[Senate Hearing 114-510]
[From the U.S. Government Publishing Office]
S. Hrg. 114-510
AN EXAMINATION OF WELLS FARGO'S UNAUTHORIZED ACCOUNTS AND THE
REGULATORY
RESPONSE
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING WELLS FARGO'S UNAUTHORIZED ACCOUNTS AND THE REGULATORY
RESPONSE
__________
SEPTEMBER 20, 2016
__________
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
MIKE CRAPO, Idaho SHERROD BROWN, Ohio
BOB CORKER, Tennessee JACK REED, Rhode Island
DAVID VITTER, Louisiana CHARLES E. SCHUMER, New York
PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey
MARK KIRK, Illinois JON TESTER, Montana
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina JEFF MERKLEY, Oregon
BEN SASSE, Nebraska ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota JOE DONNELLY, Indiana
JERRY MORAN, Kansas
William D. Duhnke III, Staff Director and Counsel
Mark Powden, Democratic Staff Director
Dana Wade, Deputy Staff Director
Jelena McWilliams, Chief Counsel
Beth Zorc, Senior Counsel
Shelby Begany, Professional Staff Member
Laura Swanson, Democratic Deputy Staff Director
Graham Steele, Democratic Chief Counsel
Dawn Ratliff, Chief Clerk
Troy Cornell, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
----------
TUESDAY, SEPTEMBER 20, 2016
Page
Opening statement of Chairman Shelby............................. 1
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 2
WITNESSES
John G. Stumpf, Chairman and Chief Executive Officer, Wells Fargo
& Co........................................................... 5
Prepared statement........................................... 71
Responses to written questions of:
Senators Brown, Reed, Schumer, Menendez, Tester, Warner,
Merkley, Warren, Heitkamp, and Donnelly................ 160
Senator Brown............................................ 111
Senator Reed............................................. 115
Senator Menendez......................................... 122
Senator Warner........................................... 128
Senator Merkley.......................................... 134
Senator Sasse............................................ 135
Senator Warren........................................... 151
James Clark, Chief Deputy, Office of the Los Angeles City
Attorney, on behalf of Michael N. Feuer, City Attorney, City of
Los Angeles, California........................................ 51
Prepared statement of Michael N. Feuer....................... 74
Thomas J. Curry, Comptroller of the Currency, Office of the
Comptroller of the Currency.................................... 53
Prepared statement........................................... 75
Richard Cordray, Director, Consumer Financial Protection Bureau.. 54
Prepared statement........................................... 81
Additional Material Supplied for the Record
Written statement of Khalid Taha, before the Congressional
Progressive Caucus Briefing: ``Banking on the Hard Sell,'' on
June 10, 2016.................................................. 184
Written statement of Julie Miller, before the Congressional
Progressive Caucus Briefing: ``Banking on the Hard Sell,'' on
June 10, 2016.................................................. 186
National Employment Law Project Report, ``Banking on the Hard
Sell: Low Wages and Aggressive Sales Metrics Put Bank Workers
and Customers at Risk,'' by Anastasia Christman................ 188
(iii)
AN EXAMINATION OF WELLS FARGO'S
UNAUTHORIZED ACCOUNTS AND THE REGULATORY RESPONSE
----------
TUESDAY, SEPTEMBER 20, 2016
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Richard Shelby, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The Committee will come to order.
Today, we will learn more about the events and the
circumstances that led to the enforcement action against Wells
Fargo by the Los Angeles City Attorney, the OCC, and the CFPB.
But first today we will receive testimony from John Stumpf--he
is Wells Fargo's CEO and Chairman--who is with us today.
Welcome, Mr. Stumpf.
We will then hear from the Los Angeles City Attorney's
Deputy Chief whose office was the first to commence an action
against Wells Fargo on this issue and, finally, from the OCC
and the CFPB. We look forward to hearing from both panels
because much remains unclear about what transpired at Wells
Fargo and the regulators' response.
It appears that Wells Fargo's own analysis concluded that
thousands of its employees opened more than 2 million accounts
that may not have been authorized.
Subsequently, Wells Fargo terminated approximately 5,300
employees and has agreed to pay $185 million in fines and $5
million in customer remediation.
Sales data show that Wells Fargo has been an industry
leader in its ability to cross-sell products, such as credit
cards, checking accounts, and home equity loans.
A number of former Wells Fargo employees have described a
work environment characterized by intense pressure to meet
aggressive and unrealistic sales goals.
In a 2010 letter to shareholders, Mr. Stumpf wrote that
Wells Fargo's goal was eight products per customer because
eight ``rhymed with great.''
The result was a corporate culture that drove company
``team members'' to fraudulently open millions of accounts
using their customers' funds and personal information without
their permission.
I have often said that banking is based on trust, and that
trust was broken at Wells Fargo.
While much has been written about these events, I believe
there are several questions that warrant answers.
First, when did this conduct start at Wells Fargo and why
were the regulators unaware of this growing problem?
Second, when did Mr. Stumpf and his senior management
become aware of these activities and how did they respond?
Third, have all of the appropriate Wells Fargo employees
been held accountable and to what extent?
Finally, where were the Federal regulators while certain
Wells Fargo employees were taking advantage of unsuspecting
customers over a period of many years?
Here is what we do know: Wells Fargo's internal review only
covers unauthorized accounts dating back to 2011. News reports
and court documents suggest these problems might have existed
long before then.
The 2013 Los Angeles Times articles led to the LA City
Attorney's Office investigation into Wells Fargo's sales
practices.
Thousands of man-hours by a dozen dedicated LA City
Attorneys culminated in a lawsuit filed against Wells Fargo in
May of 2015.
This timeline begs the question: Where were the Federal
regulators during those years? If the OCC and the CFPB were
aware of these issues before the LA City Attorney's lawsuit,
why did they wait until 2016 to bring an enforcement action?
Why did it take a Los Angeles Times reporter to uncover what
should have been uncovered by Wells Fargo's regulators?
If there were ever a textbook case where consumers needed
protection, this was it. How many millions of unauthorized
accounts does it take before the CFPB notices? And while the
Bureau is billing this as the largest settlement in its
history, it is unclear whether it had any significant role in
discovering or investigating the bank's conduct.
Just as it is fair to ask Mr. Stumpf what he knew, when he
learned it, and what he did about it, it is also fair to ask
those same questions of Wells Fargo's regulators.
These are simple facts-and-circumstances questions that
both the OCC and the CFPB should be able to answer without
violating any confidentiality restrictions.
I look forward to today's hearing as both Congress and the
American people--especially the aggrieved consumers--have been
kept in the dark for far too long.
Senator Brown.
STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Mr. Chairman, thank you for calling this
hearing. I want to commend the city of Los Angeles, the OCC,
and the CFPB for their actions, and the Los Angeles Times for
bringing this to light. I was stunned when I learned of the
breadth and the duration of the fraud committed by Wells Fargo.
I hope today we can begin to understand what went wrong and
what needs to be done.
I call it ``fraud'' because I got tired of the euphemisms a
long time ago. I think the American people did, too.
This is not a matter of customers who `` . . . received
products and services they did not want or need,'' as Wells
Fargo puts it. That makes it sound like there was a mix-up
under the Christmas tree and I got the right-handed baseball
glove that was meant for my brother Charlie.
This is 5,300 employees--Wells Fargo calls them ``team
members''--5,300 team members forging signatures, 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-paid executives at Wells Fargo. And they did it
for at least--at least--5 years.
Wells Fargo's reaction has been remarkable. It did not
treat this as a big problem until it appeared in the
newspapers. It did not begin to make customers whole until this
year. And we do not know whether the bank chose to do so or was
told they had to do so.
Wells Fargo is taking out full-page ads claiming it is
accountable and accepts responsibility. It has not admitted to
responsibility for a single misdeed in the dealings with the
city of Los Angeles and the Federal Government.
Wells Fargo claims to have made things right with its
customers, but its efforts have been incomplete. For example,
it is not clear that PwC calculated the cost of a lower credit
score, which might be paid every month for 30 years.
At times, the bank has been downright hostile to aggrieved
customers.
Rather than letting fraud victims have their day in court,
Wells Fargo forced customers to abide by the mandatory
arbitration clauses in their real accounts. You heard that
right: The bank invoked the fine print on a real account to
block redress on a fake one that Wells Fargo had created.
Wells Fargo team members, many struggling to support a
family on $12 or $15 an hour--my understanding is Wells Fargo
tellers make about $11.80 an hour. Wells Fargo team members,
struggling to support a family on $12 to $15 an hour, followed
their managers' guidance to do whatever it took to make their
quotas. Some may have worked off the clock; others cut corners
to avoid being fired for missing goals--goals that Wells now
admits were too high.
They have been accountable, these low-income workers. The
workers lost their jobs with no parachute of any color.
And it is not just 5,300 team members who paid the price,
because many more were fired when they could not meet the
quotas, and still more chose to quit rather than cheat.
By contrast, Ms. Carrie Tolstedt, the Senior Executive Vice
President for Community Banking, has done quite well. She knew
of this problem at least 5 years ago and is retiring with a
package that may be worth more than the CFPB's record fine of
$100 million.
So 5,300 team members, earning perhaps $25,000, $30,000,
$35,000 a year, have lost their jobs, while Ms. Tolstedt walks
away with up to $150 million.
Despite firing thousands of team members, Ms. Tolstedt
apparently decided it was not important enough to alert the
head of the company, Mr. Stumpf, or the board of directors or
anyone else for 2 years, if ever, even though you both sat on
that bank's board.
Senior management and the board of directors apparently
agreed. Once the scandal became public, remedial actions were
stepped up against front-line team members, but the praise and
performance bonuses continued to be lavished upon Ms. Tolstedt
until as recently as 2 months ago.
You would think the lessons of the financial crisis, which
came at such a high cost to our country, would change the way
the banks do business.
And to be fair, many banks did take the lessons of the
financial crisis to heart. But for the largest banks in this
country, every week we hear of a new lawsuit or enforcement
action against one of them--week after week after week after
week.
What are some of these lessons? First, the culture in these
banks needs to change. That starts at the top.
Second, there must be a reliable way for legitimate
complaints to end up in the C-suite rather than the circular
file.
Third, in the wake of the rampant robosigning fraud that we
saw at Wells Fargo and other places, banks need better
controls.
Because, fourth, if you pay people on the basis of how many
products they sell, that is what they will do, whether it is in
the interests of the customers or not. And base pay needs to be
increased.
Finally, change the pay structure, or at least make
incentives deferred, so it is clear that customer and company
interests are aligned and enduring.
Wells Fargo has come up short on all five counts. That
conclusion is not just based on this, its latest scandal.
Last year, Wells settled with the OCC for, among other
things, 11 years' worth of deceptive practices in selling
enhanced identity theft protection. So at the same time--think
about this. At the same time the bank was stealing customer
identities, it was charging for protecting them.
If the Wells' ID theft product that they sold did not
discover the fraudulent Wells' accounts, perhaps some refunds
are due.
This April, Wells settled a False Claims Act suit for $1.2
billion, in part because it had used bonuses to get staff to
``churn out and approve an ever-increasing quantity of FHA
loans . . . and applying pressure on loan officers and
underwriters to originate and approve more and more FHA loans
as quickly as possible.'' Thousands of Americans, as we know so
well--although, unfortunately, far too few of us know any of
these people personally. Thousands of Americans lost their
homes through mortgage foreclosures as a result.
