Wells Fargo Chief Executive John Stumpf testified today before the Senate Banking Committee, which grilled him on the bank’s admission that employees created some 2 million fake accounts to meet sales goals. The scandal was first uncovered by The Times in 2013 and led to a $185-million settlement with regulators this month.
Highlights:
Column: John Stumpf offers a clinic in how to weasel out of real accountability
Wells Fargo Chairman and CEO John G. Stumpf, who has been described as “the Mr. Clean of banking,” took his unflappable and well-groomed mien Tuesday to a hearing room on Capitol Hill to defend the bank’s actions after the disclosure that it had massively defrauded millions of its customers.
Amazingly, he made himself and his bank look worse. This underscores the question I asked just a day ago: Why does he still have a job?
Wells Fargo CEO’s testimony was not believable, expert says
Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said Wells Fargo Chief Executive John Stumpf’s apology was not enough to contain the scandal.
“I think the CEO of Wells Fargo failed to disprove that it was a massive fraud,” said Mierzwinski, who attended the hearing. “No senator believed him.”
Meanwhile, other bankers could soon find themselves answering the same kinds of questions Stumpf faced.
After Stumpf’s testimony, one of the nation’s top bank regulators told senators that his agency is looking into sales practices at all large and mid-sized banks, trying to determine whether the practice of creating fake accounts to meet sales goals might be more widespread.
“These practices … undermine the fundamental trust that goes to the heart of the bank-customer relationship,” said Comptroller of the Currency Thomas Curry. “They are unacceptable and have no place in the federal banking system.”
Are other banks committing Wells Fargo’s sin? Regulator is checking
One of the nation’s key banking regulators told senators today that his agency is looking at all of the country’s large and mid-sized banks to see if they’re guilty of the same types of fraudulent practices uncovered at Wells Fargo.
Examiners from the Office of the Comptroller of the Currency will review sales practices at the nation’s banks to see if they might encourage illegal or dangerous behavior, including creating fake accounts in the name of meeting sales goals, Comptroller of the Currency Thomas Curry said at today’s Senate Banking Comittee hearing.
Curry and other regulators — including Richard Cordray, director of the Consumer Financial Protection Bureau, and Jim Clark, chief deputy Los Angeles city attorney — testified after Wells Fargo chief John Stumpf took his turn in the hot seat.
Whereas Stumpf faced tough questions about corporate accountability, executive pay and whether he and other executives should be fired or even prosecuted, regulators faced more informational questions, offering details of how their investigations led to a massive settlement with Wells Fargo over the bank’s sales practices.
Questions for Cordray especially focused on the role of his agency in the Wells Fargo matter, with queries from Democratic senators giving Cordray a chance to plug some of the CFPB’s ongoing work and to defend the embattled agency, which many Republicans want to defund or disassemble.
Sens. Sherrod Brown (D-Ohio) and Elizabeth Warren (D-Mass.), for instance, each asked about the CFPB’s efforts to stamp out the contract terms that allow banks to force customers into private arbitration and to block class-action lawsuits. The agency proposed rules last year that would prohibit banks from blocking class-action suits.
“When there’s massive wrongdoing on a wide scale … it’s difficult to get any relief other than through a class action,” Cordray said.
Warren, more pointedly, asked whether arbitration clauses and class-action bans had enabled Wells Fargo to keep the fake accounts quiet.
“Do you think forced arbitration clauses make it easier for big banks to cover up patterns of abusive misconduct?” Warren asked.
“I do think so,” Cordray said.
Wells Fargo CEO John Stumpf is not any of these things
As senators peppered him with questions today, Wells Fargo Chief Executive John Stumpf offered some disclaimers about his qualifications to answer. Here are some titles he made sure to say do not apply to him.
1. A compensation expert
The CEO, repeatedly asked whether he would support taking back some of the compensation set to be paid to the executive who oversaw the bank’s retail division, refused to take a position. Stumpf said a committee within Wells Fargo’s board would take up that issue, and at one point noted, “I’m not an expert in compensation.”
