Expect fireworks in Washington on Tuesday morning. That’s when John Stumpf, the chairman and chief executive officer of Wells Fargo, is expected to appear in front of the Senate Banking Committee to answer questions about how, exactly, the corporate culture at his bank went so awry that employees opened an estimated 2 million bank and credit card accounts for customers without their permission.
While the outlines of the situation at Wells Fargo have been known since a Los Angeles Times investigation in late 2013, few in the public or on Capitol Hill were worked up about or even aware of the problem until earlier this month, when the Consumer Financial Protection Bureau announced $185 million in penalties against the bank. The money will be split between the CFPB, the federal Comptroller of the Currency, and the Los Angeles City Attorney’s Office. Wells Fargo, which did not cop to or deny the allegations, also agreed to pay full restitution to the victims of the scam and says it’s already refunded $2.5 million.
“I’ve got a lot of questions for that man,” Sen. Elizabeth Warren, a member of the banking committee and a harsh critic of wrongdoing in the financial industry, said on Bloomberg Television last week. No kidding! Slate also has a lot of questions for Stumpf—and we hope that Tuesday’s hearing includes at least some of these ones.
Do you believe that the problems at Wells Fargo went beyond a few rogue employees?
Wells Fargo has long had a reputation in the banking industry for outsize success in cross-selling. Have a Wells Fargo checking account? Then you need a Wells Fargo credit card! And a mortgage! And another checking account! To make all of these cross-sales, the bank set aggressive sales goals for its employees. Many former employees report that managers threatened to discipline or fire them if they didn’t meet the goals. And Wells Fargo knew there were issues. The bank conducted at least three internal investigations, the first in 2012, a year before the Los Angeles Times published its reporting, in an attempt to stop employees from opening sham accounts, which it must have known was a consequence of those insane goals. Nonetheless, even last week, Stumpf said that the bankers and frontline workers who engaged in the fraud refused to “put customers first” and didn’t “honor” Wells Fargo’s “vision and values.”
Is it really possible for thousands of low-level bank employees to thwart the will of senior management for years?
The CFPB’s settlement with Wells Fargo covers the period between May of 2011 to the settlement date of Sept. 8, 2016. Wells Fargo says it’s fired more than 5,300 employees—somewhere between 1 and 2 percent of its entire workforce—as a result of the scandal. The New York Times and the Wall Street Journal reported that during this period the bank instituted trainings and subjected employees to lectures designed to knock out the fraudulent behavior. It also made some changes to the bonus system and beefed up internal compliance. But, again, many claim that supervisors continued to push employees to make the aggressive sales goals. So what values weren’t the fired employees honoring?
Why did Carrie Tolstedt, the head of community banking at Wells Fargo, announce her retirement earlier this year and receive a goodbye package worth an estimated $125 million?
Tolstedt was the executive responsible for oversight of all Wells Fargo branches, which is where the action took place. The announcement that Toldstedt, who is 56, planned to exit the bank came as a bit of a surprise. No reason was given at the time for her decision, though a bank spokeswoman subsequently said it was unrelated to the ongoing investigation. She was highly regarded by many both inside and outside the industry. Fortune magazine counted her as one of the “50 Most Powerful Women in Business.” In the news release the bank put out announcing Tolstedt’s retirement, Stumpf praised her, saying she was “one of our most valuable Wells Fargo leaders, a standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership.” And yet during Toldstedt’s tenure as the senior executive responsible for bank branch management and performance, the fraud persisted and the sales goals that caused it were never rolled back. Meanwhile, Fortune reports, “Tolstedt was regularly praised for her unit’s ability to get customers to open numerous accounts. For a number of years, Wells Fargo’s proxy statement, which details executive pay, cited high ‘cross-selling ratios’ as a reason that Tolstedt had earned her roughly $9 million in annual pay.”
Will Wells Fargo attempt to recoup any of Tolstedt’s goodbye package or other payments?
In a letter released last week, Warren and four other Democratic senators—Sherrod Brown, Jack Reed, Robert Menendez, and Jeff Merkley, all also members of the Senate Banking Committee—asked whether Tolstedt’s payday would be clawed back and pointed out that Wells Fargo’s own governance rules say that the company can demand payback for payments received as a result of false information, misconduct, or negligent behavior. In a response received on Monday, the company said this call will be made by the bank’s board of directors. Stumpf, in addition to serving as the company’s CEO, is also chairman of its board.
Will Wells Fargo attempt to claw back all or part of performance bonuses of other senior employees, including Stumpf's?
Even if Wells Fargo finds fault in the C-suite, doesn’t Tolstedt report to someone? Well, yes, she reports to CEO Stumpf. And what’s his pay? Stumpf earned $19 million last year, including a $10 million performance bonus. In fact, between 2012 and 2015, he collected $155 million in stock options related to performance bonuses, according to the Institute for Policy Studies, which calculated the value of stock options, bonuses, salary, and other compensation.
Did the lower-level people fired by Wells Fargo for their part in this scandal receive settlements, too? If so, how much did they receive?
Because it’s worth noting that according to Glass Door, the typical Wells Fargo teller earns a base pay of $12 an hour, and a personal banker a little less than $40,000. These are the people Stumpf now blames for the endemic culture of fraud at the bank.