So I hope, Mr. Stumpf, you will level with this Committee
and the public. Words that come like a San Francisco fog on
little cat feet will not cut it. These were not magically
delivered ``unwanted products.'' This was fraud--fraud that you
did not find or fraud that you did not fix quickly enough.
Instead of focusing on damage control, you need to admit to
the problems and fix them and treat your customers in real life
like you do in your vision statement. That would be the best
damage control of all--for your customers, for your bank, for
your industry, and for our country.
Thank you,
Chairman Shelby. Mr. Stumpf, will you rise and be sworn?
Raise your right hand. Do you swear or affirm that the
testimony that you are about to give is the truth, the whole
truth, and nothing but the truth, so help you God?
Mr. Stumpf. I do.
Chairman Shelby. You may be seated.
Mr. Stumpf, your written statement will be made part of the
hearing record. You may proceed as you wish. Welcome to the
Committee.
STATEMENT OF JOHN G. STUMPF, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, WELLS FARGO & CO.
Mr. Stumpf. Chairman Shelby, Ranking Member Brown, and
Members of the Committee, thank you for inviting me to be with
you today.
I am Chairman and Chief Executive Officer of Wells Fargo,
where I have worked for nearly 35 years. It is my privilege to
lead this company, which was founded 164 years ago and has
played a vital role in the financial history and development of
our country. We employ more than 268,000 team members, 95
percent of whom are in the United States. One in every 600
working adults is a member of the Wells Fargo family, and we
have a presence in all 50 States.
I am deeply sorry that we failed to fulfill our
responsibility to our customers, to our team members, and to
the American public. I have been through many challenges with
Wells Fargo, but none of which pains me more than the one we
will discuss this morning.
Wrongful sales practice behavior in our retail banking
business goes against everything regarding our core principles,
our ethics, and our culture. It runs counter to our vision of
helping our customers succeed financially, and it is not
representative of Wells Fargo as an institution.
I am here to discuss the situation today, tell you about
the
actions we have taken, and our commitment on how to move
forward.
Our entire culture is centered on serving our customers,
and in this case, we let our customers down. Our retail banking
practice issues, these sales issues, are not a reflection of
our hardworking and talented team members who deserve thanks
for helping our customers with their financial needs.
I want to make very clear that we never directed nor wanted
our team members to provide products and services to customers
that they did not want. That is not good for our customers, and
that is not good for our business. It is against everything we
stand for as a company.
That said, I accept full responsibility for all unethical
sales practices in our retail banking business, and I am fully
committed to fixing this issue, strengthening our culture, and
taking the necessary actions to restore our customers' trust.
And, Senators, let me tell you here today, the Wells Fargo
board is actively engaged in this issue. The board has the
tools to hold senior management accountable, including me and
Carrie Tolstedt, the former head of our retail banking
business. Any board actions taken with our named executive
officers will be appropriately disclosed. And I want to be
clear on this: I will respect and accept the decision of the
board.
Under new leadership we have already begun taking steps to
ensure that the sales culture in our retail banking business is
wholly aligned with our customers' interests.
On September 13, 2016, we announced a major decision that
we will end product sales goals for everyone in our retail
banking business because we want to make certain that nothing
gets in the way of doing what is right by our customers. The
new leadership team's primary mission will be to provide the
best possible service to our customers.
I am also announcing today three new initiatives that will
reinforce our commitment to our customers.
First, we are expanding the scope of our account review and
remediation to include both 2009 and 2010.
Second, we will be contacting every single one of our
deposit customers across the country using the same process
that we agreed to with the city of Los Angeles for our
California customers.
And, third, we have begun contacting hundreds of thousands
of our customers with open credit cards, including those for
whom we have already refunded fees, to confirm whether they
need or want their credit card.
In addition, we have recently started sending customers a
confirmation email within 1 hour of opening any new deposit
account and an acknowledgment letter after submitting a credit
card
application.
We recognize now that we should have done more sooner to
eliminate unethical conduct or incentives that may have
unintentionally encouraged that conduct. We took many
incremental steps over the past 5 years in an attempt to
address these situations, but we now know those steps were not
enough.
In 2011, a dedicated team began to engage in proactive
monitoring of data analytics specifically for the purpose of
rooting out sales practice violations.
In 2012, we began reducing sales goals that team members
would need to qualify for incentive compensation.
In 2013, we created a new corporate-wide enterprise
oversight team for sales practices issues.
In 2014, we further revised our incentive compensation
plans to align pay with ethical performance.
In 2015, we added more enhancements to our training
materials, further lowered goals, and began a series of
townhall meetings to reinforce the importance of ethical
leadership and always putting our customers first.
Throughout this 5-year period, we identified potential
inappropriate sales practices. We investigated those, and we
took disciplinary actions that included terminations of
managers and team members for sales policy violations--the
5,300 terminations over these 5 years that have been widely
reported.
Despite all of these efforts, we did not get it right. We
should have realized much sooner than the best way to solve the
problems in the retail banking business was to completely
eliminate retail bank products sales goals. And one of the
areas that we missed was the possibility that customers could
be charged fees in connection with accounts opened without
their authorization. Because deposit accounts that are not used
are automatically closed, we
assumed this could not happen. We were wrong. And we took steps
to refund fees that were charged and made changes so this could
not happen again.
In August 2015, we began working with a third-party
consulting firm, PricewaterhouseCoopers (PwC), which conducted
extensive, large-scale data analyses of all 82 million
accounts, deposit accounts, and nearly 11 million credit card
accounts that we had opened from 2011 through 2015. Of the 93
million accounts reviewed, approximately 2 percent, 1.5 million
deposit accounts and 565,000 consumers credit card accounts,
were identified as accounts that may have been unauthorized.
To be clear, PwC did not find these accounts had been
unauthorized, but because it could not rule out the
possibility, these accounts were further reviewed to determine
if any fees had been charged.
PwC calculated that approximately 115,000 of these accounts
had incurred $2.6 million in fees, which had been refunded to
those customers. Even one unauthorized account is one too many.
This type of activity has no place in our culture.
We are committed to getting it right 100 percent of the
time, and when we fall short, we accept responsibility, and we
will do everything we can to make it right by our customers.
I will close by saying again I am deeply sorry that we have
not lived up to our values in this way. I also want to take
this opportunity to thank our 268,000 team members who come to
work every day to serve our customers. Today I am making a
personal commitment to rebuilding our customers' and investors'
trust, the faith of our team members, and the confidence of the
American people.
I am happy now to address your questions. Thank you.
Chairman Shelby. Thank you, Mr. Stumpf.
Mr. Stumpf, according to your testimony, Wells Fargo began
making internal changes in 2011 to address the opening of
unauthorized accounts. Did these problems start in 2011? Or
could there have been unauthorized activity before then? Why
2011?
Mr. Stumpf. Yes, I think we all know that not every team
member will do everything right every day of every minute. And
we do a lot of training of our team members, coaching. They
each sign an annual ethics statement. And I cannot guarantee it
did not happen before that time. We are trying to manage it
within the business, and that is why I announced today that we
are going back to 2010 and 2009, because at that time, as you
might recall, we were putting the Wachovia and Wells Fargo
teams together, and we just thought we do not want to leave any
stone unturned.
Chairman Shelby. Wells Fargo fired approximately 5,300
employees in connection with these practices. What were the
criteria for termination? And were any personnel actions taken
short of termination? And if so, what were they? In other
words, I am sure you did not fire everybody, but did you
discipline some, and why, and so forth?
Mr. Stumpf. Yes, so, Senator, thank you for that question,
and it is a good one. We have a number of triangulations around
how to understand when there might be improper behavior. If
some customer, for example, all of a sudden shows up with three
savings
accounts, they probably do not need that. Or we have
EthicsLines. We have a culture in the company, if you see
something that you do not think is proper, raise your hand,
talk to a manager.
So we looked at a number of situations, and some of them
were perfectly legitimate. But for those who broke our trust,
were dishonest, put customers at risk, we do have a very bright
line. And, after all, we are a regulated institution, and we
have a fidelity bond, and people who behave in this way simply
cannot work here.
Chairman Shelby. Mr. Stumpf, your testimony also does not
address when the violations were brought to the attention of
senior management. Specifically, when did you find out that
thousands of your employees were opening unauthorized accounts
or fraudulent accounts? Did it take that long? When did you
find out?
Mr. Stumpf. Thank you again, Senator. The business has
their own audit and investigations and sales practices,
efficacy and so forth, contained within the regional bank or
the retail bank. After they had been working on this issue for
a couple of years--and, again, this was way too many people,
but it was 1 percent of our people. There are at any one time
100,000 team members in our banks, and after we noticed--after
the business was dealing with this for a couple years, it was
then brought to the holding company. And corporate assets,
corporate audit, corporate compliance, the so-called second
line of defense, got very active, and that is when I became
much more aware of the issue.
Chairman Shelby. Does it bother you as the CEO of such a
large bank that systemic fraud was not brought to your
attention sooner by your employees?
Mr. Stumpf. If I could turn the clock back--and I have
thought about this a thousand times--of course, I wish I would
have done--we all wish we would have done something more,
earlier. We did not get on this fast enough. Again, recognizing
that this was, you know, the vast majority of people who are
doing the right thing.
Chairman Shelby. Let us go back to the question a minute
ago. I do not believe you answered it specifically. When did
the senior management--you and others you had deemed ``senior
management''--learn about this fraud?
Mr. Stumpf. I can speak for myself, and I know that other
corporate executives at the corporate area outside of the
business, I can speak to myself and I believe others, it was
2013. Before that, it was being dealt with with the audit and
compliance within the business unit.
Chairman Shelby. Mr. Stumpf, the Board of Directors of
Wells Fargo has awarded the then head of community banking,
Carrie Tolstedt, millions of dollars--it could be $100 million,
as Senator Brown says, or more--in incentive compensation for
``success in furthering the company's objective of cross-
selling products'' and ``reinforcing a strong risk culture,''
according to the 2015 proxy statement issued by your bank.
Explain to the American public today here what accountability
at a large bank looks like when an executive departs with
millions of dollars in compensation after thousands of their
employees defrauded customers? The question was raised by
Senator Brown.
Mr. Stumpf. I will try to get to all of those, and if I do
not, please--but it is a good question. Carrie Tolstedt, as
leader of the community banking business, had a lot of
requirements and things that her performance was measured on,
putting the Wachovia and Wells businesses together, doing
common branding, making sure customers were treated properly.
And throughout that entire period from 2011 until 2016,
customer loyalty scores continued to improve. Today they are
top of class, even by independent studies of large banks.
Our team member engagement, we do a study every year--and
today we have 15 people who are engaged in that business--for
every one that is disengaged. Balances and customers had grown.
Now, in this particular area, she did not do enough, and we
decided--the chief operating officer, who she was reporting to
at the time, with my consultation, decided that we would go in
a different direction.
But I also want to be clear: Carrie was eligible to retire.
When she was told that we are going to go in a different
direction, she chose to retire, and she got no retirement
severance benefits, and her compensation that she received in
the past, some of it which is not--which has been granted but
not yet vested, and other compensation will be considered by
the board of directors in an independent process that they
have. And I will respect and accept whatever decision they
make.