2. A lawyer
Asked whether he believes that Wells Fargo workers who opened accounts without customers’ knowledge had acted criminally, Stumpf said he did not know -- he’s not a lawyer.
3. An expert on consumer credit
Several senators asked Stumpf about how consumers might have been affected by Wells Fargo accounts created in their names without their knowledge or permission. The bank has agreed to pay fees charged to customers related to such accounts, but senators were curious about how the bank would identify or compensate consumers whose credit scores might have been hurt when Wells Fargo opened bogus credit card accounts for them.
Sen. Jon Tester (D-Mont.) wondered, for instance, how Wells Fargo might compensate a customer who ended up paying more for a mortgage because of a credit card account opened years earlier without his or her knowledge.
Stumpf said he’s not an expert on consumer credit scores. He said the bank will “make it right,” though he could not provide details of how that might happen.
Wells Fargo CEO never considered firing this top executive. ‘Seriously?’ Elizabeth Warren says
Under aggressive questioning by Sen. Elizabeth Warren (D-Mass.), Wells Fargo chief John Stumpf would not commit to pushing for the bank to rescind some of the approximately $100 million in compensation received by the executive who oversaw the employees who opened unauthorized customer accounts.
Stumpf also said he never considered firing the executive, Carrie Tolstedt, who announced her retirement in July, effective at the end of the year.
“Seriously?” Warren responded during today’s Senate Banking Committee hearing. “You didn’t even once consider firing her ahead of her retirement?”
When Stumpf started to list some of Tolstedt’s accomplishments during her 27 years at the bank, Warren interjected, “Are you sure that those are not fake?”
Warren and four other Democrats on the committee wrote to Stumpf last week asking him to rescind -- or claw back -- the pay of some top executives because of the scandal.
Wells Fargo’s response to the letter said Tolstedt received more than $90 million in stock options and other compensation during her career at Wells Fargo and that she would be eligible for a 2016 annual incentive award because she will stay in her job until the end of the year, Warren said.
Warren told Stumpf today that it was “unbelievable” Tolstedt could receive an “incentive award for doing a great job.”
When Warren asked Stumpf if it was appropriate for Tolstedt to receive another bonus, Stumpf said the board of directors’ human resources committee would consider that.
“I don’t want to prejudice the board,” said Stumpf, who is the board chairman but doesn’t sit on its independent committee, which handles compensation issues.
Then Warren asked, “Will you personally support clawing back all or part of Ms. Tolstedt’s pay?”
Stumpf responded, “I’m not going to in any way try to influence or prejudice the board.”
He also wouldn’t commit to personally support any claw-back for the bank executive in charge of compliance.
Given Stumpf’s role as board chairman, Warren expressed incredulity.
“You keep saying, ‘The board, the board,’ as if they’re strangers you met in a dark alley,” she said.
“You are not passive here,” Warren continued. “If you have nothing to do, then what are you doing serving as chairman of the board? If you have no opinion on the most massive fraud to hit this bank since the beginning of time, how do you get to continue getting a check as chairman of the board?”
Stumpf said that he didn’t “accept that it’s a massive fraud.”
Warren shot back that Wells Fargo’s actions showed the need for tougher regulations, saying large banks haven’t adequately changed their behavior since the 2008 financial crisis.
“In 2008, Wall Street promised change, but it looks like it’s business as usual. A giant bank cheats the little guys and yet the executives line their own pockets,” Warren said. “You make it clear Wall Street won’t change until we make it change.”
Column: Thanks, Wells Fargo, for being such a bunch of weasels
There’s a silver lining to this Wells Fargo scandal, columnist David Lazarus says.
“Without your attempt to fleece millions of customers with bogus accounts, and the $185-million fine you just got slapped with, and your cowardly move to blame the whole mess on wayward employees, it’s entirely possible that the banking industry and conservative lawmakers would have succeeded in overturning financial reforms put in place after the last time banks screwed over the public,” he writes.
