Citing Wells Fargo's "predatory and illegal" practices, Illinois Treasurer Michael Frerichs said the bank would no longer be broker-dealer for about $30 billion of state investment funds annually, a suspension he said will cost the institution "millions" of dollars in fees -- a figure the company disputed.
His announcement comes days after at least one Chicago alderman proposed banning the city from doing business with Wells Fargo for two years.
As treasurer, Frerichs oversees $1 trillion in annual investment activity. His office works with about two dozen companies, including Wells Fargo, that buy commercial paper and other short-term investments for the state.
"Wells Fargo took advantage of consumers by secretly opening 2 million unauthorized deposit, credit card, debit card and online banking accounts," Frerichs said Monday. Those abuses, which went on for years and were motivated by sales goals, resulted in dinged credit scores and millions of dollars in unwarranted fees for customers and therefore demand a "strong response," he said.
Wells Fargo says that in Illinois, it can't rule out the possibility that 4,890 accounts were unauthorized. "Although it was not confirmed that these accounts were unauthorized, 233 incurred fees, and we decided to err on the side of the customer and issued these potentially impacted customers a refund, which on average was $25 per account," Wells Fargo spokeswoman Bridget Braxton said.
Another company spokeswoman, LaTrina Shepherd, disputed that Frerich's move would cost Wells Fargo millions, saying the lost revenue would amount to about $50,000 per year.
Frerichs' investment activity moratorium on Wells Fargo will last for at least a year. He was unable to quantify how many millions in fees that Wells Fargo would forgo but said "tens of millions" would be too high of a figure.
He also said his office would suspend investments in Wells Fargo debt securities for a year.
Wells Fargo has worked with the state of Illinois and city of Chicago since 1970. "We manage their business in our government and institutional banking division, which is separate from our retail bank," Shepherd said. "We're very sorry and take full responsibility for the incidents in our retail bank," which has taken steps to address the problems.
Illinois won't use Wells Fargo for any new bond sales until further notice. The Rauner administration has not done any bond business with Wells Fargo to date.
Chicago Treasurer Kurt Summers told Bloomberg News that he plans to divest $25 million the city has invested with Wells Fargo.
(c)2016 the Chicago Tribune
