Senate Banking & Financial Institutions Committee Chairman Steve Glazer, D-Orinda, held a special hearing to examine Wells Fargo’s illegal banking practices on Monday, November 28.
Sen. Glazer said planed to explore the San Francisco bank’s practice of setting up unauthorized accounts that were used to satisfy sales goals and earn financial rewards under the bank’s now-defunct incentive-compensation program.
“I am hopeful that Wells Fargo will bring clarity to the lingering questions over why this scandal was allowed to grow, and who should be held accountable beyond the now-resigned CEO John Stumpf, former head of Community Banking Carrie Tolstedt, and the 5,300 fired lower-level employees,” Glazer said. “I would also like to know whether Wells Fargo’s corporate governance structure needs revamping, whether incentive-compensation practices in other divisions of the bank could lead to similar wrongdoing, and what will be done to regain the necessary trust of the public.”
Wells Fargo has admitted that thousands of bank employees opened as many as 2 million unauthorized accounts over the past several years, was fined $185 million, and is now the subject of multiple criminal probes.
Wells Fargo is also being sued by former employees who say they were improperly fired for refusing to engage in fraudulent sales activity and by customers who say they were harmed.
Wells Fargo Fails to Show up to Hearing
During the hearing Glazer blasted Wells Fargo for not showing up.
“I want to address the absence by Wells Fargo today. Your agenda shows Wells Fargo executive Tim Sloan is an invited witness. It does not show that Wells Fargo has declined this invitation. I opted to give Wells Fargo, the opportunity to change their minds and I hoped they would. If Mr. Sloan is here, I would like to join us at the witness table.”
Glazer asked the historian when was the last time a company refused to participate in an oversite hearing with the Senate. The answer was the last company to do that was Enron.
“It’s sad to see Wells Fargo join this elite hall of shame,” said Glazer. ”Trust and honesty dealings are fundamental principals in our financial services industry and it’s our job as representatives of the people to ensure those trusted with the public’s money are accountable for adhering to the highest standards of conduct. We need Wells to own up to their shortcomings. Their unwillingness to stand before us at this committee is a sign of bad faith with their customers and all of California. I know my colleagues in the California State legislator will not be deterred by the banks duck and hide behavior as we seek answers at this hearing and at future hearing.”
Glazer continued by saying the bank has now become an “outlaw institution” after a hundred years of honest dealings.
Hearing Video
You can watch the entire hearing (1:50.00 minutes) by clicking here.
Here is a copy of Senator Steve Glazer’s prepared comments:
Good morning. I’d like to thank those of you in attendance today, especially the witnesses who have agreed to make a special trip here after the Thanksgiving holiday to appear before us today.
I want to say that I have great appreciation for Wells Fargo’s place in California’s history, and for the vital role that Wells Fargo has played in our commerce and our economy. Wells’ iconic stage coach takes us back to a time when banks were held in high esteem and trust.
Yet, here we are, wondering how one of the nation’s great banks has come to such disgrace, how it failed its most prized asset: its customers.
Wells Fargo set up an incentivized system of rewards and punishments for its staff at every level. That pressure led to the creation of phony accounts and illicit fees being charged to customers on a massive scale.
This affected up to 2 million accounts – nearly 900,000 in California alone. The financial cost to consumers was in the millions of dollars, but the loss in trust is untold.
The financial meltdown of 2008 showed us that when we lose trust in our banks, our economy moves toward the precipice. Wells Fargo’s actions go way beyond a few rogue employees and customer accounts; the scale of abuse strikes at the heart of the public’s ability to trust this Bank and the banking system.
I want to make it clear to you that I was not set on holding a hearing today, especially after Assembly Banking and Finance Chair Dababneh held his. But my questions for Wells Fargo still have not been adequately answered. In fact, they have fallen well short of the accountability the public expects.
As Chairman of the Senate Banking & Financial Institutions Committee, I have a responsibility to ensure that we have clarity on what happened, how deep the problem is, who is responsible beyond the CEO who resigned under pressure and the 5,300 employees who were fired, and whether the changes that Wells Fargo has made are truly reformative or are just Band-Aids to make the public relations problem go away.
So, I am here seeking answers to questions that Wells Fargo has yet to address, even during the September Congressional hearings.
I met with Wells Fargo representatives about six weeks ago and asked the questions everyone – customers, regulators and lawmakers – desperately wants answered:
Why did employees knowingly falsify customer accounts?
Who knew about it and when?
What actions were taken to hold those responsible?
What did the Board of Directors know and what actions did they take?
Why was there a failure to disclose ‘material’ problems to customers, regulators and investors?
