The nation's top bank regulator knew about problems with Wells Fargo & Co.'s sales practices as far back as 2010, but did little to put an end to the bank's abuses, an internal agency review has concluded.
The Office of the Comptroller of the Currency said its oversight of the San Francisco bank was lax, and examiners missed numerous opportunities to address the wrongdoing prior to a $185-million settlement with Wells Fargo in 2016, according to a report released Wednesday.
Those practices ultimately led to the creation of as many as 2.1 million accounts that customers didn't authorize.
"The OCC did not take timely and effective supervisory actions after the bank and the OCC together identified significant issues with complaint management and sales practices," the report said.
The 15-page document noted that problems with the bank's sales practices had been mentioned in OCC reports since at least 2010 and the bank had been warned about its handling of complaints as early as 2009.
OCC bank examiners also didn't seek to understand the root causes of those or other problems, which allowed them to fester, according to the report.
Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said the OCC review is clear evidence that regulators failed to properly supervise Wells Fargo — and a refreshing and rare instance of the agency acknowledging its shortcomings.
"It's an incredibly frank, self-critical analysis of how they didn't find the problems soon enough even though they had a lot of clues," Mierzwinski said. "In the 2000s (amid the financial crisis), I don't recall them saying, 'Hey, we blew it.' But here they are admitting this huge failure of supervision."
Comptroller of the Currency Thomas Curry said during a congressional hearing in September, soon after the bank's $185-million settlement with the OCC and other regulators, that he had ordered a review of the OCC's supervision of Wells Fargo. Wednesday's report is the product of that review.
"In his September testimony, the Comptroller stated unequivocally that the OCC can and must do better, including identify(ing) and acting on issues like these sooner," Deputy Comptroller Bryan Hubbard said in an email Wednesday. "The report includes lessons learned that address the issues and weaknesses identified in the review."
Hubbard said the OCC would not provide additional comment on the report. Wells Fargo declined to comment.
The report noted that bank examiners met in early 2010 with Carrie Tolstedt, the former Wells Fargo executive who led the community banking division that is at the center of the unauthorized accounts scandal. Examiners asked Tolstedt about 700 whistle-blower complaints regarding workers "gaming" the bank's sales goal system to boost their pay.
Tolstedt told the examiners that the high number was due to the bank's "culture" of encouraging valid complaints. But after that meeting, examiners apparently did not investigate further, the report found.
In another instance, examiners thought the bank's push to get customers to open an average of eight accounts each — dubbed "Going for Gr-Eight" — seemed risky, but did not take an in-depth look at how the bank was monitoring account sales.
The report makes several recommendations, including requiring bank examiners to review consumer and employee complaints, and review the root causes of those complaints.
The OCC's internal review is the latest effort to assign blame over the bank's sales practices, which were first reported in a 2013 Los Angeles Times investigation and became a national scandal after Wells Fargo's settlement with regulators in September.
The settlement led to a pair of brutal Capitol Hill hearings, during which lawmakers grilled Wells Fargo's then-CEO John Stumpf, who later resigned. Some lawmakers also had tough questions for the OCC and the Consumer Financial Protection Bureau, asking why those agencies had not identified problems at the bank earlier.
Those lawmakers included Rep. Jeb Hensarling (R-Texas), the chairman of the House Financial Services Committee. He's been a dogged opponent of the CFPB and has authored legislation that would crimp the agency's power and autonomy. He's been less critical of the OCC, the primary regulator for Wells Fargo and most other big banks, though a spokesman said Wednesday that it seems clear the agency failed in this case.
"If there was ever a case where consumers needed regulators to protect them, this was it," said spokesman Jeff Emerson. "Yet obviously Washington regulators, including the OCC, failed to do their jobs and let the American people down."
Committee staff are still reviewing the OCC report, he said.
The OCC's report comes just a week after Wells Fargo released its own report, based on a months-long internal investigation of what led to the scandal.
That report, prepared by a law firm hired by the board, put much of the blame for the company's unethical practices on Stumpf, Tolstedt and generally weak corporate oversight.
The report alleged that Tolstedt created a pressure cooker environment and shielded the practices at her division from Stumpf and the board. That included playing down the number of workers terminated for unethical practices, a figure that had reached 5,300 by last year. Tolstedt, through an attorney, has rejected the findings of the bank's report.
The law firm, which interviewed some 100 former and current employees and reviewed 35 million documents, also found that questionable sales practices dated to at least 2002.
Institutional Shareholder Services, which advises big investment firms on corporate governance issues, recommended earlier this month that shareholders at the bank's April 25 annual meeting vote against the election of 12 of the bank's 15 board members, including Chairman Stephen Sanger. It said the board could have done more to prevent "unsound retail banking sales practices."
In an open letter to Wells Fargo shareholders Wednesday, California State Treasurer John Chiang called the bank's behavior "morally repugnant" and urged shareholders to vote against seven board members. They include Sanger, long-tenured director Susan Swenson and five others who were all members of the bank's corporate responsibility committee in the years leading up to the scandal.
Chiang, who is a board member of the state's two massive public pension funds — the California Public Employees' Retirement System and the California State Teachers' Retirement System — said he is urging those funds to cast their votes that way. The funds collectively own more than $2 billion in Wells Fargo stock, according to the letter.
Chiang also urged shareholders to push the bank to end its use of forced-arbitration agreements, which require that bank customers settle disputes in private arbitration rather than in court.
Representatives for Wells Fargo's board did not respond to requests for comment.
4:30 p.m.: This article was updated with comments from the U.S. Public Interest Research Group and a spokesman for the House Financial Services Committee.
1 p.m: This article was updated with comments from Deputy Comptroller Bryan Hubbard, with more details from the Office of the Comptroller of the Currency report and with information about California State Treasurer John Chiang's letter to shareholders.