By Karen Michele Nikos | July 3, 2025
The Wells Fargo financial scandal in 2016 diminished consumer trust in traditional banks while driving homebuyers to fintech lenders for mortgages, a University of California, Davis, study suggests.
The paper , "Trust as an entry barrier: Evidence from FinTech adoption," was published online in the Journal of Financial Economics. The paper was written by Keer Yang, an assistant professor in the UC Davis Graduate School of Management specializing in finance and financial technology.
"I document that geographic areas with larger exposures to the Wells Fargo scandal increased the probability of consumers choosing fintech for their mortgage lender," Yang said.
Short for financial technology, fintech refers to products and services designed to let consumers and businesses conduct banking and other financial services digitally.
The difference in interest rates and other fees for comparable 30-year, fixed-rate loans on single-family homes between banks and fintech lenders did not change after the 2016 scandal.
"Therefore it is trust, not the interest rate, that affects the borrower's probability of choosing a fintech lender," Yang wrote.
Financial scandal erupts
In one of the most prominent bank scandals since the global financial crisis of 2008, Wells Fargo was fined $3 billion by the federal government over allegations that bank employees, under pressure to meet unrealistic sales goals, had opened millions of accounts and saddled customers with fees "under false pretenses and without consent" between 2002 and 2016. While a Los Angeles Times story documented the alleged practices in 2013, the scandal did not erupt until 2016, when Wells Fargo initially was fined $185 million by federal regulators, capturing national attention.
Data analysis
Yang analyzed Gallup poll answers regarding trust in banks, internet searches on "Google Trends" on bank scandals, newspaper articles about the Wells Fargo fines and scandal, and deposits and mortgage loan data sets in traditional banks and in fintech lenders. The period examined was 2012 to 2021.
Use of financial services increased from 2% of the market in 2010, before any knowledge of the Wells Fargo scandal, to 8% in 2016, according to the research paper. Furthermore, in areas with Wells Fargo banks — where exposure to the scandal was more pronounced — customers were on average 4% more likely to use non-bank lenders than any banks after 2016.
The scandal had a minimal effect on bank deposits, probably because of protections afforded by deposit insurance, Yang said.
