Calling it "outrageous" and "a major breach of trust," local and federal regulators hammered Wells Fargo & Co. for a pervasive culture of aggressive sales goals that pushed thousands of workers to open as many as 2 million accounts that bank customers never wanted.
Those practices, first uncovered by the Los Angeles Times in 2013, led to a massive $185-million settlement package announced Thursday.
The settlements put to rest a lawsuit filed last year by Los Angeles City Atty. Mike Feuer as well as investigations by two federal regulators: the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.
The bank did not admit any wrongdoing in the settlements, but it apologized to customers and announced steps to change its sales practices. It will pay $100 million to the CFPB — the largest fine the federal agency has ever imposed — as well as $50 million to the city and county of Los Angeles and $35 million to the OCC.
The bank will also pay refunds to customers who paid fees on accounts they never wanted.
Feuer on Thursday called the settlements a big win for consumers.
"It's outrageous for a bank to use a customer's private information without permission to open an unwanted account," he said. "Customers must be able to trust their banks."
His office sued the bank last year, alleging Wells Fargo "victimized their customers by using pernicious and often illegal sales tactics," including unrealistic quotas and policies that have "driven bankers to engage in fraudulent behavior."
Feuer's suit caught the attention of federal regulators, who conducted their own investigations. The CFPB, citing an analysis by Wells Fargo, said bank employees may have opened as many as 1.5 million checking and savings accounts, and more than 500,000 credit cards, without customers' authorization.
The investigations found that employees illegally transferred funds from genuine accounts into unauthorized ones, created PINs for unwanted debit cards and made up bogus email addresses to secretly sign customers up for online banking.
Richard Cordray, director of the CFPB, said Thursday that those actions were so abusive and so widespread that the agency levied its largest fine to date.
"It reflects the severity of these violations, the breadth of the unfair and abusive practices and how seriously we take them," Cordray said. "We found this conduct to be quite surprising."
The bank had consistently said such practices were not widespread and that workers who cheat to meet sales goals are disciplined or fired. The CFPB said 5,300 workers have been fired for improper sales practices since 2011.
In a statement Thursday, Wells Fargo confirmed the settlements and said it has set aside $5 million to cover refunds to customers. The bank hired an outside firm that looked for potentially bogus accounts, a process that was finalized before the settlements were announced.
The bank said it has already provided refunds to about 100,000 customers, paying a total of $2.6 million so far with payments averaging $25.
"Wells Fargo is committed to putting our customers' interests first 100% of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request," the bank said in its statement.
The bank will send notices to customers asking them to stop by a branch so that employees can help "close any accounts or discontinue services you do not recognize or want."
Bank spokeswoman Mary Eshet said the bank has already lowered sales goals, worked to structure employee incentives around customer satisfaction and hired more workers to monitor its sales staff. She said the bank has also started a "mystery shopper" program to look for bad behavior.
Regulators stopped short of accusing Wells Fargo executives of encouraging employees to open unauthorized accounts, but said the badly structured incentives and lack of oversight pushed employees to game the system, either to improve their pay or to keep their jobs.
In levying such a steep fine on Wells Fargo, the CFPB's Cordray said his agency is sending a message to the entire banking industry that it must make sure sales tactics do not harm consumers.
"What happened here is Wells Fargo built an incentive-compensation program that made it possible for Wells Fargo employees to pursue underhanded sales tactics," he said. "Companies need to pay very close attention … to ensure that customers are protected."
Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said the CFPB's $100-million fine, while a relatively small sum for a company the size of Wells Fargo, is big enough that other banks will pay attention.
"It's a message to all the bank lawyers out there that this kind of behavior should never happen again," he said. "It's a very strong message to other institutions about the gravity of this appalling conduct. $100 million is real money, even to a big bank."
Despite the refunds, some customers say it won't be so easy to undo the damage caused by the bank's practices.
Last year, Jerry Van Vort, at the time a community college student in Santa Maria, said he visited a Wells Fargo branch and was offered a new credit card. He turned down the offer, but weeks later received a credit card in the mail.
He didn't take the time to close the account and later discovered that the bank had linked the credit card to his checking account to provide overdraft protection.
"I didn't have enough money in my checking account and the overdraft went onto the credit card. I had to pay that off," said Van Vort, who now lives in upstate New York.
He said he believes the incident damaged his credit history, making it more expensive for him to borrow money and harder for him to qualify for a mortgage.
"If they could reimburse people to the point where things are made fair and clean, I'd say that's fair," Van Vort said. "But it doesn't seem like they'll be able to reimburse people for all the damage."
Follow me: @jrkoren
3:10 p.m.: This article was updated throughout with additional details and comments.
11:16 a.m.: This article was updated with comments from CFPB Director Richard Cordray and additional details.
9:40 a.m.: This article was updated with additional details and comments from Los Angeles City Atty. Mike Feuer and Wells Fargo.