Chairman Shelby. That would be clawback? You have the
ability at the bank to claw back, do you not?
Mr. Stumpf. You know, I am not an expert in compensation,
but I will get you whatever----
Chairman Shelby. You are the CEO of the company, right?
Mr. Stumpf. I am the CEO----
Chairman Shelby. And so are you the Chairman of the Board?
Mr. Stumpf. I am the Chairman of the Board.
Chairman Shelby. OK. Then----
Mr. Stumpf. But I do not--excuse me.
Chairman Shelby. And the buck stops here, so to speak.
Mr. Stumpf. It stops--I am the senior officer.
Chairman Shelby. So are you going to look into this
seriously about what this person did, her responsibility, and
the big reward that she is getting that happened under her
watch?
Mr. Stumpf. Senator, we will--the board of directors, the
compensation committee--and they will refer it to the board. I
am not part of that process. I want to make sure that--that is
a very independent process and nothing that I say would
prejudice their deliberative process. But that is their
decision, and they have all the tools available to them,
whether she would have retired or she would have been fired.
Chairman Shelby. Mr. Stumpf, is not a lot of banking based
on integrity or trust by your customers in the bank itself?
They do business with you. They put their money there. They
trust you. What has happened to the banking system? Not
everywhere, but what has happened to the banking system?
Mr. Stumpf. You know, Senator, you think about it exactly
the way I think about it. Trust is the core element of any
relationship, and surely in the financial services business.
And we know we have work to do in that area, and I intend to do
all I can to help in that area.
Chairman Shelby. Do you believe you have violated that
trust?
Mr. Stumpf. There is no question with some of our customers
we have violated trust, and we have to work hard to re-earn
that.
Chairman Shelby. Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
Mr. Stumpf, I will make my questions short and ask you to
be as concise as possible. I will start with your response to
Senator Shelby. You became aware of the widespread fraud in
2013. Could you be more precise than that? When in 2013?
Mr. Stumpf. Well, I became aware that the problems the
local business was working on in rooting out this behavior by 1
percent of our team members, give or take--and I do not want to
minimize that--that we were not making enough progress.
Senator Brown. And when did you become aware more
precisely?
Mr. Stumpf. It was later in----
Senator Brown. Was it the Los Angeles Times article that
you became----
Mr. Stumpf. Yes. It was later in 2013. Well, I had--
actually, I do not remember the exact timeframe. I can get back
to you and staff, but it was sometime in 2013.
Senator Brown. OK. Thank you for that.
You mentioned the Wachovia merger, that you are willing to
go back before 2011, to 2009 and 2010, in part because of the
Wachovia merger. The emphasis on cross-selling dates back at
least to the Norwest merger, right? I mean, this has been a
Wells Fargo business plan for a number of years. What year was
the Norwest merger?
Mr. Stumpf. It was two thousand--well, it was announced--
you are talking about----
Senator Brown. The Norwest merger with Wells.
Mr. Stumpf. That was 1998.
Senator Brown. And so this Wachovia merger, there clearly
was--you are going back to 2009 and 2010. You are offering to
do that. Why stop at 2009? We hear from people that it has gone
on longer than that, with the cross-selling and the pressure
and the sales goals. Why are you only willing to go to 2009?
Mr. Stumpf. Well, Senator, I would tell you this: We want
to make it right by any customer, and we already--we agreed
with our regulators in our agreements to go back to 2011. We
made a decision to go back to 2010 and 2009, and we want to
make it right by any customer.
Senator Brown. Does that mean you are willing to go back
earlier than 2009?
Mr. Stumpf. Well, I do not--I cannot tell you that today. I
would have to talk to our folks. I do not know about records
and so forth. But I want to make sure any customer who has had
harm of any kind, that we will do right by them.
Senator Brown. Well, you have records before 2009. Is that
a pledge from you to go back earlier than that if, in fact,
there are customers that were harmed by unauthorized accounts?
Mr. Stumpf. Senator, I will take that under advisement, and
I will get back to you----
Senator Brown. And I accept your good intentions that you
are going back to 2009 to give restitution to those--can
provide restitution to those customers. But why stop there if
you know that--you say you have to go back and talk to staff. I
mean, if you really do want to make sure these customers are
made whole, you should go back as long as you possibly can.
Mr. Stumpf. And, Senator, again, I think that is--you know,
we will consider that. I am--we will take that under
advisement, and I will get back----
Senator Brown. Well, I hope you will more than consider it.
Thank you.
Talk about Chairman Shelby's discussion on the clawback.
Understanding I think you minimize your influence--to us at
least you minimize your influence with the board. You are the
chairman of the board. I understand that the board goes through
a process, and I respect that. But you as the chairman, are you
going to recommend to the Board--well, let me back up. You, I
would assume, are more familiar with both the pros and the cons
of performance from Ms. Tolstedt. You are aware that she is
getting--she is slated to get, some news reports say, up to
$120 million. You are also aware that most of the 5,300 people,
team members that were fired, were low-income workers, as low
as $11-something an hour, maybe up to $16 or $17 an hour, but
were generally low-income workers, low-paid workers. So you are
more familiar with that than probably any board member, at
least as familiar. So will you with your knowledge and your
stature and your position in the board make a recommendation to
this board that they should claw back a significant amount of
her compensation?
Mr. Stumpf. Senator, I will answer that question, but I
just want to put something in perspective. The lowest-paid
worker we have, our entry level in our least-cost area is $12
an hour. Our lowest-paid worker in our high-cost area is $16.50
an hour. In addition to that, about $6 per hour is also--that
does not include the benefits around health care, which we pay
virtually all of it for low-paid people. But most of the people
who lost their jobs because they violated our code of ethics,
they were dishonest, were not--those were good-paying jobs.
People lost their jobs who were bankers, bank managers,
managers of managers, and even an area president. These were
good-paying jobs, jobs that were--the averages I think were in
the, you know, $35,000 to $60,000 area, if you just want to
take an average.
But with respect to your question specifically, I am not on
the human resources and compensation committee. That is an
independent committee. And they will take that under their
deliberation. I do not want in any way to prejudice their
activity, and I am going to accept and respect any decision
that they make on
anything.
Senator Brown. Thank you for saying that. So you are not
willing to make a recommendation based on how this looks to the
public that--call them ``good-paying jobs'' at $16 or $17 an
hour or not, compared to what, but I will put that aside. But
whatever these workers were making, they were in the bottom
some percentage of the workforce, whatever. They made mistakes,
they were dishonest, they apparently deserved to be fired. I
will not dispute that.
You are not willing, as the CEO of this bank, to make a
public recommendation that you think--to make a public
statement that you think that Carrie Tolstedt did--you are not
willing to say publicly to this Committee or to anyone that
some of her compensation, over $100 million when she announced
her retirement in the last several weeks, that any of it should
be clawed back?
Mr. Stumpf. I am going to let the process proceed, and the
board has already met, and I made an affirmative comment in my
testimony.
Senator Brown. OK. That is unfortunate.
You said in your testimony that in August 2015, your words,
``we began working with . . . PwC'' to locate reimbursed
customers who incurred fees. Was that your decision? Or were
you directed to do so by the regulators?
Mr. Stumpf. That was in consultation with regulators and
with the City Attorney's Office.
Senator Brown. So you did not on your own, after finding
out in late 2013 of these problems, through the rest of 2013, a
month, 2 to 3 months in 2013, through all of 2014, and then
into the first 7 months of 2015, it never occurred to you that
you should bring in somebody, without the regulators suggesting
it or pushing or in consultation, it never occurred to you to
bring in somebody to really find out who was hurt, what kinds
of issues were going on? How do we find these customers to
reimburse them?
Mr. Stumpf. Senator, that is a good question, and I have
thought about that, a lot about why, and it was--it was early
in 2015, about the time that we were considering or talked
about who we would bring in, that we finally connected a dot.
And there is no excuse why we did not connect it before.
Generally what happens when an account is opened that is
not funded, the system eliminates it within a couple of months.
If it does not get funded, it is not used, it is not started,
it is truncated or closed. It never dawned on us--and, again,
no excuses, and we were wrong. It never dawned that there could
be a cycle where--a cycle, a 30-day cycle would have turned--
would have been completed, and there could have been a fee
associated with that. It was the first time that light bulb
went on.
Senator Brown. I appreciate your candor about this, but in
2011, 1,000 employees were fired; in 2012, a similar number;
2013 was the peak number. In 2013 was the Los Angeles Times
article. In 2015, throughout the year, nothing happened. It
seemed to never occur to management to do any of this when it
is just--and then today--and I do not question your integrity,
but then today you come in and make all these announcements. It
has been 5 years since--at least 5 years since all of this has
been happening. Today you make announcements that you are
doing--you apologize. We appreciate that. You make
announcements you are doing the right things. We appreciate
that. But it just sort of begs the issue of where was
management when these so many thousands of people were fired,
stories were written, regulators were starting to come in. I
understand this is a huge profit center for Wells, the retail
banking, writ large, in terms of the unauthorized accounts and
everything else. But it just does not seem quite right that it
did not occur to anybody on the board apparently--or at least
that had your ear, did not occur to the CEO, did not occur to
top management that they should do something more affirmatively
until that August 2015 date when the regulators sort of helped
you suggest and come to that conclusion.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Corker.
Senator Corker. Thank you, Mr. Chairman. Mr. Stumpf, thank
you for being here.
Just as an observation, I know that you have a whole host
of people here with you, and I am sure one of those people is a
communications person. I would just make the observation, look,
I know you talk daily with board members, and, you know, I have
been on boards before myself. I would suggest, just again as an
observation, that to not invoke some degree of clawback for
yourself and others involved would be committing malpractice
from the standpoint of just public relations. So at a minimum,
I am sure that is going to take place. I would be surprised if
it does not.
You found out about this through reading the Los Angeles
Times. Is that correct?
Mr. Stumpf. No, I do not recall back in 2013 exactly the
timeframe, but I learned about it later in 2013. Remember,
the----
Senator Corker. But it sounds like it really was brought to
your attention after a story in a newspaper, or that is when
the focus really began. I am not criticizing that. I am just
asking.
Mr. Stumpf. No, and I--the only thing I want to make clear,
Senator Corker, is that we had dismissed a number of people,
and that is what caused the Los Angeles Times----
Senator Corker. The story, I see.
Mr. Stumpf. Yes, because----
Senator Corker. So you all had taken some actions, they
wrote a story, and it----
Mr. Stumpf. Exactly, yes.
Senator Corker. Your board, you know, I know public boards
today, you know, intense scrutiny, there are all kinds of
committees that are set up. When did the board realize that you
had a unit that was committing fraud? It seems to me that that
is one of those things you flag pretty quickly, or at least a
committee of the board?
Mr. Stumpf. Yes, and I just want to say these team
members--you are absolutely right--they did not do what was
right. It was----
Senator Corker. I did not ask that. I am asking you----
Mr. Stumpf. OK. It----
Senator Corker.----when the board became aware that you had
a unit that was involved in committing fraud.
Mr. Stumpf. Yes, it would have been later 2013 and then
2014 and on.
Senator Corker. So they were not even aware of the Los
Angeles Times story?
Mr. Stumpf. I think that was later in 2013. I would have to
go back and check my records, and it is the best to what I
remember, but it was sometime, you know, later 2013, surely in
2014.
