The Dark Side of Cross-Selling for Wells Fargo & Co.

When it comes to the bottom line, the practice of cross-selling can really benefit a bank like Wells Fargo (WFC -0.26%).

Cross-selling happens when a bank pushes multiple products on its clients. It's a tactic that has worked well for Wells, but it's one that has come under regulatory surveillance in recent months.

In this video segment, The Motley Fool's Gaby Lapera and John Maxfield discuss the downside of cross-selling and whether Wells Fargo has gone too far with its sales tactics.

Listen to the full podcast by clicking here. A full transcript follows the video.

This podcast was recorded on 11/30/15.

Gaby Lapera: They've run into a little bit of trouble with this practice and, like, you must be sitting there thinking, as an investor, "This is great; this is a really good way for them to grow their business." But back in May a lawsuit was filed in L.A. against the bank, claiming that they were engaging in predatory kind of sales tactics, like high-pressure tactics to get people to sign up, to open accounts that maybe, like, one example they gave was they were trying to get customers who maybe didn't speak the best English, so they didn't really understand what they were signing. Or trying to get customers -- one story that was told in The Wall Street Journal was they set up outside of the blood bank where people were going to sell their blood, knowing full well that those people probably would get their accounts frozen. But it was so important to the Bank of America employees to get sales, that they were engaging in these tactics that maybe aren't above board.

John Maxfield: Yeah, and let's be honest, right, Gaby? If you think back, so, I still think Wells Fargo is amazing, these things aside. But let's just think about the bank industry over the last two decades. I mean, they really haven't done some great things, right? I mean, if you think about -- my favorite example of what the -- and this is with the entire bank industry did, OK? You would go in, right? I can't remember what the statistic is, but something like 40% of bank customers at the biggest bank live from paycheck to paycheck, which means that their account balance is constantly going down to zero, if not going to the negative.

Well, for many years, I don't know how long, but for many years, what the banks did is they would take your daily transactions from your debit card and they would reorder them chronologically. So they would put the biggest one first, so then that would increase the probability that you would overdraft. So if you had, like, 10 transactions in a day and let's say nine of them were for a dollar and then one of them was for $300, and the $300 transaction was last, they would put that at the beginning. And if that kicked you into overdraft, then you'd have those, not only would you have the overdraft on the big charge, but you'd have those nine subsequent overdrafts as well, as opposed to if they didn't rearrange those chronologically, you would just have the one final overdraft at the end.

So that's just an example, and then, you know, they sold credit card products that allegedly helped protect you or would take care of your payments or things like that if you got sick or injured at work. And it turns out that you really didn't get absolutely anything from these services at all, so all the banks got in trouble for that. And it's just this whole pattern of behaviors that all of the banks got into.

Lapera: Absolutely.

Maxfield: That consists of really, to be perfectly blunt about it, exploiting their customers. Now this is kind of where Wells Fargo has been caught up.