“Thanks to you, however,” Lazarus says, “legislation aimed at killing the Dodd-Frank Wall Street Reform and Consumer Protection Act is now on life support. The bill’s proponents still insist that banks be freed from burdensome regulations. But you’ve shown that, if anything, banks probably should be on an even shorter leash.”
Column: Wells Fargo CEO shouldn’t still have his job
“The outrageous scandal at Wells Fargo & Co., for which federal and local regulators hammered the bank for $185 million in fines and penalties earlier this month, speaks volumes about the decline of morality in corporate America,” columnist Michael Hiltzik writes.
“But the settlement leaves one burning question unanswered: Why does John G. Stumpf, the company’s chairman and CEO, still have a job?”
Why Wells Fargo customers can’t sue over bogus accounts
Over the years, many Wells Fargo customers have tried to sue the bank over fake accounts, but their cases have run into an increasingly familiar roadblock: arbitration clauses.
When customers sign up for accounts at Wells Fargo -- and at most other banks -- they sign contracts that oblige them to resolve disputes with the bank in private arbitration rather than in court. Wells Fargo has successfully argued that applies even in cases where customers have accused the bank of opening fake accounts in their names.
The argument goes something like this: Although a customer obviously didn’t sign a contract when a fake account was created for them, agreements they signed when opening genuine accounts nevertheless require them to take all disputes with the bank to arbitration. Judges have generally agreed.
Today, Sen. Sherrod Brown (D-Ohio) asked Wells Fargo Chief Executive John Stumpf whether the bank will continue to take that stance.
“I’d have to talk to my legal team,” Stumpf said. “I’m not an expert in that.”
The growing scandal of fake accounts at Wells Fargo could help shore up support for pending rules that would limit the power of arbitration clauses in contracts from banks and other financial companies.
The Consumer Financial Protection Bureau, which has fined Wells Fargo $100 million for its creation of fake customer accounts, proposed rules last year that would ban the parts of arbitration agreements that prevent consumers from joining class-action lawsuits.
The CFPB and consumer advocates hold that class-action suits are useful in stamping out exactly the kind of behavior at the center of the Wells Fargo case: widespread practices that affect many consumers but that may cost any individual consumer only a small amount of money.
Bogus accounts centered in the Los Angeles area
Much of the fraudulent account activity at the heart of the Wells Fargo sales scandal was centered in the Los Angeles area, Wells Fargo Chairman John Stumpf confirmed during his appearance before the Senate Banking Committee today.
The banking giant’s employees created some 2 million fake accounts nationwide to meet aggressive sales goals.
After Sen. Jerry Moran (R-Kan.) asked Stumpf what was different about the Los Angeles market, Stumpf did not provide an answer but said Wells Fargo was analyzing the issue.
When Wells Fargo reached a $185-million settlement Sept. 8 with federal and state regulators, it included settling a lawsuit brought by Los Angeles City Atty. Mike Feuer over the bogus sales actions.
Sen. Elizabeth Warren rips into Wells Fargo CEO’s ‘gutless leadership’
Lawmakers on both sides of the aisle are sharply criticizing Wells Fargo’s chief executive, but Sen. Elizabeth Warren (D-Mass.) stands out for her outrage.
“You should resign,” she told John Stumpf, becoming the first member of the Senate Banking Committee to call for him to step down.
“You should give back the money you took while this scam was going on, and you should be criminally investigated by the Department of Justice and the Securities and Exchange Commission,” she said.
Warren, who has become a liberal icon because of her sharp criticism of Wall Street, tore into Stumpf in the hearing’s most aggressive round of questioning so far.
“You haven’t resigned. You haven’t returned a single nickel of your personal earnings,” Warren said. “You haven’t fired a single senior executive.”
“Instead, evidently your definition of accountable is to push the blame to your low-level employees who don’t have the money for a fancy PR firm to defend themselves,” she continued. It’s gutless leadership.”
A 2013 Los Angeles Times investigation uncovered thousands employees opening fake accounts to meet sales goals.