Senator Corker. I read a story about Ms. Tolstedt today. I
do not know her. It actually, you know, sounds like she was an
incredibly hard worker, got to work early, rode a bus, you
know, micromanaged, signed leases herself. I do not know if any
of this was true. But when you have somebody that is that
involved in sort of micro details, is this a case of not
raising their head up to 5,000 or 10,000 feet and understanding
the kind of culture that was being created by slogans like
``Eight is great'' and those kinds of things? I mean, it is
just hard to--you know, it seems to me that within a bank, with
all the data you use to contact customers--I mean, you can--
with algorithms, I mean, you guys can pick this stuff up so
quickly. It is hard to believe that there is not some report
within the bank that would cause this to jump out at people and
say something really bad is happening here.
Mr. Stumpf. Yes, Senator Corker, I think that is--that is a
good question, and in the retail business, where you have
100,000 people in seats at any one time in our 6,200 branches,
there is a lot of turnover. And I am not justifying in----
Senator Corker. Well, no, no. There is an officer, there is
a compliance officer.
Mr. Stumpf. Absolutely.
Senator Corker. And all banks have these.
Mr. Stumpf. Sure.
Senator Corker. I mean, you are all regulated to death, and
that is their job. And this kind of--this is something that you
would think would be flagged and jump out at someone who was in
that job.
Mr. Stumpf. Thank you, and that is what I was trying to
explain, that in her business, surely she was, I believe, in
reporting situations where there was ethical breakdowns, and--
--
Senator Corker. But not to the board.
Mr. Stumpf. And it got to the board level--it got to the
corporate level in 2013 because progress was not being made,
and the board level in 2014, as the corporate researchers
started to--and we had been actually seeing improvement since
that time, but not enough.
Senator Corker. It does seem like there was--just in
fairness, again, there does seem like a big disconnect there.
So she left after 27 years, and I think it would be good
for the audience at some point--not during my time--to explain
the entire compensation. I think it is a little different than
most people think based on some of the comments that have been
made. But I assume her departure, after 27 years, was based on
this issue. Is that correct?
Mr. Stumpf. It was based on a number of issues. This was
one of them. We wanted to take the business in a different
direction, and we----
Senator Corker. But she in essence was terminated over this
issue.
Mr. Stumpf. No. Carrie chose to retire. Tim Sloan, our
Chief Operating Officer, with my consultation, had a discussion
with her--I think it was sometime in June or July--and said,
``We want to go in a different direction. We want to put an
end''--``we want to put more focus on this issue.'' But it was
a variety of things. And she was eligible for retirement, and
she decided to retire.
Senator Corker. Well, my time is up, and out of respect for
other Members, I will stop. I have a number of other questions.
We thank you for being here.
Mr. Stumpf. Thank you.
Chairman Shelby. Senator Reed.
Senator Reed. Well, thank you very much, Mr. Chairman, and
thank you, Mr. Stumpf, for being here.
Let me try to clarify a bit more your position going
forward with respect to the issues of compensation, not just
Ms. Tolstedt's but even your own compensation. Will you
formally recuse yourself from board deliberations?
Mr. Stumpf. Well, I am not even--I am not even involved in
board discussions around what the HRC does with anything with
respect to me and/or as they recommend to the board. So there
is no recusal required. But if--but I am happy to do that. But
I am not even involved in that.
Senator Reed. It will ultimately come up, though, to the
board for a vote of affirmation of the compensation committee,
correct?
Mr. Stumpf. It would, and I am not part of that. That is
done in an executive session without me. It has always been
done that way.
Senator Reed. In 2013, when you learned of this, what did
you do? This has been asked several different ways. Did you
inform the regulators or instruct someone to inform the
regulators of a growing problem?
Mr. Stumpf. Thank you, Mr. Reed. Yes, and I should have
mentioned that earlier, but yes. Our primary prudential
regulator was informed at that time.
Senator Reed. Did you inform the board at that time?
Mr. Stumpf. Yes. I cannot recall the exact meeting, and--
but I can--I can--it was sometime in 2013, and I know in 2014
various committees of the board were made aware of this--the
risk committee, the audit and examination, the corporate
responsibility.
Senator Reed. Did you take any steps to internally notify
your employees of this type of behavior, which, going back,
was, you know, in 2011, a thousand people had done, 2012, 2013,
including an area manager? Did you communicate that? Or did you
simply keep these discussions internal to the board?
Mr. Stumpf. I do a team member townhall every quarter where
I go to one of our various cities, and there will be a couple
thousand people in the audience, and then we Web cast that
broadly across our company. And I, you know, typically talk
about ethics and doing what is right for customers, and in the
case the vast majority do it, but I was trying to really bring
home this fact.
Senator Reed. But given specific evidence of techniques
used to essentially, in the words of some of my colleagues,
``defraud
customers,'' those specific practices were not focused upon and
made very clear that they were not tolerated? Or was it--it
would seem to be a generic discussion of follow the rules?
Mr. Stumpf. Again, Senator Reed, at the time that the
escalation happened in 2013, there were many different meetings
and things happening, as I mentioned in my written--or my oral
testimony, about reducing goals, talking about sales efficacy,
having manager meetings, talking with leaders, putting more
controls in place. And, again, not fast enough, not far enough,
and I apologize for that.
Senator Reed. Well, it seems that, you know--and I would
suspect, looking back, that the emphasis on meeting sales
objectives, cross-selling, was unremitting. And yet you had
examples here, specific examples of things that you knew were
happening and should not be happening. And yet what I am
hearing is more or less a generic, ``Make those sales, oh, and
by the way, you know, we have these ethical rules in place,
too.'' Again, you know, I think you have said it and it is
obvious that the tone, emphasis, what the leader does, what the
leader says, is sometimes more important than anything else.
For a period there, this was recognized, but there was no
specific, ``Stop this stuff.''
Mr. Stumpf. Well, I can tell you we said, ``Stop this
stuff,'' and the thing about cross-sell is I would rather have
a customer with two products that they use and they need and
they want and they value than four products that are not used
and valued. In the first case, the customer wins, we win, we
all do well. In the second case, everybody loses. We lose
money. It does not help us.
So we have been--we tried very hard, and, again, we were
not as effective as we could have been in talking about--you
know, the goal here is not, you know, products. The goal here
is deep relationships. We had the wrong tool for too long to
make that happen.
Senator Reed. I would simply conclude that it just seems
that it took too many months--years, literally--for some simple
steps which should have been taken to be taken, and it was
only, I think, as a result of what ultimately Los Angeles
County and the regulators and others did that forced the issue.
Thank you, Mr. Stumpf.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman. Thanks for calling
this hearing. I have to say what we have been learning is so
deeply disturbing on so many levels.
First, we discover that Wells Fargo had a sales culture
that was blatantly antithetical to what is best for customers.
We discover that management had far too few common-sense
controls in place to prevent the kind of abuse that customers
were subject to. We discover Wells Fargo executives completely
out of touch.
In a 2011 Forbes article, Wells Fargo was rated the best at
cross-selling its products. The only problem is we discovered
Wells Fargo was not always cross-selling. Signing up customers
for products when you know the customer does not want the
product, failing to notify customers about these sham accounts
opened, and this is not cross-selling. This is fraud. That is
what this is.
And then we discover way too little done to prevent it from
continuing, even after it was discovered. So Wells Fargo
employees continued for years to literally forge customers'
signatures--including my constituents'--on documents to open up
accounts.
And then the case of Carrie Tolstedt, my understanding is
that something on the order of over $20 million in bonuses for
her between 2010 and 2015 were awarded because of strong cross-
sell
ratios. Yet we know in some cases she was hitting numbers by
these fraudulent accounts. So this is unbelievable.
Let me begin, Mr. Stumpf. Do you acknowledge that the
employees who engaged in this activity were committing fraud?
Mr. Stumpf. You know, I am not a criminal, you know, law
enforcement officer, and I do not know the--I am not a lawyer.
I do not know the legal term. I know this: They broke our code
of ethics, they were dishonest, and we did everything we can to
support law enforcement on these issues.
Senator Toomey. So I am not a lawyer either. Neither are
most adults in America. But I think most people understand the
meaning of the word ``fraud.'' Black's Law Dictionary does
provide a useful definition. It says, ``Fraud is a knowing
misrepresentation or knowing concealment of a material fact
made to induce another to act to his or her detriment.''
How does falsely signing a customer up for an account they
do not want, how does it not meet that definition?
Mr. Stumpf. Well, and, again, I--if that is the definition
that--you know, I can tell you this: It is absolutely wrong. We
found this out. We got rid of those people. And they have no
place--that behavior has no place in our culture. If that means
fraud, that means fraud.
Senator Toomey. At what point did you alert your regulators
and law enforcement that you had probable criminal activity
happening on a large scale?
Mr. Stumpf. Well, again, it was 1 percent of our people,
Senator, and I know that----
Senator Toomey. But 5,000 is a big number.
Mr. Stumpf. It is bigger than my hometown. I do know that.
And it was--but we also had the vast majority who did the right
thing. But let us talk about those. Every time--and we made a
very bright line. If it happened one time, it was one time too
many.
Senator Toomey. I have only 5 minutes here.
Mr. Stumpf. And to answer your question--I am sorry--we
sent it--we did everything we needed to do.
Senator Toomey. Did you refer it to law enforcement?
Mr. Stumpf. When it was--when it was required, we did. We
did everything according to the rules.
Senator Toomey. When did you begin to disclose in SEC
filings that you had this potentially material adverse set of
circumstances that could certainly have huge damage to your
reputational value?
Mr. Stumpf. Well, I do not--I do not--I cannot answer that.
I would have to get to our legal team. I do not have that in
front of me. But this was not a--I just--I would have to get
back to you on that. I do not know.
Senator Toomey. Well, we have not been able to discover
such a disclosure, and the SEC very clearly requires disclosure
of material adverse circumstances. And I do not know how this
could not be deemed ``material.'' I think the market cap lost 9
percent over the last couple of weeks. That is pretty material.
Mr. Stumpf. Well, from a financial perspective, you know,
$2.6 million--and it is $2.6 million too much, and $185 million
was not deemed ``material.''
Senator Toomey. I get that those dollar amounts may not
qualify as ``material'' to a bank the size of Wells Fargo, but
the reputational damage done to the bank clearly is material,
and that has been manifested by this huge adverse movement in
stock prices.
Let me raise one other issue. You mentioned in your
testimony and you state unequivocally that there was ``no
orchestrated effort, or ``scheme'' as some have called it, by
the company.'' But when thousands of people conduct the same
kind of fraudulent activity, it is a stretch to believe that
every one of them independently conjured up this idea of how
they would commit this fraud. Is it not very probable that
there was some orchestration that happened at some level, if
not--I am not suggesting it was you personally by any means,
but does it not defy common sense to think that there was not
some orchestration of this?
Mr. Stumpf. Senator, I do not know how--what motivated or
why people did this, but we did fire managers and managers of
managers, and in one case, an area president. So, again, you
know, this 1 percent is way too many. I do not want to minimize
it. But I also want to make sure that we recognize that the
vast majority of the people did exactly the things we wanted
them to do to help deepen customer relationships, help them
succeed financially. And, also, we have put a number of other
controls in place besides taking sales goals off the table. We
now have--we do not open any deposit account today or any
credit card without a signature. Well, there are a couple cases
where ADA where they cannot--we will have a dual notice. We are
also doing mystery shopping, and we are also giving customers a
1-hour notice by email or, if they do not have an email, by
letter to make sure that we know exactly and they know exactly
what they have opened.
