Elizabeth Warren demands Wells Fargo CEO John Stumpf's resignation in heated hearing
Wells Fargo's CEO was grilled Tuesday on Capitol Hill after his company was fined tens of millions of dollars for the creation of roughly 2 million unauthorized accounts, possibly at the expense of customers.
John Stumpf, who also serves as Wells Fargo's chairman, appeared before the Senate Committee on Banking, Housing and Urban Affairs to explain to lawmakers how his company's self-described "unethical sales practices" were able to evade regulators and continue unchecked for years.
Wells Fargo earlier this month was fined $185 million after it was revealed its employees since 2011 had created around 2 million unauthorized banking and credit card accounts to meet sales goals, charging customers fees on accounts they hadn't asked for and may not have known existed.
The Consumer Financial Protection Bureau – a government watchdog created under the 2010 Dodd-Frank Act – levied a $100 million fine against Wells Fargo, making it the most heavily penalized institution by the CFPB to date. A group of customers also have filed at least one lawsuit against the bank.
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"I am deeply sorry that we failed to fulfill on our responsibility to our customers, to our team members and to the American public," Stumpf said Tuesday. "I accept full responsibility for all unethical sales practices in our retail banking business."
But the degree to which Stumpf has accepted responsibility clearly rubbed several lawmakers the wrong way. In the most heated exchange of the morning, Sen. Elizabeth Warren, D-Mass., demanded that the executive more clearly break down exactly how he has personally tried to make things right.
"You have said repeatedly that 'I am accountable.' But what have you actually done to hold yourself accountable?" Warren asked. "Have you returned one nickel of the millions of dollars you earned while this scam was going on?"
"The board will take care of that," Stumpf responded. He also indicated senior management positions had not been impacted or reshuffled, even as Wells Fargo has terminated 5,300 workers connected to the scandal.
Stumpf then attempted to explain his company's strategy of "cross-selling," in which employees are encouraged to sign customers up for multiple accounts and products to maximize profitability.
He said the strategy was meant to deepen "relationships" with customers, but Warren cut him off, citing transcripts of Wells Fargo's previous earnings calls in which Stumpf had personally cited cross-selling as an attractive performance metric to shareholders.
"This is about accountability. You should resign," Warren said, suggesting Stumpf also should return some or all of his earnings collected during the period – between 2011 and 2015 – in which evidence of unauthorized accounts has been found. "You should be criminally investigated by the Department of Justice and the Securities and Exchange Commission."
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Her sentiments – though admittedly more impassioned than many of her colleagues – were echoed to some degree throughout Tuesday's hearing. Sen. Bob Corker, R-Tenn., suggested Wells Fargo would be engaging in "malpractice" if some sort of earnings clawback from high-ranking executives didn't take place.
Sen. Pat Toomey, R-Pa., called the allegations against Wells Fargo "unbelievable" and "deeply disturbing on so many levels," and alleged there appears to have been "way too little done" to stop questionable sales practices internally.
Sen. Bob Menendez, D-N.J., said he was "personally appalled," "shocked" and "disappointed" by Wells Fargo's sales practices, indicating that the scandal was not the result of a few "bad apples" but rather the work of a corporate environment and senior executives who "rotted the entire orchard."
"I disagree with the fact that this is a massive fraud," Stumpf said in an exchange with Warren, noting that the 5,300 employees terminated in connection to the scandal only accounted for a small portion of the company's 286,000-worker payroll.
But the fact that so many rank-and-file workers were terminated in the aftermath – and that Wells Fargo's board of directors and most senior management were not materially impacted – vexed committee members.
"While I don't excuse what they did by any stretch of the imagination, I find that [style of leadership] despicable," Menendez said.
Stumpf responded by saying regional bank managers and some middle-management individuals already had been "held accountable, and they will be held accountable" going forward. But he did not provide any example of personal loss after telling Menendez he brought in $19.3 million in compensation last year.
Stumpf did say the company has taken steps to address consumers' concerns, citing the several thousand terminations and announcing that Wells Fargo would expand its investigation to cover 2009 and 2010 after initially probing activity as far back as 2011. The company is also doing away with sales-based incentive plans that lawmakers say encouraged employees to engage in unethical behavior to keep their jobs.
"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. "We are committed to getting it right 100 percent of the time, and when we fall short, we accept responsibility, and we do everything we can to make it right by our customers."
But lawmakers indicated making things right could be easier said than done. Sen. Jon Tester, D-Mont., raised the concern that unauthorized card accounts could have impacted customers' credit scores, meaning they could have more expensive mortgage payments and less access to reasonable credit.
"If information was sent into the credit bureaus because of these falsely opened accounts, the impacts are far, far, far more than the fines [being paid by Wells Fargo]" Tester said. "You refund all their fines, you refund all their fees ... What about the folks who went and got a higher interest rate through [JPMorgan] Chase? What happens to those people?"
Stumpf said his company was committed to making things right for those impacted but did not reveal any specifics about how higher mortgage rates could be dealt with, other than to say the company is contacting all customers who may have been impacted and would consider contacting the country's major credit bureaus.
"Wells Fargo claims to have made things right with its customers, but its efforts have been incomplete," said Sen. Sherrod Brown, D-Ohio, noting that employees of the company had been accused of "forging signatures, stealing identities and Social Security numbers and customers' hard-earned cash."
Brown also attacked Carrie Tolstedt, the head of the company's community banking division, whom the bank announced in July would be leaving the company and is expected to be the beneficiary of a nearly $125 million retirement package.
"She knew of this problem at least five years ago and is retiring with a package that may be worth more than the CFPB's [$100 million fine]," Brown said. "The culture of these banks needs to change. That starts at the top."
Tolstedt's departure was touched on repeatedly Tuesday as lawmakers attempted to piece together a timeline of events. Stumpf said he first became aware of the potential wrongdoing back in 2013, and that he was aware his company was in discussions with the federal Office of the Comptroller of the Currency, the Los Angeles city attorney's office and the CFPB over the allegations at the time of Tolstedt's announced departure.
In response to a letter sent to the company by Warren, a representative at Wells Fargo indicated Tolstedt is still eligible for an incentive award, which Stumpf confirmed Tuesday.
Warren asked Stumpf why he chose to let Tolstedt retire instead of firing her, noting that such an action would have barred her from receiving tens of millions of dollars in bonuses and compensation. Stumpf indicated he looked at her "whole body of work" and allowed her to retire. When asked about whether he'd support clawbacks of either his or Tolstedt's compensation, he said he wanted to be "respectful of the [board's] process and not bias their decision."
Subtly, the hearing served as a means for several lawmakers to push their own agendas. Warren repeatedly indicated Wells Fargo's actions were proof that more stringent federal regulations were needed, and Brown indicated minimum pay should be raised so that workers didn't feel so compelled to meet sales goals.
And Sen. Richard Shelby, R-Ala., asked, "Where were the regulators?"
He suggested the CFPB had not done its job and that the Dodd-Frank-created watchdog was at least partially at fault for not stopping Wells Fargo sooner.
Copyright 2016 U.S. News & World Report
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