Wells Fargo CEO Takes Beating as Lawmakers Demand Accountability

Senator Sherrod Brown, an Ohio Democrat, told Stumpf that the bank's response has been inadequate, and said, for example, that Wells Fargo hasn't yet calculated what effect lower credit scores resulting from the unauthorized accounts might have had on customers' finances. Senior management downplayed the importance of the problem and continued to award performance bonuses to those involved as recently as two months ago, Brown said.

"You would think the lessons of the financial crisis, which came at such a high cost to our country, would change the way banks do business," Brown said.

Other witnesses Tuesday include U.S. Comptroller of the Currency Tom Curry, who said in prepared remarks that he's directing bank examiners to review sales practices at all "large and mid-size banks," and that the agency could pursue its own enforcement action against people at Wells Fargo.

Employee Dismissals

Wells Fargo said that in 2011, a dedicated team began to monitor and root out improper sales, adding that the firm started terminating roughly 1,000 of its 100,000 retail banking employees annually for violations. By 2012, the lender began lowering some sales goals for compensation. Stumpf said he first became aware late in 2013 that phony accounts were being opened.

In 2015, an OCC review of Wells Fargo's sales practices revealed shortcomings that prompted the agency to demand changes — including telling the bank to compensate customers for any harm suffered. The company had to bring in an outside consultant, Curry said. Wells Fargo hired PricewaterhouseCoopers in August 2015 to help determine whether customers were hurt, according to Stumpf.

The CEO outlined other ways Wells Fargo has tried to prevent unauthorized accounts from being created, including working with regulators and creating a new branch compliance program.

Clawback Question

A group of Democratic senators led by Warren last week wrote a letter pressing Stumpf with questions on pay. The lawmakers singled out Tolstedt, writing that there appears "to be multiple grounds on which to trigger the clawback provisions to recoup some or all of Ms. Tolstedt's incentive rewards."

Stumpf in his testimony said the bank didn't notify the SEC about the matter because "it was not a material event." The SEC conducts civil investigations but can only make referrals to the Justice Department on potential criminal matters.

After the first round of questioning most Republican senators left the hearing, leaving round two to Warren and other Democrats.

Bank 'Cheats'

"In 2008, Wall Street promised change," Warren said. "But it looks like it is business as usual. A giant bank cheats the little guys and the executives line their own pockets. Mr. Stumpf, you make it clear that Wall Street won't change until we make it change."

The House Financial Services Committee, led by Chairman Jeb Hensarling, said last week it also plans to conduct its own investigation and will hold a separate hearing later this month. Hensarling, a Texas Republican, said he plans to request that Stumpf appear for that hearing, too. Tolstedt as well as other corporate officers will be called for transcribed interviews, the lawmaker said.