Warren challenged Stumpf on his statement that the cross-selling of credit cards and other products to customers is a practice designed to deepen the bank’s relationship with its customers.
Brandishing transcripts of 12 Wells Fargo earnings calls, Warren said Stumpf touted cross-selling to investors to increase the bank’s stock price.
“The ratio [of accounts per customer] kept going up and up, and it didn’t matter whether customers used those accounts or not. And guess what? Wall Street loved it,” she said.
“When investors saw good cross-sell numbers, that was very good for you personally,” Warren said. She said the rising stock price led to about $200 million for Stumpf, whose average holdings during the controversy was about 6.75 million shares.
“If one of your tellers took a handful of $20 bills out of the cash drawer they’d probably be looking at criminal charges for theft,” she said.
But senior Wells Fargo executives have kept their jobs, Warren said. And the company’s policies “squeezed” the bank’s employees “to the breaking point” -- a pressured sales environment that led them to open accounts customers hadn’t authorized.
“The only way that Wall Street will change is if executives face jail time when they oversee massive fraud,” Warren said.
It’s ‘despicable’ to blame low-paid Wells Fargo workers, Sen. Bob Menendez says
Chief Executive John Stumpf said this morning that Wells Fargo should have spotted problems in its sales system, but added that the root of the problem was a small number of bank employees who “did not do the right thing.”
That echoes recent comments from Wells Fargo chief financial officer John Shrewsberry, who said the employees fired for creating fake accounts “weren’t the high performers.”
“It was really more at the lower end of the performance scale, where people apparently were making bad choices to hang on in their job,” Shrewsberry said at an investor conference in New York earlier this month.
This morning, Sen. Bob Menendez (D-N.J.) called it “despicable” that Wells Fargo has “laid the blame on low-paid retail bank employees.”
He painted a picture of a low-paid bank worker, pushed by a hard-driving boss, simply trying to stay employed in the face of Wells Fargo’s now notoriously tough sales goals.
“In essence, this is about losing your job,” Menendez said. “You think that’s the appropriate environment for protecting your customers?”
Stumpf said he does believe that senior executives are responsible for the bank’s culture and that senior leaders “have been held accountable.”
He also said several times that the 5,300 bank employees fired in connection with the creation of fake accounts included “managers, managers of managers, even an area president” --- employees he said make good money, perhaps averaging between $35,000 and $60,000 annually.
Asked by Menendez how much he made last year, Stumpf replied, “$19.3 million.”
“That’s good money,” Menendez said.
When did Wells Fargo’s CEO know about improper tactics? 2013, but ...
Wells Fargo & Co. Chief Executive John Stumpf said today he first learned of the bank’s improper sales tactics in 2013, but didn’t recall exactly.
Members of the Senate Banking Committee tried to pin him down at today’s hearing. When asked by Sen. Sherrod Brown (D-Ohio) if it was when the Los Angeles Times uncovered the practices in December 2013, Stumpf would only say that he learned “later in 2013.”
Senators expressed surprise that Stumpf was not aware even as the bank began firing about 1,000 employees a year for improper sales tactics in 2011.
“I don’t recall back in ’13 exactly the time frame,” Stumpf said.
Asked by Sen. Patrick Toomey (R-Penn.) when the company notified shareholders of the scandal in securities filings, Stumpf said he would have to get back to him on the question.
Toomey said he and his staff had checked and, “We haven’t been able to discover such a disclosure.”
Stumpf said the refunds to customers of about $2.5 million wasn’t a large amount for a bank the size of Wells Fargo. But Toomey argued the broader effect of the scandal on Wells Fargo required disclosure.
“The reputational damage done to the bank clearly is material,” Toomey said.
Wells Fargo CEO dodges questions about rescinding executive’s pay
Multiple senators on the Banking Committee want to know whether Chairman and CEO John Stumpf believes Wells Fargo should rescind, or “claw back,” some of the compensation owed to Carrie Tolstedt, the executive who ran the bank’s consumer banking unit that oversaw many of the sales practices.
