When signs of fraud appear on a customer’s account, such as a counterfeit check or an unauthorized withdrawal, a bank is required by law to investigate whether criminal activity has occurred. Wells Fargo had a simpler solution, according to a former employee: Close the account and drop the customer.
Matthew Valles, a former fraud investigator for Wells Fargo in Portland, Ore., said the bank fired him in January in retaliation for his internal complaints about “hundreds” of mishandled fraud investigations. On Wednesday, he sued the bank and his former manager, alleging that they violated whistle-blower laws.
Jim Seitz, a Wells Fargo spokesman, said, “We take seriously the concerns of current and former team members and investigate them thoroughly, and we are reviewing the legal complaint that was filed this afternoon.”
Mr. Valles’s claims, combined with dozens of customer complaints to a federal regulator currently investigating the bank’s handling of fraud investigations, add to a pile of problems for Wells Fargo. Early in February, the Federal Reserve chided the bank for “widespread consumer abuses” and forbade it to grow any larger until it shaped up.
Mr. Valles is the first Wells Fargo insider to publicly offer up more details on an issue that surfaced last year in a brief few lines in a regulatory filing by the bank. Wells Fargo disclosed in August that the Consumer Financial Protection Bureau was looking into whether customers had been harmed by the bank’s practice of freezing and often closing accounts after it or its customers detected signs of fraud.
When a bank receives a fraud claim or detects suspicious activity, it typically assigns an investigator to piece together what happened. If the bank determines that the customer was an innocent victim, it will usually help him or her try to recover the missing money. But if the bank finds signs that the customer has engaged in illegal activities, like money laundering or fraud, it is supposed to report the issue to law enforcement and close the customer’s accounts.
Many Wells Fargo customers, however, have complained that the bank was too quick to freeze or close accounts after signs of fraud — even if they themselves reported the suspicious activity. The consumer bureau’s complaints database contains dozens of reports from aggrieved customers who said their accounts had been shut down after they were victimized. Some customers who unknowingly deposited fake checks, for instance, said their accounts had then been terminated, often with little warning or explanation. That can temporarily block customers’ access to their funds — and make it more difficult to recover any money they lost.
Wells Fargo said it was working with regulators on the matter.
“As always, our goal is to protect our customers and the bank from fraud, and we want to do so in ways that minimize the risk and impact on our customers,” Mr. Seitz, the bank spokesman, said.
Timothy J. Sloan, Wells Fargo’s chief executive, said at an investor conference in December that the bank was reviewing its procedures for handling accounts with signs of suspicious activity.
According to Mr. Valles’s lawsuit, it was standard practice at Wells’s Portland office to close customer accounts rather than investigate the suspicious activity.
Instead of looking into fraud claims, the bank would instead “save money by simply closing accounts under the pretext of a ‘business decision,’” Mr. Valles said in his complaint, filed in Oregon’s Multnomah County Circuit Court.
“Improperly closing customer accounts in this manner ensured that customers, not Wells Fargo, were left to absorb the costs of fraudulent activities and unauthorized withdrawals from their checking and savings accounts,” Mr. Valles’s complaint said.
Mr. Valles, 30, worked at Wells Fargo for seven years, mostly in the fraud department in Salt Lake City, and transferred to the Portland office in 2014. He said he had first complained to the company’s management about the account closings the next year.
Last month, Wells Fargo fired him, saying he had violated a security policy by leaving his notebook, which contained internal case numbers, on his desk overnight. It was the last in a string of reprimands that Mr. Valles said he had received from the bank after he complained — a response that he said constituted retaliation.
Despite the acrimony surrounding his departure from the bank, Mr. Valles said Wells Fargo had shown signs of progress in recent months.
Soon after the bank’s disclosure of the consumer bureau’s investigation, a new group of people arrived to the Portland office, he said. They set up new computers and put up an “Audit Department” sign over their section of the office.
After that, employees stopped using the blanket “business decision” justification for closing accounts and began conducting more thorough investigations, Mr. Valles said. If they did decide that an account had to be closed, he said, they cited more specific evidence of fraudulent acts, such as a counterfeit check or an unauthorized electronic deposit.
“They’re working on fixing the problems,” Mr. Valles said. “A lot needed to be done.”
But those changes will not help customers whose accounts have already been affected, like Michael and Mary Ellen Mervis, a couple who had accounts with Wells Fargo for decades.
In 2015, they discovered that one of their accountants had removed a six-figure sum from their checking account without their consent over the course of several years. The Mervises filed a police report in Milwaukee, where they lived at the time, and alerted the bank. Soon after, Wells Fargo told them that it was closing their checking and brokerage accounts and would not let them open new deposit accounts with the bank.
The Mervises protested. The bank responded by noting its “responsibilities to oversee and manage risks in its banking operations,” and said the decision was final. That forced them to seek out a new bank and move over their assets, and still left them on their own to pursue their missing money. The accountant was eventually convicted of theft and ordered to pay restitution, but they still haven’t been made whole.
“We got a hold of a lady in the fraud department, and she said this happened to a lot of people who filed fraud complaints,” Mr. Mervis said. “We were horrified. The bank had this attitude that if something went wrong, instead of trying to fix it, they were just going to run you over with the stagecoach and be done with you.”