Wells Fargo Collateral Protection Insurance Scandal

Wells Fargo Scandal
The Wells Fargo Collateral Protection Insurance (CPI) Scandal occurred as a result of the banking firm placing CPI on accounts even though the account holders did not ask for it or want it. It resulted in customers paying unnecessary and higher fees over a period of time. Wells Fargo was sued and agreed to settle the case out of court for approximately $400 million without admitting fault (Top Class Actions, 2019). The scandal, however, caused Wells Fargo to lose a great deal of reputation: customers began leaving the bank in droves and the firm suddenly found itself wondering how it had fallen and what it could do to shore up trust among customers once more. For years, the bank seemed happy to dupe customers with excessive fees, believing no customer would be sophisticated enough to realize just how he was being overcharged—but customers did catch on and the scandal revealed a major weakness in the firm’s ethical framework. Instead of asking what the firm could do, it needed to be asking what the right thing to do was, as Horowitz (2011) notes in his TEDx Talk. This paper will discuss the Wells Fargo scandal from three ethical perspectives and show.
>By attempting to cheat its customers for a short-term gain, Wells Fargo was essentially acting from an Ethical Egoist perspective: promoting its own self-interests based upon an ends-justify-the-means approach. The problem with this was that Wells Fargo did not take a proper long-term view of the risk of this approach. Sooner or later, the firm would be called out for its shoddy dealings with customers and that would negatively impact its reputation. With a negatively impacted reputation, Wells Fargo could lose billions in service fees due to declining clientele. Thus, though the firm was acting from the standpoint of ethical egoism, it certainly did not benefit from this ethical framework in the long run and in the short run only benefitted slightly, until it was required to make amends to clients.
From another perspective, it could be argued that Wells Fargo was engaging in a utilitarian approach to banking. The utilitarian ethical perspective was developed by J.S. Mill and the basic moral concept underlying this perspective is that the most moral course of action is that which delivers the greatest common good (Goodpaster, 1983). However, as critics point out, the “utility” of the ethical philosophy is difficult to pinpoint because it does not explicitly define the “good” that is expected to be so common and it also can lead to a moral sense and a practical sense of action pointing in two different or opposing directions. This is basically what happened with Wells Fargo. The firm might have rationalized its CPI charges on customers as being in everyone’s best interest—they added an extra layer of protection for the customers and the bank received more payments: everyone won. The problem is that not everyone could agree in the end on the “good” of the CPI and in fact many found it offensive and felt they had been taken advantage of even though assessing the intentions of the firm is impossible to do. The point is that from a utilitarian perspective, the actions of a firm like Wells Fargo are not any better off. What a bank like Wells Fargo needs is a deontological ethical framework rather than a teleological one.
Deontology or duty ethics refers to the idea of morality being determined by one’s duty. A big powerful bank like Wells Fargo controls a great many levers: it controls loans, savings, money management tools, and so on. People come to the bank for assistance with their finances. They have to trust the bank because the bank does them a service that they cannot do for themselves. However, if the bank takes advantage of the people, that trust is broken. The bank is perceived as having abused its power. The bank can do as it likes—but if it abuses the fiduciary duty it owes to its clients then it is abusing its power over them and acting immorally. From the deontological perspective, morality is achieved when one does one’s duty. The duty of Wells Fargo is to faithfully and fairly serve its customers. It failed to do this during the CPI scandal era because it was not informing the customers of the fee. It was essentially deceiving them and raking in the profits.
Kant’s ethical framework works best to satisfy the needs of Wells Fargo and to keep it in line with the duty of serving its clients fairly. As Forsyth and O’Boyle (2011) point out, most businesses develop a code of ethics: “these codes are variously termed corporate principles, rules of conduct, credos, codes of practice, or corporate philosophies, and most define ‘responsibility to employees, shareholders, consumers, the environment, or any other aspects of society external to the company” (p. 355). In short the code of ethics that businesses develop is a type of guide that explains how the company will fulfill its duty to its customers. The code acknowledges that the business does have a duty to its clients and that it is morally responsible for fulfilling that duty. That is exactly what Wells Fargo needs to be more mindful of doing. Rather than attempting to use an ends-justify-the-means approach, which is Ethical Egoism at its heart, the firm needs to stop seeing customers as a means to an end and instead as the end in themselves.
In other words, satisfying the customer is the end that Wells Fargo should be pursuing—and if it had always used this ethical perspective as its framework, it never would have had the problems it later ended up having. It stopped seeing the customer as the one to serve. It saw the customer as a means to getting rich. It saw the customer as a potential dupe—or at least that is how the firm behaved (whether or not it was deliberate is unclear). The point is that if the company had been following a well-written code of ethics that adopted a deontological position, particularly that of Kantian ethics, it would not have fallen into the trap of Ethical Egoism.
Kantian Ethics is the best approach to help Wells Fargo address its issues going forward, as it appeals to the duty that the firm owes to its clients and reinforces the concept that the bank is in the business of providing a service to its clients rather than in the business of getting rich off naïve or unsuspecting clients. To rebuild its reputations, Wells Fargo has to get back to basics, and the deontology of Kant is as basic as it gets in terms of moral philosophy. The ethical framework is one that has stood the test of time, and though it has its critics, it nonetheless satisfies quite well for a firm like Wells Fargo. Ethical Egoism and Utilitarianism are less helpful because they do not focus on a clear definition of the “the good” in an objective or universal sense. That is not a problem with Kantian Ethics. The good is clearly defined as the moral imperative that arises out of an awareness of one’s duty. With a written code of ethics that defines the bank’s duty to its clients, the moral awareness would be clear to all.
In conclusion, a Kantian Ethical framework would benefit Wells Fargo at this point and assist the firm in seeing its clients as the end in themselves rather than as a means to an end for the firm. The firm must realize that it exists to serve the client, and in return it should expect a fair recompense. When the firm tries to take advantage of its clients’ lack of knowledge about legal jargon, it is failing to do its duty to the client—and that is what the CPI scandal showed needs to be addressed.
References
Forsyth, D. R., & O’Boyle Jr, E. H. (2011). Rules, standards, and ethics: Relativism predicts cross-national differences in the codification of moral standards. International Business Review, 20(3), 353-361.
Goodpaster, K. (1983). Ethical frameworks for management. HBS.
Horowitz, D. (2011, May). We need a "moral operating system" Retrieved from https://www.ted.com/talks/damon_horowitz (Links to an external site.)
Top Class Actions. (2019). The settlement is closed. Retrieved from https://topclassactions.com/lawsuit-settlements/closed-settlements/917069-wells-fargo-auto-loan-insurance-class-action-settlement/