The Los Angeles City’s Attorney’s office first filed suit against Wells Fargo for this activity in the spring of 2015. The federal government also began looking into the bank later in the year. Why wasn’t this disclosed in corporate filings with the Securities and Exchange Commission?
Despite the internal probes, newspaper investigations, and government interest in the fraudulent sales practices at Wells Fargo, the bank continued to boast of its cross-selling prowess in its annual reports, reporting numbers that authorities challenged. Nonetheless, bank executives deemed none of this worthy of disclosing as a material fact in SEC filings. No doubt holders of Wells Fargo stock would disagree. Since authorities announced the $185 million settlement on Sept. 8, the stock price has dropped by almost 8 percent.
Will Wells Fargo continue to fight victims of this scheme who attempt to take them to court?
Even as Wells Fargo conducted multiple investigations that found evidence of fraud at the bank, bank officials aggressively fought back against people who attempted to get restitution via the courts. Incredibly, courts ruled the mandatory arbitration agreements customers sign when doing business with Wells Fargo also cover accounts they did not authorize and were opened without their permission. Nonetheless, lawyers are now circling. Last week, a lawsuit was filed in Utah against the bank, seeking restitution for everything from actual financial harm to mental anguish as a result of the fraud. Lawyers are seeking class-action status.
Will Wells Fargo continue to stonewall victims who say they suffered significant financial losses because of the actions of their employees?
Latina singing star Ana Barbara claims she was the victim of identity theft. In a lawsuit filed this summer, she alleges that Wells Fargo employees opened multiple accounts and credit lines in her name, costing her more than $400,000. When she sought restitution, she says the bank would only give her $250,000, saying she waited too long to notify them of the missing funds and fraudulent activity.
What do you know about damage to the credit records and scores of customers?
Wells Fargo customers are beginning to surface with tales of credit-report harm. New Jersey mom Linda Edwards reported last week that someone—likely a bank employee—opened a credit card in her teenage daughter’s name. That someone then ran up charges on that card he or she did not pay. Her daughter’s credit record was damaged. Wells Fargo eventually refunded the fees it charged, but “they never addressed the identify theft, forgery, or fraud,” Edwards said, instead attempting to pin the blame for the unpaid bill on her daughter. This despite the fact the girl never applied for the card or had it in her possession.
In a phone call with reporters on Friday, California Rep. Brad Sherman said he would ask the CFPB to determine if any Wells Fargo customers' credit records or scores suffered damage as a result of the wide-scale fraud. Even without full-scale identity theft, it certainly sounds like a reasonable supposition. Many consumers racked up fees and penalties on the accounts they did not authorize and often did not know about. Even multiple inquiries for credit can result in a temporary lowering of one’s credit score. If a customer was seeking any other loan, it’s possible they paid higher interest rates as a result of Wells’ actions without even knowing the reason why.
Has there been any attempt to quantify how many customers succumbed to pressure from bank employees and signed on for bank products they did not need or even truly want? Will Wells Fargo attempt to track these customers down and make restitution to them, even though they don’t all seem to be part of the settlement with the CFPB?
On Reddit, one person claiming to be a former Wells Fargo banker explained how fellow employees conned existing customers into signing up for less than necessary services by falsely claiming they needed separate checking accounts for online shopping or separate debit cards for every signer on their business checking or savings account. The Los Angeles Times investigation also reported on this sort of employee behavior, claiming, for instance, that one supervisor caught her underlings convincing a homeless woman to open and pay fees on half a dozen Wells accounts. No surprise, others are coming forward to complain of similar treatment. Frank Ahn, a Los Angeles laundromat and check-cashing business owner, told Bankrate.com about Wells Fargo bankers who repeatedly told him to open multiple checking and savings accounts for his establishments, promising these would be no-fee accounts. They were not. It’s also possible—make that likely—more than a few people gave in to badgering and signed up for a credit card they didn’t need or really want.
This is not the first allegation of fraudulent activities at Wells Fargo in the past decade, nor is it the first settlement. Do you believe Wells Fargo might need to re-examine its culture and values?
In April of this year, Wells Fargo agreed to a $1.2 billion settlement with the federal government for misrepresenting the risk posed by certain mortgages during the housing bubble run-up (to be fair, before Stumpf was appointed CEO) so they could insure them through the Federal Housing Administration. In 2012, there was another housing-bubble settlement, this one on accusations Wells Fargo steered minority buyers to subprime loans during the go-go years even when they were qualified for mortgages with better financial terms.
Investors suffered too. Earlier this year, a unit at the bank was charged with fraud by the SEC, who claimed the bank did not reveal vital details to investors in a bond offering for baseball player Curt Schilling’s failed 38 Studios venture. Also earlier this year, Florida’s American Seminole tribe sued the bank for mismanaging a trust, claiming it lost $100 million to secretive fees fraudulently imposed on its funds by Wells Fargo. And in 2014, there was yet another settlement, this one for pushing risky investments between 2006 and 2008 on pension funds seeking more conservative strategies.
Student loans are also a problem spot. Last month, Wells Fargo agreed to pay $4.1 million to settle charges levied by the CFPB that it tacked illegal fees onto the accounts of some student loan borrowers. A deal to market student loans with online shopping giant Amazon unraveled this summer, after a number of elected officials expressed concern the plan could be “deceptive.”
Why do you still have a job?
As Harry Truman famously observed, “the buck stops here.” Where does it stop at Wells Fargo?