Senators question whether Wells Fargo CEO is the right person to lead bank’s turnaround
Sen. Elizabeth Warren (D-Mass.) brought a large black binder and questions for Wells Fargo CEO Timothy Sloan to the Senate Banking committee hearing
It’s been about a year since the Wells Fargo & Co. scandal unraveled, with the bank admitting that employees created millions of customer accounts without permission.
But for Chief Executive Timothy Sloan, who appeared Tuesday on Capitol Hill to give an update on reform efforts, little time seems to have passed.
Senate Banking Committee members grilled Sloan about the changes put in place at the San Francisco bank, which has acknowledged that onerous sales goals and a focus on selling multiple products to consumers were at the heart of the scandal.
Sloan was even questioned about whether he was fit to lead the reforms, given his 30-year tenure at Wells Fargo, including a stint as chief financial officer when unauthorized accounts were opened.
“At best, you were incompetent. At worst, you were complicit,” Sen. Elizabeth Warren (D-Mass.) said during the hearing. “Either way, you should be fired.”
Since then, though, there has been a steady stream of new disclosures about wrongdoing in other business units.
Among them are allegations Wells Fargo improperly changed the terms of mortgage loans for bankrupt borrowers, signed up customers for unauthorized life insurance policies and overcharged small businesses for credit- and debit-card processing services.
Sen. Sherrod Brown of Ohio, the committee’s ranking Democrat, seized on the bank’s disclosure in July that it would pay $80 million in refunds to hundreds of thousands of vehicle-loan customers who were billed for auto insurance even though they had their own policies in place. Some even had their cars repossessed.
“The board chose to limit the scope of the review to the community bank,” he said at the hearing. “It should have known or should have wanted to know that other problems” existed in other divisions.
However, Sloan got some support Tuesday from Wells Fargo’s single largest shareholder.
In an interview with CNBC, Berkshire Hathaway Chief Executive Warren Buffett said Sloan “had my faith.” He said the disclosures of other problems were only to be expected after Wells Fargo began a deeper investigation.
“You turn over rocks and sometimes you find something,” said Buffett, whose company owns 9.4% of Wells’ outstanding shares. “It’s very seldom there is just one thing going wrong at a big institution if something like that is going on.”
As part of a $185-million settlement with regulators, Wells Fargo admitted in September 2016 that it created as many as 2.1 million checking, savings, credit card and other accounts without customer permission. A recent expanded audit showed that the estimated number of unauthorized accounts could be as high as 3.5 million.
Sloan, in his prepared remarks, said the bank has determined 190,000 customers incurred fees and charges and they are being reimbursed $6.1 million. The bank also has agreed to settle several class-action lawsuits over the matter for $142 million.
Sloan offered a mea culpa of sorts when asked by Sen. Brian Schatz (D-Hawaii) if it was fair that he got a promotion and board members still were paid after the accounts scandal.
“I’ve taken responsibility for mistakes made at the company,” Sloan said. “I’m taking action in my role as CEO to make Wells Fargo a better bank than it was a year ago.”
In his opening remarks, Sloan listed a number of reforms the bank has undertaken, including the elimination of product sales goals for retail bankers and the adoption of a new employee incentive program based on customer service performance.
Although the two-hour committee hearing was tough, it was not nearly as contentious as the one last year that resulted in Stumpf’s ouster.
During that five-hour hearing, Stumpf faced aggressive questioning from a bipartisan group of senators who criticized his leadership and called for his resignation.
Committee members questioned the bank’s commitment to not require customers to settle their disputes with the bank over unauthorized accounts through forced arbitration. The bank, like many financial institutions, requires customers to give up their right to sue when they sign up for personal accounts and other services.
Sen. Chris Van Hollen (D-Md.) cited a current court case in which he said attorneys for the bank took the position that customers who had accounts opened without their permission were required to enter into arbitration.
“If that is true, that directly contradicts your testimony,” Van Hollen said.
Sloan said he was unaware of the bank’s position in the case but promised he would look into it.
Arbitration has become a big issue on Capitol Hill after the Wells Fargo scandal. Critics have said the wrongdoing at the bank might have been disclosed earlier had customers not been forced into settling their disputes privately.
The class-action lawsuits against Wells Fargo were filed nonetheless — and settled by the bank — despite the arbitration clause, amid the heightened media scrutiny prompted by the scandal.
The Consumer Financial Protection Bureau issued a regulation in July that would make it easier for customers to bring class-action lawsuits against banks and other financial institutions, but the GOP-controlled House voted to kill the regulation before it could take effect.
A California bill that would prevent banks from using arbitration clauses to protect themselves from lawsuits over sham accounts is awaiting Gov. Jerry Brown’s signature.
The union-backed Committee for Better Banks released a statement shortly after the hearing began, calling for legislation to prevent “predatory practices” at banks.
“Far from moving past the scandal, Wells Fargo’s list of misdeeds has grown exponentially,” said Erin Mahoney, organizing coordinator for the group, an offshoot of the Communications Workers of America labor union. “The bank clearly has not learned its lesson.”
The bank’s pressure-cooker sales culture was first described in a 2013 Los Angeles Times investigation, which Warren referred to during her questioning. She noted that Sloan was interviewed for the report.
Warren read back his quote to him — “I’m not aware of any overbearing sales culture” — and asked if he launched an investigation into the issue either after The Times interview or after the story laying out evidence of the scandal was published.
Sloan said The Times did not provide him with documentation, to which Warren responded, “So I take that as a no.”
Sloan later said an internal bank review found problems in the Community Banking division, and the matter was elevated to the bank’s senior leadership team the same year the article was published.
Still, like Warren, Sen. Heidi Heitkamp (D-N.D.) also expressed doubt that Sloan was the right person to lead a turnaround at the beleaguered bank, noting he was unable to answer several questions posed by senators.
“I think anyone with an open mind would question whether we would see a culture change,” she said.
Sloan told senators that the bank’s consumer business has slowed since the accounts scandal became public, though employee turnover at Wells Fargo is down to its lowest point in 4½ years.
The bank reported last year it fired 5,300 employees for violations of the company’s sales practices. The bank has since rehired 1,780 employees “who left the bank during those years,” according to a transcript of Sloan’s prepared remarks.
“We’re not growing as fast as we were prior to last September, but we’re on a good trajectory,” he said. “And I think that’s because we have taken responsibility.”
Shares of Wells Fargo rose 11 cents, or 0.2%, to $55.58 on Tuesday.
3 p.m.: This article has been updated throughout.
10:35a.m.: This article was updated with details from the hearing.
9:10 a.m.: This article was updated with comments from Sen. Elizabeth Warren (D- Mass.) and Sen. Heidi Heitkamp (D-North Dakota).
This article was originally published at 8:15 a.m.
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