Question: How Can Fake Bank and Credit Accounts Impact Your Credit Score?

Sep 28, 2016
Article, Credit Scores, Credit Cards, Current Events, Credit Reports, Audio Resource, Financial Scams, Ethics

For those of you following the Wells Fargo fake account saga (some Senators might use more choice terms to describe their actions), your probably familiar with the details of millions of fake bank and credit cards that were set-up by overzealous branch employees trying to hit their sales quotas (I posted how this case is emblematic of why consumers better understand the sales incentive structure for financial products).

Hat tip to Jessica Endlich for pointing out the additional harm that may have been caused to customers’ credit scores as a result of Wells actions. To understand how they might have been harmed, we turn to NPR (3:37 audio):

Regulators say that over a five-year period some 2 million credit card and deposit accounts were opened that may not have been authorized by the bank’s customers. And though no one knows for sure, it’s almost certain that the accounts had a big impact on customers’ credit scores.

For one thing, each time a credit card is issued to a consumer, it’s noted on that person’s credit report. And that’s just the beginning of the potential problems.

“If that account had an annual fee, the consumer doesn’t know about this account, they don’t pay the annual fee,” says Chi Chi Wu, a staff attorney at the National Consumer Law Center. “So now the consumer has these late payments showing up on their credit report and that’s pretty damaging.”

In some cases, Wells Fargo employees would transfer funds into the new accounts from one of the customer’s existing accounts. That could result in late fees or fines for insufficient funds.

Ira Rheingold, executive director of the National Association of Consumer Advocates, says that would have had a direct impact on someone’s credit score. “You may not have qualified for a mortgage or you might have been dinged by getting charged a little higher interest rate because of what was reported wrongly on your credit report,” he says.

How to use in the classroom? Link this current event to help your students connect how certain actions (not paying a bill on time, opening a new account) can impact credit scores. I wonder how many consumers saw these fake accounts (or new credit card inquiries or late fees) appear on their credit reports and wondered what was going on.


About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.