Senator Toomey. It seems like it took an awfully long time
to impose those sort of basic controls.
I see I am out of time. Thank you, Mr. Chairman.
Chairman Shelby. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman. First of all,
thanks for the response--I know you were already on the way,
but to the letter that we sent asking you for this hearing, so
I appreciate you holding it.
Mr. Stumpf, let me just say I am personally appalled by the
size, the scope, the duration, and the impact of the scandal.
And I must say that I am shocked and incredibly disappointed by
the response of Wells Fargo's corporate executives. In the last
week, you and your chief financial officer have taken to the
press and laid the blame squarely on low-paid retail bank
employees. And while I do not excuse what they did by any
stretch of the imagination, I find that despicable.
Wells Fargo touts to its investors and its customers that
we will never put the stagecoach before the horses. Well, I
tell you what: The bank recklessly rolled over 2 million of
your customers in what in no way can be viewed other than a
large-scale scheme to boost, you know, your growth and whatever
that meant for your shares and whatever that meant to your
shareholders.
So you did not fire 10 employees. Right? You did not fire
500 employees. You fired 5,300 employees. Is that right?
Mr. Stumpf. Yes, 5,300 people did not honor our culture.
Senator Menendez. And they were not located in one branch
or one district. Is that right?
Mr. Stumpf. That is correct.
Senator Menendez. They were located across the country. Is
that fair to say?
Mr. Stumpf. That is fair to say.
Senator Menendez. Now, should not the workplace actions of
employees reflect the values of the institution no matter what
part of the country that they are in?
Mr. Stumpf. I absolutely agree with that.
Senator Menendez. So do you believe that senior executives
like yourself are responsible for nurturing and honing a
company-wide culture for your employees and your employees'
actions?
Mr. Stumpf. Absolutely.
Senator Menendez. So this is not the work of 5,300 bad
apples. This is the work and the result of sowing seeds that
rotted the entire orchard. And whether tacitly through sales
guides and employee training manuals, some of which I have
reviewed, or more explicitly through demands from hard-driving
managers, you and your senior executives created an environment
in which this culture of deception and deceit thrived. And yet,
you know, I see this as a toxic combination of low wages--now,
I know that in response to Senator Brown's question of what
does an average banker at Wells Fargo make, you said between
$30,000 and $60,000. You said that is good money. How much
money did you make last year?
Mr. Stumpf. $19.3 million.
Senator Menendez. Now, that is good money. Now, that is
good money. Is it a combination of low wages, punishing sales
quotas, and a grossly misaligned compensation incentive
throughout the bank's organizational structure, as is evidenced
that you removed it?
Now, when you were holding these ethics sessions, did you
ever specifically, seeing this information begin to blip up on
your radar screen, and then more significantly, did you ever
specifically say in those sessions, ``We do not want to open
accounts for our customers that they do not ask for''? Did you
specifically say that?
Mr. Stumpf. Senator, I will get to that question, but I
just want to go back for a second. When a team member opens an
account that is not used, that does not help customers and it
does not help us. And the vast majority did the absolutely
right thing.
Senator Menendez. Did you specifically say----
Mr. Stumpf. And I specifically said, yes, we do not push
products. We sit down with a customer. We have a needs-based
analysis, and then based on what we hear where the customer is
in their financial journey, we match products.
Senator Menendez. Did you specifically say that, in fact,
``I do not want to see accounts open for customers that they
did not ask for''?
Mr. Stumpf. Absolutely.
Senator Menendez. When did you say that?
Mr. Stumpf. I have said that many times in many townhalls.
Senator Menendez. Let me ask you, Ms. Tolstedt made about
$9 million in salary last year, did she not?
Mr. Stumpf. You know, it is in the--it is in our public
filings.
Senator Menendez. She made about $9.1 million in salary,
bonus, and stock awards. According to Glassdoor, the average
Wells Fargo bank teller salary is $24,545, and the average
salary for a Wells Fargo personal banker is $37,560. So
imagine--do you know what the poverty wage is for a family of
three?
Mr. Stumpf. I do not have that in front of me.
Senator Menendez. Well, let me just share it with you. I
did not think you would. It is $24,300. For a family of three,
it is $20,160. So imagine for a moment you are a single parent
working with two young children as a personal banker in Wells
Fargo's branch. Let us say your base salary is somewhere in the
$30,000 range. You have a hard-driving boss breathing down your
neck to meet rigorous sales quotas. You have got to call into a
call center when you do not meet those quotas. And if you do
not meet the quota one day, it gets carried over to the next
day, so you have got even a higher quota. And you are being
told--forget about the incentive of making more money. In
essence, this is about losing your job. And you think that that
environment was the appropriate environment to protect your
customers and to have the culture that you portray here that
Wells Fargo had?
Mr. Stumpf. Senator Menendez, I get your question. We had
been reducing sales goals and bringing other goals into place
even before we decided to get rid of the sales product goals.
And the vast majority--the vast majority of employees--love
Wells Fargo and, in fact, when we go to our regional banking--
our retail banking people, 15 of our people in survey--it is
actually a census done by Gallup--every year love the
environment in Wells Fargo, and they put customers first. I
cannot excuse the behavior of the 1,000. I know it is too many.
But the culture is a very caring and collaborative culture.
Senator Menendez. I know my time is up, but let me just ask
you a final question before hopefully the Chairman will have a
second round. Did you or any senior executive at Wells Fargo
suffer any
financial consequence as a result of what has transpired over
the years?
Mr. Stumpf. The board will take--well, first of all----
Senator Menendez. To date. To date, have you suffered any
financial consequences?
Mr. Stumpf. The board has gone through, and, yes, people
have been held accountable.
Senator Menendez. Senior executive management?
Mr. Stumpf. Senior executive----
Senator Menendez. I would like for you to classify for me
what that is.
Mr. Stumpf. OK. Well, people that are in charge of risk in
the retail bank, people that are in charge of sales efficacy,
regional presidents who do not meet their goals around proper
sales, yes, people are held accountable, and they will be held
accountable.
Chairman Shelby. Senator Heller.
Senator Heller. Mr. Chairman, thank you for holding this
hearing and for our witness for being here today. I appreciate
it.
For years, the people of Nevada have struggled to regain
what they lost in the aftermath of the housing crisis, and we
all know that this housing crisis was caused by greed and
excess. And for too long, Nevada often has had the unfortunate
distinction of having one of the highest rates of unemployment,
foreclosures, underwater homes, homes sold in short sales, and
personal bankruptcies. So trust to some is the center point of
any relationship with a business, and I assume it is the same
that Wells Fargo has broken that trust.
I consistently fight to ensure Nevadans retain the
protections of their personal privacy, so I was shocked to hear
the reports, Mr. Chairman, that the employees of Wells Fargo
opened millions of bank accounts and credit cards without
customers' consent. The actions of some Wells Fargo employees
directly took money from Americans' pockets in order to
artificially inflate company quotas.
I had a constituent--and I have had a number of
constituents call my office. This one happened to be from
Henderson, Nevada, emailed me, and said she was affected by
Wells Fargo's tactics. She said she was insulted that
leadership at Wells Fargo was unaware of these policies.
Now, given the culture of wrongdoing that some of your
employees exhibited, taking responsibility, refunding
customers, and conducting internal investigations should only
be the first step as we plan to fix this mess. Accountability
and reform in putting your customers' interests first should be
Wells Fargo's top priority. And so with that, Mr. Stumpf, just
a couple of questions.
Do my constituents have a right to be insulted? I have
heard a number of comments probably more directed at you that
you would take the Sergeant Schultz position that you knew
nothing as this was moving ahead, that perhaps you even took--
and I heard this from one of my constituents--the Hillary
Clinton approach, a ``what difference does it make?'' attitude.
And let me tell you why they are talking this way. I have got
your letter to your valued customers as you tried to explain to
them some of the problems: ``You may have seen news recently
that some Wells Fargo customers received products and services
that they did not need.''
You did not tell them you were sorry in your customer
service letter. You came to this Committee and told us you were
sorry, but you did not tell your customers you were sorry. Do
they have a right to be insulted?
Mr. Stumpf. Well, first of all, let me tell you, every--I
had a number of media contacts last week, one broadcast and
four in print, and I am sorry. I am accountable when we do not
do it right 100 percent of the time. And I was even--I was, I
think, misquoted or misunderstood in one where I blamed team
members. I do not like--we do not accept behavior that is not
consistent with our culture, but I do accept responsibility,
and I am sorry.
Senator Heller. This letter appears that you are
downplaying some of the concerns. You said that some Wells
Fargo customers--you know, we are talking almost 2 million
accounts that were opened up.
Let me ask you this question: Was anybody on your board or
yourself--did any of you have any open unauthorized accounts in
your names?
Mr. Stumpf. I do not know that. I have not seen a letter,
you know, on mine, and I was not refunded any of the dollars.
Senator Heller. What would you have done if you had an
unauthorized account where somebody forged your own name? What
would you have done about that?
Mr. Stumpf. Well, I have had that before where people have
forged my name----
Senator Heller. Your bank.
Mr. Stumpf.----or stolen my identity. But, of course, I
would be--I would be very disappointed, and I can surely
understand your constituents' disappointment, and we have a lot
of work. Nevada is a wonderful, important State to us. We have
been there a long time. And I apologize to all of the American
people and our customers, and we will make it right.
Senator Heller. Can I go back to Carrie Tolstedt for a
moment? You said you are not on the compensation board, but if
the compensation board were to send you a recommendation to
approve $100 million as a compensation package for her, would
you support that?
Mr. Stumpf. You know, I am not on that board, and I think
it is probably maybe--if I could just take a second, as I
understand--and I will get you the information about her $100
million--part of it is stock she has either purchased on the
open market or exercised and owns for a 27-year career. There
are some dollars that are in the money, options that she has
not yet exercised. And then, finally, there is a part of future
grants that will be vesting over the few number of years, and
the board will consider all of those things. They will consider
her entire situation in their deliberations.
Senator Heller. Would you approve that?
Mr. Stumpf. You know, again, Senator, I want to be
respectful of the committee and respectful of their process and
not in any way bias their decision.
Senator Heller. Mr. Chairman, my time has run out. Thank
you.
Chairman Shelby. Senator Tester.
Senator Tester. Thank you, Mr. Chairman, Ranking Member
Brown, for having this hearing. I have been on this Committee
for nearly 10 years now. You have done something that has never
happened in the last 10 years and united this Committee on a
major topic, and not in a good way.
Credit card accounts were opened. Folks did not know about
them. There were fees charged, potentially fines charged. And
if customers were unaware that these accounts were opened up,
there must have been many instances--there were 2 million
accounts opened up--that negative information was sent to
credit bureaus. Is that accurate?
Mr. Stumpf. The part that is accurate is there are 565,000
consumer credit cards that were opened up that were never
activated. About 400,000 of those have customers' signatures on
them, and 5.7 percent or less than 6 percent of those accounts
that we opened during that time were not activated, which is a
pretty standard industry--because people might have them--we
are going to go back to each one of those customers now and
find out if that was a legitimate--to ensure an open--and if it
is not, we will make it right.