But Stumpf dodged their questions several times, saying he was “not an expert in compensation” and would leave questions about Tolstedt’s pay to a committee on Wells Fargo’s board.
Tolstedt announced her retirement in July after amassing salary, bonuses, stock, options and other compensation totaling $124.6 million in her career, Fortune reported, although others placed the figure in the mid-$90-million range.
“Are you going to look into this seriously about what this person did, her responsibility and the big reward that she’s getting?” Sen. Richard C. Shelby (R-Ala.), chairman of the Senate Banking Committee, asked Stumpf at today’s hearing.
Stumpf said he is not a member of the board’s compensation committee and would not recommend a clawback for Tolstedt. The committee is independent, Stumpf said, and “I don’t want to prejudice their activity.”
“You’re not wiling to say publicly … that some of her compensation … should be clawed back,” asked Sen. Sherrod Brown (D-Ohio).
“I’m going to let the process proceed,” Stumpf said.
Brown called that position “unfortunate.” And Sen. Bob Corker (R-Tenn.) said that to not invoke “some degree of clawback for yourself or others involved “would be some degree of malpractice” in terms of public relations.
Hillary Clinton on Wells Fargo: ‘No place for this kind of outrageous behavior in America’
Democratic presidential candidate Hillary Clinton wrote an open letter to Wells Fargo customers on Tuesday, vowing to hold the bank responsible for its conduct and to prevent the dismantling of the Consumer Financial Protection Bureau.
“Today, Wells Fargo’s CEO will appear before Congress,” Clinton wrote. “He owes all of you a clear explanation as to how this happened under his watch. There is simply no place for this kind of outrageous behavior in America.”
Clinton said she will protect the “tough watchdogs” that look out for customers.
“Donald Trump, the Republican Party and Wall Street lobbyists are desperate to dismantle this effective agency, which is dedicated solely to protecting consumers from unfair and deceptive practices,” she said. “I won’t let them put the CFPB under their thumb.”
Wells Fargo’s new efforts to address the bogus-accounts problem
During the hearing, Wells Fargo Chief Executive John Stumpf announced three new initiatives to deal with improper accounts at the bank.
- Wells Fargo is expanding the its review of customer accounts to 2009 and 2010. The time frame that was already under review began in 2011.
- The bank “will be contacting every single deposit customer across the country” using the same process agreed to use for California customers in the recent settlements to determine if the accounts were authorized. It will contact “hundreds of thousands” of customers with open credit cards “about whether they need or want their credit card.”
- Confirmation emails will be sent to customers within one hour of the opening of a new deposit account.
“We recognize now that we should have done more sooner to eliminate unethical conduct or incentives that may have unintentionally encouraged that conduct,” Stumpf said. Although the bank “took many incremental steps… we now know those steps were not enough.”
‘Trust was broken at Wells Fargo’
I’ve often said that banking is based on trust, and that trust was broken at Wells Fargo.
— Senate Banking Committee Chairman Richard C. Shelby (R-Ala.)
‘There was no orchestrated effort’ by Wells Fargo, CEO will say
Wells Fargo & Co. Chief Executive John Stumpf plans to tell the Senate Banking Committee this morning that the bank’s improper sales tactics were not part of any “orchestrated effort, or scheme” to rip off customers and will apologize for the scandal and not acting more quickly to halt it.
He will begin by saying he is “deeply sorry” and will offer an apology to the bank’s customers for the sales practices -- first uncovered by the Los Angeles Times in 2013 -- that led employees to open as many as 2 million accounts that customers never authorized, according to his prepared testimony.
“I want to apologize for violating the trust our customers have invested in Wells Fargo. And I want to apologize for not doing more sooner to address the causes of this unacceptable activity,” Stumpf’s prepared remarks say.
“I do want to make very clear that there was no orchestrated effort, or scheme as some have called it, by the company,” he continued. “We never directed nor wanted our employees, whom we refer to as team members, to provide products and services to customers they did not want or need.”
