If a Wells Fargo scandal happened in Kenya, would we know ?

Sunday November 20 2016

By MUTHONI THANG'WA
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I completely sympathise with the two million American customers affected by the Wells Fargo bank scandal in which employees opened millions of fraudulent accounts in the names of existing customers.

The bank was under investigation by the US Justice Department and the Senate Banking, Housing and Urban Affairs Committee in what turned out to be gross malpractices in retail banking across America. 

Thousands of bank workers, including the Well Fargo CEO, lost their jobs when the scandal finally broke. They deserve little sympathy, given that they had orchestrated phony accounts to keep their bank branches running, by generating bank fees and other charges related to the running of accounts. 

Mostly, the bank wanted to meet set sales targets that in practice were unrealistic.

There are lessons to be drawn from both the 2008 property crisis in the United States and the rigging of Libor rates. The banking industry is so secretive that many non-experts fail to make the connection between banking practices and economic meltdowns. 

This even after Hollywood made movies such as The Big Short, Too Big to Fail and Inside Job to make understanding of financial issues more widespread.

Though no one said it, it is probably because banking sector fraud targets individuals who may not have the financial muscle to sue the bank.

Meanwhile, with their ill-gotten profits, banks can afford to pay the craftiest lawyers to manipulate and delay in the event that such fraud is brought before a court. 

Wells Fargo has had a wake-up call. Recent research conducted by cg42 indicates the bank stands to lose $8 billion in the long run.

Aside from the millions of dollars that it has already paid in fines to regulators over this fraud, the bank has suffered greatly from the effects of public opinion, with up to 14 per cent of clients who were not affected by the fraud opting to looking for new bankers. 

In addition, commercial customers and investors start to question the dealings of such fraudulent partners.          

America is not the first to experience banking scandals and will not be the last. They have happened in poor former communist states, such as Moldova, and some of the world’s leading economies, such as Britain. 

In Britain, in what is now commonly known as the Libor scandal, Barclays bank, or its employees, attempted to tamper with the London Interbank Offered Rate (Libor), an average of interest rates banks charge each other on borrowing in the UK.  

In Kenya it is possible for banking fraud to go undetected almost indefinitely. Whereas cross selling is at the heart of the Wells Fargo scandal, in Kenya it is the rates and attitude bankers give clients who ask questions. 

For example, my bank has taken up to 21 days to respond to a customer query on suspected fraudulent transactions. The branch manager will give you all sorts of information except what you are seeking, and claim that your questions can only be answered by Banking Retail.

Retail is where all the fraud was cooked in the Wells Fargo scandal, so it does not inspire any confidence. 

After the 21 days, the bank writes and gives a customer information one already has, like the amount of loan one applied for and the repayment, but does not answer any of the questions asked. Further communication is not responded to. 

Could it be that in spite of threats from the Central Bank, there are banks still using illegal means to extort customers? This bank even holds a customer's money for months on end and charges interest on that money claiming that the customer is enjoying a grace period on their loan. 

Why not credit that money to the customer’s account since loan and operating accounts are different for each customer? Where exactly does the bank hold such amounts and who benefits from its use?

Whereas a Credit Reference Bureaus were established for banks to file against customers who do not honour their loans, what channels are open for customers to file and resolve their complaints against banks? 

All banks try to get away with not responding to customers complaints, but some such as Standard act if you ask for the manager or file a complaint online. Bank customers need to be vigilant. You could be the victim of a banking scandal. 

Twitter: @muthonithangwa