Wells Fargo scandal presents opportunity for small banks

By Bill Heltzel

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The Wells Fargo Bank scandal is an opportunity for small community banks to emphasize their style of customer service and to show that they have products and services that were once the domain of big national banks.

“As a community banker, you want to differentiate yourself,” said Chris Lorence, chief marketing officer of Independent Community Bankers of America.

All crises eventually blow over, he said. So community banks should keep focusing on what they do best: evangelizing about customer service and explaining how they have everything that big banks have.

A local Wells Fargo branch. A local Wells Fargo branch.

Size is their advantage. Their owners and employees live, work and worship in the same communities as their customers, he said.

“There is a natural trust.”

Abuse of trust is at the center of the Wells Fargo scandal. Wells Fargo employees secretly opened more than 1.5 million phony deposit accounts and more than 565,000 credit card accounts, using customers’ information without their consent or knowledge.

The practice, dating back to 2011, was part of an aggressive program of cross-selling products. Retail bank employees were pressured to sell up to eight products per customer.

Typically, fake accounts were closed after the employee received credit toward sales goals. But some customers were charged unexpected fees or were contacted by debt collectors about fake accounts.

Federal and local regulators fined Wells Fargo $185 million for abusive sales practices.

Size matters

Wells Fargo is the fourth largest bank in the region, with $4.1 billion in deposits in both Fairfield and Westchester counties. It controls 9.7 percent of the Fairfield market, according to Federal Deposit Insurance Corp. data for 2015, with 33 offices. It controls about 5.7 percent of the Westchester market, with 35 offices.

A few people who have walked into Bankwell branches in Connecticut recently have identified themselves as former Wells Fargo customers.

“I’m not going to dance on the grave of another financial institution,” said Christopher Gruseke, Bankwell president and CEO. “But it’s like we always say: Bank smart, bank local, bank well. Community banking means you’re banking with people who are your neighbors.”

Wells Fargo has about 100,000 employees in the retail branches across the country. Bankwell has 130 employees in nine offices in Fairfield and New Haven counties.

Gruseke said he visits every branch regularly and lunches monthly with groups of 15.

“The closer you are to the troops, the less likely something like this can happen.”

Federal regulators attributed the Wells Fargo scandal in large part to inadequate internal controls.

Size matters, according to James Kwak, a University of Connecticut law professor and co-author of “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.” He said it is difficult to truly foster customer service when decision-makers are hundreds or thousands of miles away.

Kwak uses a small bank. “I genuinely believe the people there have my welfare at heart. The business model is what they say. They are truly doing the best for the customer in the long run.”

PCSB Bank, based in Yorktown Heights, has no intention of directly encouraging Wells Fargo customers to switch to any of PCSB’s 15 offices in the Hudson Valley, said President and CEO Joseph D. Roberto.

“We’re just continuing to emphasize who we are and what we do. Just provide good customer service.”

The employees live here, Roberto said. They are active in community events. They understand their customers.

The Westchester Bank, headquartered in White Plains, also has no intention of taking on Wells Fargo directly.

“I always look to emphasize and execute our business strategy,” said John Tolomer, the president and CEO, “as opposed to focusing on what’s going on with the competition.”

He has 57 employees in five branches. Each office has deposit goals, but “we don’t peddle products,” he said. By providing good, friendly customer service, people will want to do more business with the bank.

Tolomer said community banks can offer the same products and services as any financial institution but do so in a highly personalized manner.

Big banks in the 1990s had a technological advantage, Kwak said. For instance, people looked for the largest ATM networks or the latest in online services. Now community banks refund out-of-network ATM fees to attract customers and everyone has online services. Widespread technology has erased the big bank advantage.

The difference today has more to do with marketing. Big banks can offer a broader range of services, such as wealth management and credit cards, and they promote the convenience of having everything in one place. But in the competitive world of financial services, Kwak said, it makes more sense to shop for the best deal wherever you can find it.

Customer service

Kwak makes another distinction between big and small. Big banks tend to think about customers as data and to use data-driven strategies to extract more money from people.

So when a customer calls a service center, the bank knows exactly how much money she has and a computer algorithm can allocate how much time to give her. With millions of customers, shaving seconds off calls adds up to real money.

Size can also distort the meaning of “customer service.” The Wells Fargo scandal, Kwak said, shows “the language of relationships was not quite a lie, but it was used as a façade.”

The actual damages to individual customers was rather small. Wells Fargo has refunded $25 to many customers whose bank accounts were charged fees for phony services.

The Consumer Financial Protection Bureau levied a hefty $1 million fine, Director Richard Cordray told the Senate Committee on Banking, Housing and Urban Affairs because Wells Fargo’s practices “represent a staggering breach of trust.”

He said the breadth of the fraud cannot be pushed aside as the stray misconduct of a few bad apples.

“The stunning nature and scale of these practices reflect instead the consequences of a diseased orchard.”

A Wells Fargo spokeswoman responded to questions about the impact of the scandal on Westchester and Fairfield with a written statement.

“Wells Fargo’s culture is committed to the best interests of our customers, providing them with only the products they want and value.”

Wells Fargo has a culture of fraud, said Linda Tirelli, a White Plains bankruptcy attorney who has sued the bank over its mortgage services, and nothing will change until top executives are arrested and the public “sees a perp walk on TV.”

She advises clients to steer clear of five big banks: Ally, Bank of America, Chase, Citibank and Wells Fargo.

Regional banks, local banks and credit unions, she said, are less likely to commit fraud and more likely to fix problems when they occur.

“I tell my clients, stop feeding the fraud. Stop feeding the big banks. Stop using them.”

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About the author

Bill Heltzel
Bill Heltzel has covered criminal justice, courts, government and sports – as a beat reporter and investigative reporter – for daily newspapers in Florida, Indiana, Ohio, and Pennsylvania. He worked for Bloomberg LP in training and sales. He joined The Business Journal in 2016.

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