In an uncommon display of bipartisan unity, lawmakers on the Senate banking committee condemned Wells Fargo & Co. chief executive John Stumpf on Tuesday for the bank’s failure to prevent abusive sales tactics and its perceived reluctance to hold senior executives accountable for widespread scheme that led to a $185 million settlement earlier this month.
Sen. Elizabeth Warren, D-Massachusetts, brought the most scathing criticism, calling for Stumpf to resign and for the U.S. Department of Justice and Securities and Exchange Commission to launch probes of the bank.
As part of the settlement, in which the bank did not admit or deny the allegations, Wells Fargo agreed to pay a $100 million civil penalty to the Consumer Financial Protection Bureau—the largest fine in the short history of the watchdog agency, which was established in 2011. The CFPB alleged that thousands of Wells Fargo employees, driven by sales goals and salary bonuses, created more than 1.5 million unauthorized deposit accounts and applied for as many as 565,000 credit card accounts without customers’ knowledge, sometimes by creating phony email accounts.
In prepared remarks to the committee, Stumpf said he was “deeply sorry” for those practices, although the bank did not formally admit or deny the allegations in the CFPB consent order.
“I have been with Wells Fargo through many challenges, none that pains me more than the one we will discuss this morning,” Stumpf said.
“I do want to make very clear that there was no orchestrated effort, or scheme as some have called it, by the company,” he added, saying that he took “full responsibility for all unethical sales practices in our retail banking business.”
But the banking committee senators questioned whether he and other senior executives had, in fact, taken that responsibility.
“You’ve pushed the blame to low-level employees who don’t have the money for a fancy PR firm to defend themselves. It’s gutless leadership,” Warren said.
“This is about accountability. You should resign. You should give back the money you took when this scam was going on,” she continued, before adding that the bank should be investigated. Warren, the architect of the financial protection bureau, along with other Democrats, repeatedly pressed Stumpf over reports that Carrie Tolstedt, the executive in charge of Wells Fargo’s retail banking business, would receive a $125 million payout upon her retirement. Warren, the Senate’s most vocal critic of banks, asked Stumpf whether he would personally recommend clawing back that compensation package.
Stumpf, who also serves as chairman of the Wells Fargo board, declined to state a position, saying he did not want to prejudice the board’s review of Tolstedt’s compensation. Asked whether he considered firing Tolstedt, Stumpf said Wells Fargo’s chief operating officer told her earlier in the summer that the bank wanted to go in a “different direction.” Tolstedt was eligible to retire and elected to do so, Stumpf said. She will leave the bank later this year.
Opening the hearing, Banking, Housing and Urban Affairs Committee chairman Richard Shelby, R-Alabama, said that Wells Fargo put its employees under intense pressure to meet sales goals, sowing the seeds for the aggressive tactics.
“I’ve often said that banking is based on trust, and that trust was broken at Wells Fargo,” Shelby said. “If there was ever a textbook case where consumers needed protection, this was it.”
But Shelby, a critic of the Dodd-Frank financial reform law, was hesitant to credit the CFPB for cracking down on the bank, saying it was unclear if the agency had “any significant role in discovering or investigating the bank’s conduct.”
Stumpf later testified that the bank told the CFPB about the unauthorized accounts in May 2015. But Richard Cordray, the director of the financial protection bureau, said the agency opened its investigation after receiving whistleblower tips in mid-2013.
In his prepared testimony, Cordray said Wells Fargo’s illegal sales practices represented a “staggering breach of trust and conduct that should never occur at any bank.”
“Wells Fargo has demonstrated the epic scope of its failures by terminating at least 5,300 people thus far, including branch managers and managers of managers,” Cordray said.
Sen. Robert Menendez, D-New Jersey, called for the hearing earlier this month and used it to rebut calls from Republicans to dismantle the CFPB. Other Democrats, including Warren, trumpeted the CFPB’s proposal to ban forced-arbitration clauses in financial contracts, saying that class actions might have exposed Wells Fargo’s practices sooner.
Addressing Cordray, Menendez described the settlement as the “ultimate affirmation of your agency and its employees.”
Following the settlement, Wells Fargo announced it had ended sales targets for its branch representatives to remove the incentives that led to the widespread misconduct.
Earlier this year, Wells Fargo paid $4 million to settle charges that the bank charged illegal fees and failed to inform borrowers about repayment options on student loans.