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Whistleblower: Wells Fargo closes accounts of fraud victims

A former fraud investigator for Wells Fargo claims that the mega bank hasn't been living up to its legal responsibility to investigate signs of fraud on customers' accounts. Instead, it simply closes those accounts to avoid the time and expense of investigating. Wells Fargo is reviewing the allegations -- and a federal regulator is investigating.

The former fraud investigator says he was fired in retaliation for making internal complaints about hundreds of fraud investigations that were mishandled. He has now sued the bank and his former boss for allegedly violating whistleblower protections.

The whistleblower's allegations are not the first clue that Wells Fargo was freezing or closing people's accounts when fraud was detected. The Consumer Financial Protection Bureau began investigating these practices last year.

Typically, banks are expected to assign an investigator when either the consumer or the bank itself discovers signs of fraudulent activity. When the investigator finds that the account holder has been a victim of fraud, the bank is expected to help them get the missing money back. Only when the investigator finds evidence of illegal activity by the account holder should the bank close the account and contact law enforcement.

According to the New York Times, however, many Wells Fargo customers have filed complaints with the CFPB saying that the bank simply freezes or closes accounts right away when signs of fraud are detected, even when the fraud is reported by the account holder. This is done with little explanation or warning and causes serious problems for consumers. Not only does it block access to their money but it also makes recovering any missing money a lot harder.

The former fraud investigator claims that Wells Fargo has a standard practice of simply shutting down customer accounts rather than investigating suspicious activity. Rather than helping consumers get their stolen money back, the bank made a "business decision" to close the accounts in order to save money, he alleges in his lawsuit.

"Improperly closing customer accounts in this manner ensured that customers, not Wells Fargo, were left to absorb the costs of fraudulent activities and unauthorized withdrawals from their checking and savings accounts," reads the lawsuit.

However, even though he feels he was driven out of his job for complaining about these practices, the whistleblower says that an audit department was brought in after the CFPB investigation began. After that, fraud investigators began being more thorough in their investigations and more particular about which accounts to close.

That improvement doesn't help people whose accounts were already wrongfully closed, however.

Early last month, the Federal Reserve ordered Wells Fargo not to grow any larger, citing "widespread consumer abuses."

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