Senator Tester. OK, but that is not what I asked.
Mr. Stumpf. I am sorry.
Senator Tester. I asked: Was negative information turned in
to the credit bureaus because of these actions?
Mr. Stumpf. You know, I do not know the algorithms of how
credit bureaus----
Senator Tester. Well, this----
Mr. Stumpf. But I want to answer your question. I know that
when a credit bureau is requested, it has an impact on your
credit score.
Senator Tester. Well, this is a big deal.
Mr. Stumpf. Yes, it is.
Senator Tester. And I am telling you, it is a big deal. I
could ask you for the age breakdown on these 2 million accounts
that were opened up, but I am telling you that if information
was sent in to the credit bureaus because of these falsely
opened accounts, the impacts on this are far, far, far more
than the fees or fines that could be associated with that.
What is Wells Fargo doing about that?
Mr. Stumpf. Senator----
Senator Tester. Or did that information not get reported to
the credit bureaus?
Mr. Stumpf. Well, when we pull a credit----
Senator Tester. Just ask me--just tell me, did the
information, if there were fees and fines involved and the
credit bureaus requested it, or even if they did not, did that
information get forwarded to the credit bureaus?
Mr. Stumpf. I am trying--sir, I am trying to work with
you----
Senator Tester. But a ``yes'' or ``no'' works.
Mr. Stumpf. Yes--yes, we--we pulled a credit bureau for
each one of these cards.
Senator Tester. OK. So what is Wells doing about fixing
that problem? And be concise.
Mr. Stumpf. OK. We are calling each credit card customer to
find out if this truly was a card they wanted.
Senator Tester. OK.
Mr. Stumpf. If they want it, we do not want to take away
their credit. If they did not want it, we are going to go back
and make sure that it is made right by the credit bureau and
made right by the customer.
Senator Tester. And what is the timeframe for that?
Mr. Stumpf. We already started that process.
Senator Tester. OK. So now, this took 5 years. It has been
documented, 2011--maybe even started before that, but 2011
until fairly recently. Now, if I had had a credit card issued
in the first volley and in the meantime between 2011 and now I
decided to buy a house, and that information was reported to
the credit bureau, it could make--you probably could know the
figure, but maybe half a percent, maybe more than that. And on
a $500,000 mortgage, the difference between 3.5 and 4 percent
is 50 grand over 30 years. What is being done about that?
Mr. Stumpf. We will look at each one of those and determine
what----
Senator Tester. So you are going to go back in and find
out, even if they did not do business through Wells, if they
bought a house and what Wells did impacted their credit rating,
you are going to go back and find those folks?
Mr. Stumpf. I am going to go back--we have committed to go
back to all of our credit card customers and find out----
Senator Tester. OK. What about the ones that got--you
refund all their fines, you refund all their fees. You went
back to the credit bureau and reestablished their credit rating
as of today. What about the folks that may have bought a house
through Chase and got a higher interest rate because of it? How
are you going to find those folks?
Mr. Stumpf. You know, we are working on that. I have told
our people, ``Go back and make it right,'' and I can--as we
start going through that, I am happy to have our team come back
and report to you how we're working on it.
Senator Tester. Well, I think it is really important that
you understand that this is a big deal. I mean, it is a big
deal. And I know you feel bad about it. We feel bad about it.
But the truth is there are real-world implications here on
young families and old families that are going to be put into a
poverty situation because of this, even though we think it is
just a few hundred bucks in fees. It is more than that, much
more than that.
So you found out in 2013--and I do not want to beat this
horse anymore, but did you find out that they were actually
setting up accounts with fraudulent signatures in 2013?
Mr. Stumpf. You know, I learned that some of our team
members were not doing the right thing, and they were opening
accounts on customers, and then we truncated those.
Senator Tester. Because it would seem to me that if you
guys knew about that, a simple edict would have been pretty
helpful: ``Do not do this. If you do this, you are gone.''
Mr. Stumpf. And that is--we had even more than that, and
what we should have done is get rid of our incentive program.
Senator Tester. The last thing, and this is just a
statement. But I can tell you that you have said multiple times
here that 5,300 people went, and that is basically 1 percent of
your workforce. Every time you say that, you give ammunition to
the folk who want to break up the big banks. Fifty-three
hundred people are more people than live in most towns in
Montana. Two million people is twice the population of the
entire State. This is a major screw-up that went on for far,
far, far, far too long, and I think you know that. But, man,
there is going to be a lot of work that has to be done to
rectify this situation, if it ever can be rectified.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Crapo.
Senator Crapo. Thank you, Mr. Chairman.
Mr. Stumpf, I want to follow up on the line of questioning
that Senator Tester was just discussing with you, but first I
want to ask a couple of questions about just data, basically.
Consumers expect that their private information is going to
be protected at their bank and not used to open an unauthorized
account. You have gone through that extensively today. Did the
third-party analysis that you engaged in determine if these
unauthorized accounts were created uniformly across the United
States? Or were there areas in the United States where they
were more heavily created?
Mr. Stumpf. Yes, there was a heavy bias toward the
Southwestern part of the country.
Senator Crapo. The information I have indicates that that
even more specifically includes California and Arizona. Would
that be correct?
Mr. Stumpf. That would be correct.
Senator Crapo. I also have New Jersey here on my list. Was
New Jersey more heavily impacted?
Mr. Stumpf. Well, I have numbers by State, and it typically
related to there was some over index or over--people did more
wrong things, but more associated with the size of the business
we're a much larger bank in Southern California and Arizona,
New Jersey. There were places where we are larger and it fit
more the pattern of the size of our organization in those
communities.
Senator Crapo. So because of that, it was not necessarily
that the management in those communities were potentially the
ones who were driving this more aggressively, but simply the
size of your business in those communities?
Mr. Stumpf. Senator, it was a bit of both.
Senator Crapo. All right. Thank you. Obviously, one of the
questions that my constituents and constituents across the
country have is, ``Am I one of those who has had an
unauthorized account created in my name?'' And you have
indicated that right now Wells Fargo is calling every customer.
Is that correct?
Mr. Stumpf. We are contacting all of our deposit customers
and the credit--and, incidentally, virtually all of these
accounts came on the books and were closed within a 60-day
period. And so of the potential--again, the 2 million accounts
that could not be eliminated--and I think I said that in my
oral testimony. So I do not know--you know, we just could not
eliminate them, or PwC could not. But we are calling all of our
credit card customers and contacting all of our deposit
customers, and we have a special call a number. We are asking
people to come into our banks and talk to our people.
Senator Crapo. That was my next question. If there is
somebody who does not want to wait for the call, what can they
do?
Mr. Stumpf. I mean, they are going to get a notice and say,
you know, if you have an interest, you can email us, we will
call you, we will do whatever it takes to make sure that--and I
know our study was--PwC was very comprehensive. We tried to err
on the side of the customer. In fact, we are getting people
coming into our bank today saying, ``I got a $25 check, but I
wanted this service.'' And I am not saying that--but I am just
saying that we want to make sure that we do not hurt any
customer and that if they
wanted credit, they have it; if they did not want it, we will
try to make it right by them.
Senator Crapo. All right. Now, getting back to Senator
Tester's question about the credit impact, the simple opening
of an account causes an impact to a credit rating, does it not?
Mr. Stumpf. It does on--and, again, I am not an expert in
this field, but I know on the credit card side we pull a
bureau, and depending on how many bureau--well, I know that
that is a strike against--it lowers your credit score,
depending on how many
requests are in that time. There is also a positive impact, and
I am not here to justify or under--we will do what is right to
make that right.
Senator Crapo. Well, and that is what I wanted to get at
finally in the last minute I have in my questioning. You said
to Senator Tester and you have just said again to me that you
are going to make it right. How do you do that? For example,
you said the calls have been being made. I assume that in the
calls that the bank is making that they are finding customers,
some, who have unauthorized and unwanted credit card accounts.
How do you make it right with regard to the impact that that--
and potentially charges on that account have caused to the
credit rating of that card holder?
Mr. Stumpf. And, Senator, that is--that is a very good
question. We are just starting that process. I do not have
enough to give you right now, but we would be happy to come
back to the Committee and tell you more about what we learn as
we do that.
Senator Crapo. All right. Thank you. In the little bit of
time I have left, I want to shift topics. My understanding is
that the primary regulators that you have been dealing with are
the city of Los Angeles and the OCC and the CFPB. Is that
correct?
Mr. Stumpf. That is correct.
Senator Crapo. Could you just give me a timeline? When did
each of those notify you? Or did you notify them at some point?
In what order did they get involved and when?
Mr. Stumpf. I do not know that I have precise dates, but I
will give you a general timeline. The city of LA lawsuit was
sometime in the May timeframe of 2015--well, 2013, maybe it
was. I am sorry I am missing on dates here. And then the OCC
was involved. We shared with them. And when we learned of their
lawsuit, we--well, it was actually in 2015. I am sorry, 2015.
May of 2015. And then we shared that information with the CFPB.
But the OCC was involved with us prior to probably the 2013
timeframe.
Senator Crapo. So the OCC probably would have been involved
first, even before the city of Los Angeles?
Mr. Stumpf. They are our principal regulator, and yes.
Senator Crapo. All right. And then the CFPB would have been
the final entity that was--the last----
Mr. Stumpf. We noticed--we called them, someone from our
legal department called them I believe in the May timeframe of
2015.
Senator Crapo. Sorry. I see my time is well over now. Thank
you, Mr. Chairman.
Chairman Shelby. Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
Mr. Stumpf, the Wells Fargo Vision and Values Statement
which you frequently cite says, ``We believe in values lived,
not phrases memorized. If you want to find out how strong a
company's ethics are, do not listen to what its people say.
Watch what they do.''
So let us do that. Since this massive, years-long scam came
to light, you have said repeatedly, ``I am accountable.'' But
what have you actually done to hold yourself accountable? Have
you resigned as CEO or Chairman of Wells Fargo?
Mr. Stumpf. The board--I serve at the----
Senator Warren. Have you resigned?
Mr. Stumpf. No, I have not.
Senator Warren. All right. Have you returned one nickel of
the millions of dollars that you were paid while this scam was
going on?
Mr. Stumpf. Well, first of all, this was by 1 percent of
our people and----
Senator Warren. That is not my question. My question--it is
about responsibility. Have you returned one nickel of the
millions of dollars that you were paid while this scam was
going on?
Mr. Stumpf. The board will take care of that.
Senator Warren. Have you returned one nickel of the money
you earned while this scam was going on?
Mr. Stumpf. And the board will do----
Senator Warren. I will take that as a ``no'' then.
Have you fired a single senior executive? And by that, I do
not mean a regional manager or branch manager. I am asking
about the people who actually led your community banking
division or your compliance division?
Mr. Stumpf. We have made a change in our regional--to lead
our regional bank.
Senator Warren. I just said I am not asking about regional
managers. I am not asking about branch managers. I am asking if
you have fired senior management, the people who actually led
community banking division, who oversaw this fraud, or the
compliance division that was in charge of making sure that the
bank complied with the law.
Mr. Stumpf. Carrie Tolstedt----
Senator Warren. Did you fire----
Mr. Stumpf. No.
Senator Warren.----any of those people?