Stumpf will outline the steps the bank has taken, including firing 5,300 employees from 2011 to 2015, to correct the problems.
“I accept full responsibility for all unethical sales practices in our retail banking business, and I am fully committed to doing everything possible to fix this issue, strengthen our culture, and take the necessary actions to restore our customers’ trust,” his remarks say.
Stumpf said the bank has made changes to its incentive compensation plans and last week announced the elimination of all product sales goals in retail banking as of Jan. 1.
Aggressive sales goals have been cited as a reason that employees felt pushed to open unauthorized accounts for customers.
The senators grilling Wells Fargo’s chief executive are primed to be tough
Wells Fargo & Co. Chief Executive John Stumpf most likely will face some hostile questioning about the bank’s improper sales tactics at today’s Senate Banking Committee hearing, as the panel is filled with some of the industry’s most outspoken congressional critics -- led by Sen. Elizabeth Warren (D-Mass.)
Stumpf plans to begin his testimony with an apology.
“I am deeply sorry that we failed to fulfill our responsibility to our customers, to our team members, and to the American public,” his prepared testimony says. “I have been with Wells Fargo through many challenges, none that pains me more than the one we will discuss this morning.”
But the pain probably will just be starting for Stumpf.
Warren and four other committee Democrats -- Sherrod Brown of Ohio, Robert Menendez of New Jersey, Jeff Merkley of Oregon and Jack Reed of Rhode Island -- pushed for the hearing last week after Wells Fargo agreed to pay $185 million to settle investigations into sales tactics first uncovered by the Los Angeles Times in 2013.
Committee Chairman Richard C. Shelby (R-Ala.) agreed to hold the hearing and call Stumpf to testify. Although Shelby is friendly to the banking industry, he’s no fan of big banks and could have some pointed questions. Another Republican on the panel, David Vitter of Louisiana, also has been critical of large financial institutions and has teamed with Warren and Brown on bills to crack down on banks that are “too big to fail.”
But Stumpf’s toughest time will come when Democrats are tossing the queries. Brown, the committee’s top-ranking Democrat, is a populist and longtime critic of big banks. Warren joined the Senate in 2013 after making a name for herself grilling bankers and regulators as head of the congressional panel overseeing the $700-billion Troubled Asset Relief Program bailout fund.
Merkley was one of the key proponents of banning banks from trading for their own profit and limiting their ownership of risky investments. The provision, dubbed the Volcker Rule, was included in the 2010 Dodd-Frank overhaul of financial regulations. Menendez and Reed also have been outspoken about abuses by big banks.
The five Democrats wrote to Stumpf on Friday, asking him to rescind -- or claw back -- the pay of some top executives because of the scandal.
“This was not the work of a few rogue employees over the course of a few weeks,” the letter said, in a preview of the confrontational approach the senators are likely to take at the hearing. “Wells Fargo had a long-standing, systemic problem created by stringent sales quotas and incentives imposed by senior management.”
‘The scope ... is breathtaking’
The scope of the misconduct at Wells Fargo is breathtaking and demonstrates why our new consumer watchdog, the Consumer Financial Protection Bureau, is essential.
— Lisa Gilbert, director of Public Citizen’s Congress Watch division
Wells Fargo to pay $185-million settlement for ‘outrageous’ sales culture
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 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.
Well’s Fargo pressure cooker sales come at a cost
The Los Angeles Times first reported the aggressive sales practices at Wells Fargo in 2013.
***
Wells Fargo branch manager Rita Murillo came to dread the phone calls.
Regional bosses required hourly conferences on her Florida branch’s progress toward daily quotas for opening accounts and selling customers extras such as overdraft protection. Employees who lagged behind had to stay late and work weekends to meet goals, Murillo said.
Then came the threats: Anyone falling short after two months would be fired.
“We were constantly told we would end up working for McDonald’s,” said Murillo, who later resigned. “If we did not make the sales quotas … we had to stay for what felt like after-school detention, or report to a call session on Saturdays.”