Wells Fargo & Co. Chief Executive John Stumpf took the full brunt of congressional anger over the bank’s fake-accounts scandal at a Senate hearing last week and will face more outrage on Thursday before a House panel.
But this time, he could share the villain’s role with a favorite target of House Republicans — the Consumer Financial Protection Bureau, a new federal agency with a mission to protect average Americans from abuses by banks and other firms.
The House Financial Services Committee hearing will be presided over by Rep. Jeb Hensarling (R-Texas), who has blasted Wells Fargo for what he called theft and fraud of customers, but also is one of the biggest critics of the bureau.
Although Stumpf will be the only witness Thursday, Hensarling and other Republicans are expected to start laying the groundwork for an upcoming hearing with CFPB Director Richard Cordray by lambasting the agency for failing to uncover Wells Fargo’s improper sales tactics earlier.
The public first heard of the practices in a Los Angeles Times article in late 2013 that detailed how employees were creating checking and other accounts without customer permission, though Cordray said his agency had learned about it earlier that year from a whistle-blower.
“Why does it take the L.A. Times to break this story, when we’re paying federal investigators to investigate?” Hensarling recently told Fox Business Network.
Hensarling also has criticized regulators for the $185-million settlement with the bank, which allowed Wells Fargo to avoid admitting any wrongdoing.
The controversy over the San Francisco-based financial institution has become the latest flash point in a bitter battle between Republicans and Democrats over the fate of the CFPB, which was created by the 2010 Dodd-Frank overhaul of financial regulations.
The legislation passed with almost no GOP support. Ever since, House and Senate Republicans have been trying unsuccessfully to reduce the power of the bureau, arguing it was designed to avoid congressional oversight and has limited consumer’s access to credit through over-regulation.
Hensarling has been the chief critic and is pushing a sweeping rewrite of Dodd-Frank that would make major changes to the bureau, though he has gained little traction across the aisle. CFPB supporters say those changes, including making its budget subject to congressional appropriations that could starve its funding, would gut the bureau’s effectiveness.
Democrats and consumer advocates said that the recent settlement Wells Fargo agreed to pay — including a $100-million fine by the CFPB, the agency’s biggest ever — shows the value of the bureau in holding banks accountable for abusing consumers.
“Hensarling reminds me of the kid who kills his parents and then wants to collect orphan benefits,” said Sen. Sherrod Brown (D-Ohio), one of the CFPB’s biggest backers. “He’s tried to underfund it. He’s tried to undercut. He’s done all he could to block bank regulations.”
Rep. Marlin Stutzman (R-Ind.) also has offered pointed criticism of the CFPB.
“I’m a Wells Fargo customer and I’m mad. I’m upset about it and I’m mad at them, but I’m also mad at the CFPB,” he told Treasury Secretary Jacob J. Lew during a House Financial Services Committee hearing on a different topic last week.
Stutzman said that the CFPB began sending bank examiners to Wells Fargo for routine inspections “as early as 2011, 2012.” And although Wells Fargo began firing about 1,000 employees a year for improper sales practices starting in 2011, the CFPB examiners didn’t learn about the problems until a whistle-blower tip in 2013.
“What were they doing?” Stutzman said of the CFPB. “I don’t see how it could take this long.”
Rep. Maxine Waters (D-Los Angeles), the top Democrat on the committee, said the Republican use of the Wells Fargo case to attack the CFPB has “already started and they’re not going to stop.”
“The spotlight, in my estimation, should be on Wells Fargo and not the CFPB at this time,” she said.
Republicans’ desire to discredit the CFPB means bad news for Wells Fargo, said Jaret Seiberg of investment bank Cowen and Co.’s Washington Research Group.
“Republicans are politically motivated to find more violations to show the CFPB failed to do its job,” Seiberg said in a research note. “That means more scrutiny and regulatory pressure” on Wells Fargo.
The House committee has started an investigation of Wells Fargo’s improper sales tactics, which led to employees opening as many as 2 million accounts that customers didn’t authorize.
Hensarling has sent letters to Cordray and the head of the Office of the Comptroller of the Currency, the other federal banking regulator involved in the settlements, asking for documents related to the case.
The OCC, like other banking regulators, has often been criticized for not looking out for average Americans. But the CFPB was designed to be different, with consumer protection — not the safety and soundness of the banks — its main goal.
Cordray and Thomas Curry, the Comptroller of the Currency, testified at last week’s Senate hearing. Also testifying was Jim Clark, the chief deputy for the Los Angeles city attorney’s office, which filed a civil suit last year against Wells Fargo seeking refunds for consumers and an end to the practices.
“Just as it is fair to ask Mr. Stumpf what he knew, when he learned it, and what he did about it, it’s also fair to ask those same questions of Wells Fargo’s regulators,” said Sen. Richard C. Shelby (R-Ala.), the committee’s chairman.
Curry testified that in March 2012, the OCC “received a small number of complaints from consumers and bank employees alleging improper sales practices at Wells Fargo.”
In response to questions from The Times, Cordray said the CFPB “received whistle-blower tips related to sales practices at Wells Fargo in the summer of 2013, before the L.A. Times published its October or December 2013 articles.”
L.A. City Atty. Mike Feuer’s written testimony said that he first learned of the fake accounts when he read The Times’ lengthy Dec. 22, 2013, investigative article. Within days, his office had started an investigation that resulted in his office’s May 2015 lawsuit.
The city attorney’s office notified the OCC and the CFPB after the suit was filed. The three agencies then worked together on the settlement package, announced Sept. 8.
Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said Republicans are pushing “a false narrative” about the CFPB’s role in the Wells Fargo case in order to discredit the agency.
“The fact is the CFPB and OCC were investigating before the L.A. Times story came out,” he said. “But that does not mean that the leading congressional opponent of the CFPB won’t try to pitch that narrative again at this hearing because it plays to his base. But it’s simply false.”
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