Mr. Stumpf. No.
Senator Warren. No. OK. So you have not resigned. You have
not returned a single nickel of your personal earnings. You
have not fired a single senior executive. Instead, evidently
your definition of ``accountable'' is to push the blame to your
low-level employees who do not have the money for a fancy PR
firm to defend themselves. It is gutless leadership.
In your time as Chairman and CEO, Wells has been famous for
cross-selling, which is pushing existing customers to open more
accounts. Cross-selling is one of the main reasons that Wells
has become the most valuable bank in the world. Wells measures
cross-selling by the number of different accounts a customer
has with Wells. Other big banks average fewer than three
accounts per customer. But you set the target at eight
accounts. Every customer of Wells should have eight accounts
with the bank. And that is not because you ran the numbers and
found that the average customer needed eight banking accounts.
It is because ``eight rhymes with great.'' This was your
rationale right there in your 2010 annual report.
Cross-selling is not about helping customers get what they
need. If it was, you would not have to squeeze your employees
so hard to make it happen. No. Cross-selling is all about
pumping up Wells' stock price, is it not?
Mr. Stumpf. No. Cross-selling is shorthand for deepening
relationships. We only do well----
Senator Warren. Let me stop you right there. You say
``no''? Here are the transcripts of 12 quarterly earnings calls
that you participated in from 2012 to 2014, the 3 full years in
which we know this scam was going on. I would like to submit
them for the record, if I may, Mr. Chair. [http://
www.warren.senate.gov/wellsfargo/]
Chairman Shelby. Without objection, so ordered.
Senator Warren. Thank you.
Senator Warren. These are calls where you personally made
your pitch to investors and analysts about why Wells Fargo is a
great investment, and in all 12 of these calls, you personally
cited Wells Fargo's success at cross-selling retail accounts as
one of the main reasons to buy more stock in the company. Let
me read you a few quotes that you had.
April 2012: ``We grew our retail banking cross-sell ratio
to a record 5.98 products per household.''
A year later, April 2013: ``We achieved record retail
banking cross-sell of 6.1 products per household.''
April 2014: ``We achieved record retail banking cross-sell
of 6.17 products per household.''
The ratio kept going up and up. And it did not matter
whether customers used those accounts or not. And guess what?
Wall Street loved it. Here is just a sample of the reports from
top analysts in those years, all recommending that people buy
Wells Fargo stock in part because of the strong cross-sell
numbers. And I would like to submit them for the record.
Chairman Shelby. Without objection, so ordered.
Senator Warren. Thank you, Mr. Chair.
Senator Warren. So when investors saw good cross-sell
numbers--they did while this scam was going on--that was very
good for you personally, was it not, Mr. Stumpf? Do you know
how much money, how much value your stock holdings in Wells
Fargo gained while this scam was underway?
Mr. Stumpf. Well, first of all, it was not a scam, and
cross-selling is a way of deepening relationships. When
customers use----
Senator Warren. We have been through this, Mr. Stumpf. I
asked you a very simple question. Do you know how much the
value of your stock went up while this scam was going on?
Mr. Stumpf. It is--all of my compensation is in our
public----
Senator Warren. Do you know how much it was?
Mr. Stumpf. It is all in the public filing.
Senator Warren. You are right. It is all in the public
records because I looked it up. While this scam was going on,
you personally held an average of 6.75 million shares of Wells
stock. The share price during this time period went up by about
$30, which comes out to more than $200 million in gains, all
for you personally, and thanks in part to those cross-sell
numbers that you talked about on every one of those calls.
You know, here is what really gets me about this, Mr.
Stumpf: If one of your tellers took a handful of $20 bills out
of the cash drawer, they would probably be looking at criminal
charges for theft. They could end up in prison. But you
squeezed your employees to the breaking point so they would
cheat customers and you could drive up the value of your stock
and put hundreds of millions of dollars in your own pocket. And
when it all blew up, you kept your job, you kept your multi-
million-dollar bonuses, and you went on television to blame
thousands of $12-an-hour employees who were just trying to meet
cross-sell quotas that made you rich. This is about
accountability. You should resign. You should give back the
money that you took while this scam was going on, and you
should be criminally investigated by both the Department of
Justice and the Securities and Exchange Commission.
This just is not right. A cashier who steals a handful of
twenties is held accountable. But Wall Street executives almost
never hold themselves accountable, not now and not in 2008,
when they crushed the worldwide economy. The only way that Wall
Street will change is if executives face jail time when they
preside over massive frauds. We need tough new laws to hold
corporate executives personally accountable, and we need tough
prosecutors who have the courage to go after people at the top.
Until then, it will be business as usual. And at giant banks
like Wells Fargo, that seems to mean cheating as many
customers, investors, and employees as they possibly can.
Thank you, Mr. Chair.
Chairman Shelby. Senator Vitter.
Senator Vitter. Mr. Stumpf, what astounds so many Americans
and virtually all of us is how significant this fraud was, how
widespread it was, for how long a period of time. And related
to that, I am very concerned about this timeline of when top
corporate leadership like yourself knew about it. You have been
talking in general about 2013. Is that when the issue was a
focus of board discussions? Or was that the first time you knew
of fraudulent activity and these unwanted accounts being opened
against customers' wills?
Mr. Stumpf. Thank you, Senator Vitter. As I testified
before, this--people in our regional bank knew that not every
team member would do everything right every day, and they tried
to root it out at the business level with their compliance and
so forth. And then once----
Senator Vitter. When did you and folks at your level like
board members know of this activity on any significant scale?
Was it 2013, which you have suggested, or was it earlier?
Mr. Stumpf. 2013.
Senator Vitter. OK. So in 2011, about 1,000 employees were
fired over this. That is about 1 percent of the whole retail
business. So 1 percent of a whole big part of your business was
fired over fraud, and you were never told about that.
Mr. Stumpf. That was dealt with in the business unit at
that time.
Senator Vitter. Is it normal for 1 percent of a business
unit to be fired over fraud--not high turnover, not
incompetence, fraud--and this never is mentioned to you?
Mr. Stumpf. In a large retail business that has other
turnovers and so forth, if I could go back, I would have, you
know, spent more time on this----
Senator Vitter. Why isn't this crystal clear proof that an
entity as big as Wells is not only too big to fail, but it is
too big to manage and it is too big to regulate? One percent of
a big part of your business is fired over fraud, but that does
not rise to your level?
Mr. Stumpf. And, Senator, that is a good question, and I
have thought about that. This was a problem of focus and not of
size. Today----
Senator Vitter. Let us talk about corporate culture. You
have often referred to people not living up to the Wells
culture. Culture is not something written in a handbook.
Culture, as has been suggested, is an atmosphere and what is
lived.
Mr. Stumpf. I agree.
Senator Vitter. Was not this practice, in fact, by the
numbers part of the Wells culture by definition because it was
so widespread for so long a period of time?
Mr. Stumpf. I think this is not part of our culture. This
was the--and, again, it is a large number, but the vast
majority of our people do it right every day, and they provide
great value, and they live according to our culture, vision,
and values.
Senator Vitter. And if it was a widespread practice for
many years--I will just make a statement--that makes it part of
the culture, in my opinion. So it seems to me your challenge is
to change the culture, not to enforce the culture.
Finally, what level of confidence, from 0 percent to 100
percent, do you have that this type of fraudulent activity does
not exist in other Wells business lines?
Mr. Stumpf. We have looked at other things, other
businesses. They are different, and we believe that this is,
you know, situated in our regional bank. Other areas have
different levels of compliance and different volumes and
different requirements. We have looked across a number of
things, and I have confidence that we have this one solved, and
we have made a lot of changes.
Senator Vitter. So just as an example, Wells is the biggest
participant in the SBA's 7(a) loan program. I happen to chair
the Small Business Committee, so I am focused on a lot of small
business issues. Are you 100 percent confident that no
fraudulent activity like this or no extreme quotas and goals
exist in that 7(a) program?
Mr. Stumpf. We do not have product goals to my knowledge in
any one of our other businesses, and we have--of course,
because of this situation, we have doubled down on compliance
and review in a lot of our businesses across the board.
Senator Vitter. Well, I am writing several of those
compliance folks to urge a look at anything small-business
related, including the 7(a) program since Wells is the leader
in that activity.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Donnelly.
Senator Donnelly. Thank you, Mr. Chairman.
Mr. Stumpf, you had previously talked to me about Wells
Fargo values and look at the mess we are in. A community banker
from my State called the office, unsolicited, and is just sick,
and he said, ``Here we go again where my bank is''--a local
community bank, ``My bank is going to be slandered because of
what these guys are doing.'' And he said, ``If my bank had a
widespread practice of opening unauthorized accounts and moving
customer money without permission, I would be in jail. My bank
would be sold, and my entire management team and board would be
sued by the regulators for a lack of oversight.'' And he is
sick to his stomach about what has happened here. And so am I.
Over 5,000 people from Indiana, 5,000 Hoosiers who every
day, as everybody has talked about from their own States, every
day these people work nonstop to try to pay the bills, take
care of their family, make sure that they can make ends meet,
and they hope that they can. Over 2 million-plus across the
country but over 5,000 Hoosiers who had unauthorized accounts
opened.
Now, the second many of these credit cards are opened,
these folks' credit was immediately dinged, and this is
something Senator Tester was talking about. Then you go to take
out a mortgage, and you have got a 30-year mortgage that is at
half a point or a point higher because your credit rating has
gone down. So what I want to know as one of these things is:
Will you pay back every single extra dime that these people are
going to incur over the 30 years because of the fraudulent
action of the people at Wells? It was not Sam or Judy who works
at the mill who is hoping to get a payment that they could
afford. It was that their account had fraud committed to it,
and now they have to pay more every single month for the next
30 years. How do you pay that back?
Mr. Stumpf. Yes, and thank you, Senator. We have been
thinking about that. We are starting to call, make those calls
to our constituents and find out our customers--and I do not
have a final answer for you, but we will--our intention is to
make it right by every customer.
Senator Donnelly. So do you promise to pay back every
single extra dollar these people are going to incur over the
next 30 years?
Mr. Stumpf. Senator, I want to work with you, and I am
trying to be cooperative. I just do not have all those answers
today. But I surely get the issue, and my instructions have
been to make it right by every customer.
Senator Donnelly. One of the things that rubs everybody
wrong around here, but not just here, around the country,
Americans are fair people, and everybody in this country tries
to make sure that there is a square deal done. It is not a
square deal when the people that are fired are the tellers who
make 15 bucks and the senior execs walk off with $100 million.
Americans can smell an unfair deal a mile away. And when this
teller--these 5,300 tellers, they did not come up with this
scheme on their own. This is the only way they could keep their
jobs because of what was going on. And you called them
dishonest. And my question is: Ms. Carrie Tolstedt, the head of
all this, is she dishonest? And how do you fire someone making
15 bucks and not the person--that is like firing the guy
throwing coal in the engine and letting the captain go
strolling off to a $100 million new ship. How do you do that?
Mr. Stumpf. Yes, I think that is an important question.
First of all, most of the people were bankers who were not
making $15 an hour, managers of those, and managers of those.
And there is something very different about violating our code
of ethics and putting customers at risk and being dishonest.
First, as someone who did not spend enough time making sure
that this issue had been closed, I see a very big difference.
