Senators push Wells Fargo
CEO on pay clawbacks after bogus accounts
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[September 21, 2016]
By Patrick Rucker and Dan Freed
(Reuters) - U.S. Senate lawmakers
excoriated Wells Fargo & Co's chief on Tuesday for his oversight of
the bank as it opened 2 million bogus customer accounts, potentially
laying the groundwork for new rules and reviving questions of
whether banks are "too big to fail."
Chief Executive Officer John Stumpf told the Senate Banking
Committee on Tuesday that customers who had bogus accounts opened in
their name will be made whole and compensated for any damage to
their credit rating, but some Democratic senators called for his
resignation.
Under fire, Stumpf said he has told his managers to do "whatever it
takes" to make customers whole, refunding fees or compensating them
for damage to their credit ratings. But he stood behind the former
executive who ran the unit that oversaw many of the practices, and
at times downplayed the scope of the affair.
In answer to a question, he declined to commit to setting aside
mandatory arbitration agreements that prohibit clients from suing
Wells Fargo. The Consumer Finance Protection Bureau has proposed a
ban on such clauses that prohibit class-action lawsuits.
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Earlier this month, the lender agreed to pay $190 million in
penalties and customer payouts to settle the case involving the
creation of credit, savings and other accounts without customers'
knowledge. About $5 million will directly go to customers, many of
whom might have paid a small fee on the unwanted accounts.
The revelations are a severe hit to Wells Fargo's reputation. During
the financial crisis, the bank trumpeted itself as conservative, in
contrast to its rivals.
Besides potential criminal charges against the company and its
executives, Wells Fargo may face pressure from shareholders to
change its practices on executive pay and governance.
The scandal also renewed debate over whether U.S. banks are "too big
to fail" and need closer government oversight to prevent a massive
collapse.
Lawmakers could use the fraud settlement as a springboard for new
rules on executive pay, including clawbacks of compensation, and
limits on forced arbitration.
Wells Fargo has said its board will assess whether to cancel or claw
back any incentive compensation paid to a now-retired executive at
the center of the scandal, Carrie Tolstedt.
Democratic Senators Jeff Merkley of Oregon and Elizabeth Warren of
Massachusetts called for Stumpf to resign, with Warren saying Stumpf
should give back his salary and be criminally investigated.
"You should resign. You should give back the money you took while
this scam was going on, and you should be criminally investigated,"
Warren said.
The bank's board of directors is examining what action it should
take against company executives, Stumpf told the committee.
"I accept full responsibility for all unethical sales practices,"
Stumpf said, adding later, "I apologize to all of the American
people and our customers, and I will make it right."
Lawmakers said the phony bank accounts might have hurt customer
credit ratings, increased the cost of a mortgage or car loan. New
credit card applications and consumer borrowing trends can weight on
an individual's credit.
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![](../images/092116pics/busine1.jpg)
Wells Fargo CEO John Stumpf testifies before a Senate Banking
Committee hearing on the firm's sales practices on Capitol Hill in
Washington, U.S., September 20, 2016. REUTERS/Gary Cameron
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"WHERE WAS MANAGEMENT?"
Wells Fargo has acknowledged bank employees "inappropriately opened"
the customer accounts and that about 5,300 employees were fired over
five years.
Former bank employees say they were under intense pressure to add accounts for
each customer.
Abuses were found as early as 2011, Stumpf said, but bank executives only
realized the scale of the problem early last year.
At that time, Stumpf said, managers came to recognize how a pattern of creating
phony accounts could be used to boost unwarranted fees.
“It never dawned on us that there could be a cycle,” the CEO said.
“It just sort of begs the issue of where was management,” said Senator Sherrod
Brown of Ohio, the senior Democrat on the panel.
Brown said employees were caught "forging signatures, and stealing identities,
Social Security numbers, and customers’ hard-earned cash, so as to hang on to
their low-paying jobs and make money for the high-paying executives at Wells
Fargo."
Thomas Curry, the Comptroller of the Currency, said the agency is considering
action against individual Wells Fargo executives who may have violated laws or
regulations.
The U.S. Attorney's Offices in Manhattan and in San Francisco are investigating
Wells Fargo, a person familiar with the matter said last week.
While Democratic lawmakers were the most outspoken in their attacks, Republicans
also grilled Stumpf.
Louisiana Senator David Vitter pressed the CEO on how customer fraud could
persist for years and thousands of employees could be fired before the head of
the bank got involved.
“Why isn’t this crystal clear proof that an entity as big as Wells is not only
too big to fail but it’s too big to manage and too big to regulate?” Vitter
asked.
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Stumpf said the widespread abuse was “a problem of focus and not of size.”
Stumpf appeared before the congressional panel with a bandaged right hand. He
suffered an injury playing with his grandchildren, according to the bank.
Wells Fargo shares rose 2 percent to $46.94.
(Reporting by Patrick Rucker in Washington and Dan Freed in New York; Writing by
Nick Zieminski; Editing by Linda Stern and Jeffrey Benkoe)
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