government policy to identify situational factors that contributed to the fraud.
Repeated reminders of terrifying incentives
“In cases where the goal of an incentive is to encourage a particular behavior, agencies should ensure the incentive is salient to individuals.”
As early as 2010, Wells Fargo imposed extremely aggressive sales goals on its employees. Specifically, they were told to sell at least eight accounts to every customer, compared with an average of three accounts 10 years earlier.
Unmoored from what his salespeople could realistically achieve, the CEO justified this goal on the basis of a simple rhyme, telling shareholders in the bank’s 2010 annual report:
“I’m often asked why we set a cross-sell goal of eight. The answer is, it rhymed with ‘great.’ Perhaps our new cheer should be: ‘Let’s go again, for 10!’”
These goals loomed large when supervisors threatened salespeople who failed to meet them. One former employee interviewed by CNN reported,
“I had managers in my face yelling at me” and that “the sales pressure from management was unbearable.”
Another former employee told the LA Times: “We were constantly told we would end up working for McDonald’s…; If we did not make the sales quotas …; we had to stay for what felt like after-school detention, or report to a call session on Saturdays.”
A lawsuit against Wells Fargo alleges that “employees who failed to resort to illegal tactics were either demoted or fired as a result.”
As the guidance suggests, incentives matter a lot when they are highly salient, or foremost in the employee’s mind. It’s hard for an employee to ignore the threat of losing one’s job or even the threat of embarrassment in front of other employees.
At a bare minimum, Wells Fargo should have done a better job of investigating and stopping the coercive enforcement of its sales goals.
Cheating is contagious
“[I]n many contexts, individuals are motivated by social comparisons, such as learning about the behavior of their peers. Research finds that individuals reduce residential energy consumption when provided with information on how their consumption compares with that of their neighbors.”
While the guidance emphasizes the positive side of social comparisons, they also work the other way: watching others misbehave influences our own misbehavior. We’re more likely to litter in a park full of litter – especially if we observe someone else littering. Watching someone else on our team cheat on a test makes us more likely to do the same.
In his congressional testimony, Wells Fargo CEO John Stumpf made it sound as though the employees responsible were bad apples or lone wolves who disregarded the company’s code of ethics. Although we don’t know the identities of the terminated employees, this is an unlikely explanation for a fraud so widespread.
What is more likely is that the fraud occurred in clusters, as groups of employees rationalized their decisions. This hypothesis is consistent with the CEO’s testimony that branch managers were terminated, suggesting that entire branches may have been infected by cheating.
A lawsuit filed against Wells Fargo also claims that employees shared with one another the know-how used in the fraud. They used shorthand reminiscent of a video game hack: “gaming” referred to opening accounts without authorization, “sandbagging” meant delaying customer requests, “pinning” stood for generating PINs without authorization and “bundling” involved forcing customers to open multiple accounts over customer objections.
This euphemistic terminology allowed employees to lie to themselves about what they were doing, making it seem as though they were gaming the system rather than ripping off customers.
A victimless crime
“Consider the framing of the information presented.”
In retrospect, it seems impossible to believe that any honest person at Wells Fargo would have felt okay about opening fake accounts. But as social scientists Nina Mazar and Daniel Ariely have argued, “people like to think of themselves as honest.” But their research shows that “people behave dishonestly enough to profit but honestly enough to delude themselves of their own integrity.”
In this case, the Wells Fargo employees probably focused on the respects in which their actions were harmless and ignored the downstream implications of what they were doing. Even Stumpf was guilty of this form of self-delusion, explaining to Congress that he initially believed the practices were harmless because empty accounts were “auto-closed” after a certain period of time.
Research suggests that people are more likely to engage in dishonest conduct in which they can tell themselves they’re not stealing money. As implausible as it may seem, Wells Fargo employees may have told themselves they weren’t “stealing” because they weren’t directly removing money from someone’s account. They were just moving it from one account to another.
Technology also tends to have a distancing effect. Pressing buttons on a screen feels morally different from robbing a bank, even if it achieves the same result. That’s sort of the premise of a main plot point in the comedy “Office Space,” when the main characters unleash an algorithm designed to steal fractions of a cent from bank transactions.
Wells Fargo employees may not have considered how their conduct affected customers in terms of overdraft fees or credit ratings. Even if they did, they could rationalize those consequences as outside of their control. In their minds, it was the Wells Fargo algorithm that assessed the overdraft fee. It was the credit rating agencies that make decisions about credit scores. The logic goes something like this clip from “The Simpsons” in which Bart punches the air and marches forward, warning Lisa that if she gets punched, it’s her own fault.
In this case, the customer didn’t even know the punch was coming.
‘I don’t buy it’
As early as 2011, the Wells Fargo board was informed about reports of ethics violations. The cheating continued, leading Wells Fargo to fire at least 1,000 people per year in 2011, 2012 and 2013. Any company that fires 100 people for the same type of cheating, let alone thousands, knows or should know that situational factors are contributing to the cheating.
Instead of addressing that environment, however, the bank allowed the situation to persist. In the words of Representative Sean Duffy, who dismissed the CEO’s claim that they are now “trying” to fix the problem, “We’re five years on! …; I don’t buy it.”
So how to fix a culture that’s gone bad?
Although we don’t know what sorts of internal controls Wells Fargo had in place, it should have examined the patterns of cheating and made it both practically – and morally – harder to do.
Five years later, the bank is finally sending customers an email every time a new account is opened and revising its sales goals. It also needs to revisit how supervisors are evaluated and crack down on those who threaten employees over sales targets.
Software could also be used to apply “moral speed bumps” that remind employees engaged in suspicious activity like opening unauthorized accounts that the behavior is wrong and illegal.
Most of all, Wells Fargo needs to send a strong message to its employees about the moral implications of their actions. In my view, that starts with the CEO’s resignation.