Big Wells Fargo #fail over excessive CRM -- Judge orders $203M refund to customers

Perhaps you think CRM means Customer Relationship Management, and feel that the emphasis should be on the R -- implying at least some concern about what customers need, want and value. Good for you if you do, because that's a customer-centric view of CRM.

But I think most would agree that CRM means, at least in part, increasing the amount of revenue a business gets from its current and future customers. Sadly, Wells Fargo took that company-centric view too far and turned CRM into Customer Revenue Maximizing, without regard to whether the revenue was fair and reasonable.

You see, like most banks Wells Fargo offers debit cards as an alternative to checks. Swipe your card at the checkout stand and the money is immediately taken from your account. Unless your account runs out of money, in which case you could pay a $35 overdraft fee.

The problem stems from Wells Fargo following a "high-low" practice in processing payments. It's a "profiteering" scheme, says a U.S. District judge, designed for the bank to "maximize the number of overdrafts and squeeze as much as possible" from its customers.

Here's why. Let's say your checking account is running low, with a $100 balance. Then you head out for a bit of shopping...
* $2 for a cup of coffee at Starbucks
* $15 for a few items at the local drugstore
* $120 for food at the grocery store
* $30 to pick up the dry cleaning
* $50 to buy gas for the car

The high-low scheme means the largest transaction is processed first, so the $120 transaction triggers an overdraft fee. And this is where the fun begins... Each of the other transactions gets hit with a $35 overdraft fee!

Voilà, the bank just "earned" $175 in overdraft fees on $217 in purchases! CRM at its finest, if R means "revenue."

Of course, if the bank had used a low-high scheme, 4 of the 5 transactions would have gone through, and only that last one would have triggered the overdraft charge, for just one miserable $35 fee.

Wells Fargo defends the high-low approach, saying that customers prefer it because it gives priority to larger payments. Then why, asks the judge, is the bank's disclosure of this posting order buried in the middle of a 60-page document of single-spaced 10 point type? That along with a review of Wells Fargo's internal documents showed that the practice was not meant to be customer-centric. Rather, it was meant to generate profit.

And, folks, it's a lot of profit. $Billions in the banking industry overall.

Thanks to the recent court decision in California (pending appeal), Wells Fargo has been ordered to pay back its customers $203M. The figure could go much higher as other states pursue legal action. Another suit has been filed in a Miami federal court for similar practices by 30 other lenders.

OK, so what's the point here? There's nothing wrong with maximizing revenues and profits, but it should be a fair trade. This is an example of CRM gone too far, and shows that being customer-centric and CRM are not necessarily the same thing.

Think I'm being too hard on Wells Fargo? Then please read what the company says about its strategy:

Our strategy: customer-centric not product-centric
We do not view any product in isolation. We view it as part of a relationship. We always consider its value to the customer as part of a full and long-lasting relationship and the customer’s total financial needs. We start with what the customer needs not with what we want to sell them. All our channels — stores, phone banks, ATMs and the internet—work together, integrated with our products, to benefit customers.

So what do you think? Did the high-low overdraft scheme "start with what the customer needs" or was it designed to deliver as much value to the bank without regard to value to customer?

Further reading: Wells Fargo faces larger suit on overdraft fees (San Francisco Chronicle)