Wells Fargo head Stumpf apologizes for bank’s bad practices

Wells Fargo CEO John Stumpf on Tuesday took full responsibility for the bank’s alleged illegal practices during a bruising grilling from Republicans and Democrats on Capitol Hill.

Stumpf took an apologetic tone before the Senate Banking Committee, telling lawmakers that the scheme by the bank’s employees who may have potentially opened more than 2 million unauthorized accounts was not an orchestrated effort and that changes are being implemented.

{mosads}“I accept full responsibility for all unethical sales practices in our retail banking business, and I am fully committed to fixing this issue, strengthening our culture and taking the necessary actions to restore our customers’ trust,” Stumpf told the panel in the first hearing since the bank paid a $185 million penalty earlier this month. 

“I want to make it very clear that we never directed nor wanted our team members to provide products and services to customers that they did not need or want. That is not good for our customers, and it is not good for our business,” he said.

But Sen. Elizabeth Warren (D-Mass.), who is known for taking a tough stance on Wall Street misdeeds, seized on Stumpf’s comments and argued that he should resign and face a criminal investigation in the wake of the bank’s abuses.

“You have said repeatedly, ‘I am accountable,’ but what have you actually done to hold yourself accountable? Have your resigned as CEO or chairman of Wells Fargo?” Warren asked.

“Have you returned one nickel of the millions of dollars you were paid while this scam was going on?” she said. “This is about responsibility.”

Throughout the hearing, Stumpf said that the bank practices, which amounted to the firing of more than 5,300 employees over five years, “is against everything we stand for as a company.”

Warren chided Stumpf for failing to take any disciplinary action against himself or other bank executives even though they knew about abuses and failed to act faster to curb the problem. 

“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 said. “It’s gutless leadership.”

She said Stumpf made more than $200 million during the five-year span of the alleged fraud after record-high sales boosted the bank’s stock value.

Stumpf said it took until 2015 for a lightbulb to go on that there was a much larger cycle of employees creating the phony accounts to meet sales goals.

Sen. Sherrod Brown (D-Ohio) said it begs the question as to where management was when newspaper stories were being written and regulators were descending on the bank. 

Senate Banking Committee Chairman Richard Shelby (R-Ala.), along with other lawmakers on the panel, questioned Stumpf about when he knew about the problem and why he didn’t take more sweeping actions earlier. 

During tough questioning, Stumpf did concede that the bank didn’t do enough, fast enough to stop the bad practices. 

“If I could turn the clock back, we all wish we would’ve done something more earlier, we didn’t get on this fast enough,” he said.

Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), whose agency levied a record $100 million penalty on the bank said employees faced “excruciatingly high pressure” to meet sales goals. 

Cordray called it “fraud on a massive scale and a staggering breach of trust to inflate sales numbers.”

“The gravity and breadth of the fraud that occurred at Wells Fargo cannot be pushed aside as the stray misconduct of a few bad apples,” Cordray told the panel. 

Lawmakers pushed Stumpf to concede that the bank had committed fraud but the Wells chief repeatedly said he wouldn’t go that far.

“They [the fired employees] broke our code of ethics and they were dishonest and we did everything we could but I wouldn’t call it fraud,” Stumpf said. 

Then Sen. Pat Toomey (R-Pa.) took a different tack, reading Stumpf the definition of fraud, which yielded a slightly more satisfying answer for frustrated lawmakers. 

“I can tell you this, it’s absolutely wrong, we found this out, got rid of those people, if that means fraud, that means fraud,” Stumpf responded.

Brown told Stumpf that “this was fraud, fraud that you did not find or fix quickly enough.”

Cordray said that he and other regulators at the Office of the Comptroller of the Currency are taking a deeper look into the practices of other banks and groups for any issues that resemble what happened at Wells.

The bank failed to properly monitor the program and it fell prey to “unchecked incentives and an unrealistic and uncaring culture of high-pressure sales targets can lead to serious consumer harm,” he said. 

The Wells CEO also pushed back against lawmakers’ suggestions that the bank created a pressure-cooker environment that gave employees reason to skirt the rules to meet sales goals. 

“I don’t know what motivated or why people did this,” Stumpf told the panel.

He said that while only 1 percent of the work force was fired for their actions, it is “still way too many.”

Cordray said he could not comment on whether there are any criminal cases forthcoming.

Stumpf said Wells is making several changes aimed at reducing any future bad practices, including going back to 2009 and 2010, beyond the five years covered under the regulators’ investigation, to look for any additional problems. 

“We can’t guarantee it didn’t happen before that time,” Stumpf said.

Wells also will end its retail sales goals requirements starting in January. 

The CFPB fined Wells Fargo $185 million, including a $100 million penalty the bank will pay to the CFPB’s civil penalty fund — the largest fine ever levied by the regulator.

The bank also will pay a $35 million penalty to the Office of the Comptroller of the Currency and another $50 million to the City and County of Los Angeles, where many of the problems were found. 

Stumpf vowed that the bank would talk to every customer involved and ensure that they were compensated for any fees and check whether the problems damaged the credit scores of any customers.

Wells Fargo said it pay a total of $5 million, and possibly more if necessary, in refunds to customers harmed by the practices.

So far, the bank has refunded $2.6 million for monthly maintenance fees, insufficient fund fees, overdraft charges and other fees paid.