And why, when all information points to a break down in ethics by the management chain of the bank, did the Directors appoint a Wells insider to oversee the current investigation, disclosure and repair?
Despite follow up correspondence between the Bank and me – much of which is released in the Committee’s staff report – I remain dissatisfied that on every material question, the Bank has failed to provide complete information.
Let me address some of these questions in more detail.
A Senior Vice President of the Bank told me that he had no real idea why so many employees of the Bank cheated people.
He pointed to sales incentives as a possible cause of the problem and reviewed the gradual elimination of sales goals as the way to clean it up. But he could point to no hard data collected by the bank to precisely identify why the chain of command within the Bank failed to stop the abuse.
The Bank has made it clear that they knew there was a problem as early as 2011. But despite this information and so called continued reforms, including the creation of a Sales and Service Oversight Team in 2013, Wells Fargo officials admit the reforms were ineffective – but still act as if they did enough to absolve themselves.
In then-CEO Stumpf’s remarks to Congress in September, he gave every impression that the fraudulent behavior was predominantly by individuals at low levels within the Bank – and not part of a wider culture. He acknowledged that some managers were involved but gave few specifics.
The tactic had obvious benefits. If managers of the Bank cooperated or colluded in the fraud, then the problems would touch much closer to the leadership and culture of the Bank.
After my Senate Banking Committee staff and I pushed for more specific answers, we now have additional informational about the extent of the scandal – and it clearly touches management staff.
In the response to our first round of questions, Wells now says that more than 480 managers were fired in the last five years due to sales practice violation. We’re told these individuals were Branch managers and above. This disclosure that 480 highly trained and compensated leaders of the Bank engaged in this misconduct is deeply troubling.
In its written response to the United States Senate Committee on Banking, Housing, and Urban Affairs, Wells shows that it employed 5,816 store managers as of September 1, 2016. The firing of 480 persons with the rank of manager and above seems to represent a breakdown of fair and honest dealing at an extraordinary scale.
And keep in mind that these are only the ones whose conduct Wells thought constituted a firing offense. We don’t know what other conduct Wells excused by other leaders of the company.
Now, I want to acknowledge that after Wells Fargo entered into a settlement agreement with local and federal regulators they have taken a number of important actions.
They retained an outside accounting firm to audit all of their accounts to identify and fully reimburse every customer for any fees associated with an unauthorized account.
They have agreed to make whole any customer who might have had credit problems due to an unauthorized account. They’ve also pledged to eliminate sales-based incentive compensation goals for employees within their consumer banking arm.
Additionally, Wells Fargo’s Board of Directors has taken some action to claw back executive pay.
They have also announced their own investigation into some of these issues, which they claim will be led by ‘independent’ Directors.
Clearly, one of the big disappointments of this entire scandal is the lack of responsible oversight by Well Fargo’s Board of Directors. I have asked Wells to detail actions by the Board of Director to root out this problem. They have come forward with zero information. How could a Board of distinguished individuals fail to monitor and hold management accountable for such a wide-ranging scandal?
One of my goals is to have Wells Fargo acknowledge the extent of the problem – to come clean on how pervasive this scheme was. This was not a handful of renegade lower-level bankers going rogue to bilk unsuspecting customers. This appears to have been company culture, an atmosphere of greed pushed from the top.
And Wells Fargo must provide a blueprint on how it expects to clean this mess up.
This is the only way to do right by its customers, but also to regain the trust of the public that is foundational to the existence of banks and financial institutions.
Before I call up the first witness, I want to address the absence of Wells Fargo today. Your agenda shows Wells Fargo President and CEO Tim Sloan as an invited witness; it does not show that Wells Fargo has declined that invitation. I opted to leave Wells Fargo on the agenda, to give them the opportunity to change their mind. If Mr. Sloan is here, I would invite him to join us now at the witness table.
Trust and honest dealings are fundamental principles in our financial services industry. It is our job as representatives of the people to ensure that those trusted with the public’s money are accountable for adhering to the highest standards of conduct. We need Wells to own up to their shortcomings. Their unwillingness to stand before this committee is a sign of bad faith with their customers and all of California.
I know that my colleagues in the California Legislature will not be deterred by the Bank’s duck and hide behavior as we seek answers at this hearing and in future hearings. Who could imagine that a Bank that represented the values of honesty and fair dealing for more than 160 years in California would now become an outlaw institution?
With that, I’d like to invite Michael Bostrom to the witness table to tell us how City Attorney Feuer got to the bottom of wrongdoing that Wells knew about, but had failed to share with its regulators.
For more on Senator Steve Glazer, visit him online at http://sd07.senate.ca.gov/