Senator Donnelly. Well, I think one of the things that the
American people are just disgusted about is it seems like it
all flows downhill, and the people down the hill get fired, do
not even know if they can pay their mortgage because of the job
they had and they are gone, and that the people up on the top
of the hill make $20 million, $10 million. You know, the
fellows who started the Wells Fargo stagecoach, this was not
their plan. This is not what we do. And the only last question
I have--and I apologize, Mr. Chairman, but it is this: For 5
years--5 years. And so when folks say this is too big to fail,
for 5 years you were not able to end this. And you look and you
go for 5 years Americans were taken advantage of and were
cheated, had their credit ratings ruined, had accounts opened
that they never even knew about. And this bank, either you did
not know, or you knew and it was great for the story. You know,
under any circumstance none of the conclusions is good.
Mr. Stumpf. I could not agree with you more. We did not
move fast enough. We should have done better. But I also want
to remind you that the vast majority of our people also had
families to feed, and they did exactly the right thing. But we
are sorry, and we need to do better. Thank you.
Senator Donnelly. Thank you, Mr. Chairman.
Chairman Shelby. Senator Scott.
Senator Scott. Thank you, Mr. Chairman. Good morning, Mr.
Stumpf.
Mr. Stumpf. Good morning, Senator Scott.
Senator Scott. I will tell you, as a Senator I am
frustrated, angry, and really unhappy with what appears to be a
toxic culture in parts of your sales organization. As your
customer, with two or three mortgages, a couple of accounts, I
am disappointed. I am disappointed in my financial institution
that I have put so much confidence and trust in.
I am, however, thankful for the real heroes that we have
heard so little about this morning, the heroes, the employees
who went to the press, the customers who went to the OCC,
bringing oxygen to a very important conversation, and hopefully
resolution.
I ask myself--and perhaps Rita Murillo gave me the answer--
why did not these employees find a safe haven up the chain? If
you will remember, I owned a couple of Allstate Insurance
agencies, and so the sales culture that was so toxic is also
incredibly important for folks looking to support their
families, who are working paycheck to paycheck. And anyone who
suggests that folks who make just a little money must cheat the
system, it is an inconsistent suggestion. I know a lot of folks
who are poor who would find that comment quite disrespectful,
lots and lots--most poor folks have strong integrity and would
never put themselves in this situation.
I would suggest that perhaps the higher you go in that
chain in the sales organization, the more you find the problem,
not the person making the 15 bucks an hour, to be honest with
you.
My question, though, is: Why was there not a safe haven?
And have you created safe havens for employees who see things
that are just running amok, do they have a safe place to go?
And not to the Los Angeles Times, not to the OCC, but is there
a culture that is being established--I know you are limiting
some of your sales goals, which have unintended consequences as
well. But is there a culture being established where the
average employee feels empowered, encouraged to come forward
and speak and be heard in Wells Fargo?
Mr. Stumpf. Senator Scott, I really appreciate that line of
questions because it is absolutely--and I should have mentioned
it. Each team member, no matter where you are in your
organization, is encouraged to raise their hand if something is
being asked of them that they think is not right, not
consistent with our values and our culture. They are asked to
raise their hand. They are asked to go to a manager's manager
or HR. We also have an anonymous EthicsLine. They can speak up
and show us and talk to us about anything they want. We want to
hear from them, because we do not want this behavior. And I
wish, you know, we would not have this behavior. But we have
also instituted some things today--you know, and you mentioned
getting rid of the sales goals. But we also today have an email
we send within an hour of opening an account. No account can
get opened today on a deposit side or credit card without a
signature. And we are also doing a big mystery shopping
program, with an independent third party to help tie it
together.
Senator Scott. Mr. Stumpf, I have to cut you off here. It
is important for me to finish my line of questions. I am glad
to hear that you are making progress.
Mr. chairman, I would love for the record to have a better
understanding of the culture of checks and balances that were
not there that are now there that will help customers,
thousands of customers throughout South Carolina, have more
confidence in all financial institutions, and perhaps having
done it wrong, you have become a model for doing it right.
Mr. Stumpf. Thank you.
Senator Scott. The second question I have goes back to the
question we have heard from Crapo, from Tester, and so many
others, that--and Donnelly. When you look at the impact on the
consumer, the customer, you open the account--and I apologize
now for going over my time for a minute or so. You have an
account--I have a couple of accounts with the bank.
Mr. Stumpf. Thank you.
Senator Scott. I hope to keep them there.
Mr. Stumpf. Thank you. We agree.
Senator Scott. I hope to keep them there.
Mr. Stumpf. Yes.
Senator Scott. Someone opens an account, a fraudulent
account. The definition of ``fraudulent,'' God bless Black's
Dictionary. If I did not sign for it, it is fraudulent. I like
to have simple definitions. So it opens an account in my name.
I do not know the account is opened. So there are fees attached
to some of the accounts. The fees that are attached are not
paid because I am ignorant of those accounts. Those fees that
are not paid because I do not know about them at some point are
reported to a credit agency because I did not pay the fees,
because I did not know about it because I did not open the
account.
So when these fees create a negative impact on my credit
statement, it translates into higher interest rates, or, said
differently, a different way of exacting resources out of my
very limited pocket, especially for folks working paycheck to
paycheck throughout South Carolina.
Mr. Stumpf. Correct.
Senator Scott. So when that happens, it is nearly
impossible for us to figure out the actual dollar amount, as
Senator Donnelly was looking for, of impact on all the
customers that goes through. And I would like for it also to be
included in the questions for the record some way of helping me
and others understand how we create a solution for those
customers who will obviously be identified by you or by a scoop
of attorneys looking to sue.
So I would love to understand and appreciate that process
so that I can go back to my constituents who I work for and
give them a plausible path forward for actual resolution for
those who are injured and a clear path forward for restoring
confidence in financial institutions, because my fear is that
this is not going to simply be a Wells Fargo question. It will
be a question for the entire financial footprint in our Nation.
Mr. Stumpf. And I think it is a good point, and I think--
and, again, I will need to check with our team, but I think we
have already gone back on the deposit side and are making those
fixes with the credit bureau and are working to rectify that.
But I will make sure we get back to you and work with you on
that issue.
Senator Scott. Thank you, sir.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Heitkamp.
Senator Heitkamp. Thank you, Mr. Chairman, and thank you
for calling this meeting.
I know, Mr. Stumpf, there are probably many other places
you would rather be right now, but I think this is a critical
time as we look at the push that we have seen from so many
financial institutions for lower regulatory burdens and trust
us. What we have now lost has been trust not only between you
and your customers, but in a very bipartisan way, between this
Committee and large financial institutions. You have said
repeatedly that one of your failures was that you did not act
fast enough. Today you are sitting in front of this Committee,
and I am telling you, you are still not acting fast enough. You
still do not have the answers that we need to say that we are
moving forward.
And so let us start with remediation, and by that I mean
repairing credit ratings, taking a look at refunds, taking a
look at restoring to the customer what the customer lost. You
have said repeatedly to the folks here, you know, ``We are
working on it. We are working on it.'' You know, we start this
story as far back as--we do not know, but let us start at 2011.
At 2011, there is something going on, and Wells Fargo is
addressing it. At 2013, there is
something going on, and Wells Fargo is addressing it. At 2015,
there is something going on, and Wells Fargo is addressing it.
But yet it did not get done. And now you are coming to us and
saying, ``Trust us. We now get it. Now we know. Now we have
figured it out.''
And so we need a clear dialogue, but I think that one of
the failures today is you have not come with a whole lot of
remediation; you have not come with a whole lot of dialogue to
us on, ``This is what we are doing to restore customer
confidence.'' And like Senator Scott, I am one of your
customers. My whole family is. You are not doing what you need
to do to restore customer confidence. But you are also not
doing what you need to do to restore confidence with this
Committee and with the American public.
I want to talk about changing culture. There is no one on
this Committee who believes that 5,000 people independently act
with impunity and with dishonesty. No one here believes that,
and if they do--I have done law enforcement. This is a behavior
that was created by the culture that was allowed, created by a
whole lot of folks saying, you know, ``Let us do it this way.''
This is not--and I get what you are saying, that it was not
just the tellers, it was not just the lower level. But yet the
one person, the one person who was responsible directly--other
than yourself--for making sure this does not happen is not in
front of this Committee today. In fact, she has walked off with
a pretty good deal and hoping that all of this blows over.
And the other thing, when you say you did not act quickly
enough, the board should have already acted to claw back those
salaries. If you had come here and said, ``The board now is
clawing back; these are the things that we are doing,'' you
would be in a lot better position sitting in that chair right
now. And so I will tell you, you have not done enough to
restore confidence today, and this dialogue will continue with
this Committee and with the American public.
Now, with that said, I want to turn to the 5,000 people,
and I want to say maybe they deserve to have their reputation
restored. Maybe they deserve to not be that person whose resume
now says, ``Fired.'' Maybe instead of just focusing on your
customers, you ought to focus on the 5,000 people, who I am
pretty sure did not unilaterally decide to be dishonest. And so
it is an issue that has not been raised here, but I think it is
a critical issue, because when you punish the guy at the end of
the line and you do not punish in any way someone at the top,
we end up with an attitude that, quite frankly, this is a
corporate culture that does not care, they are just trying to
get through the day. And I do not think that your day yet has
ended.
And so I want to thank you for appearing, but it is not
enough, and it is not nearly what I had hoped you would come
with today. Thank you.
Chairman Shelby. Senator Moran.
Senator Moran. Mr. Chairman, thank you. Mr. Stumpf, good
morning.
Mr. Stumpf. Good morning.
Senator Moran. As I understand the circumstances, the
factual circumstances, many of the problems, while they were
systemwide, many of the problems were focused in the Los
Angeles area within your banking system. Is that true?
Mr. Stumpf. It is true that that is the largest part of our
business, but they were also focused there, yes.
Senator Moran. And have you analyzed sufficiently to
determine what was different about Los Angeles than places
elsewhere in your banking system that would suggest that the
number of times, the volume of fraudulent acts that occurred
there--how do you explain that?
Mr. Stumpf. Well, as Senator Heitkamp said--and if I did
not share this, I want to make sure--I also agree 5,000 people
just do not do 5,000 random things on their own. I am sure
there were people talking to one another within a branch and so
forth. But that analytical work is being done and has been
done. I do not happen to have it here. I will have our team
work with your staff to make sure that you have whatever you
need on that.
Senator Moran. I would welcome that. I am interested in
knowing if you see this as a customer issue, a more vulnerable
population of banking customers, or as the word ``culture'' has
been used here a number of times, was there something different
about Los Angeles--which I assume--again, I think illegal
behavior, immoral behavior, breaking the rules, is wrong
wherever it happens. But our goal in management, your
management of a financial institution, is to diminish the
chances of that happening.
Mr. Stumpf. Right.
Senator Moran. So you never condone bad behavior, but we
want to make certain that the circumstances in which it is
discouraged and never encouraged, and I do not have a feel for
that circumstance. I do not know what really are the facts
within the banking leadership that may have encouraged this
behavior.
We have seen this before. I serve, with a number of my
colleagues, including Senator Brown, on the Veterans Committee,
where we saw the consequences of a system that rewarded
appointments for veterans who needed medical care.
Mr. Stumpf. Correct.
Senator Moran. We saw a scandal across the country in which
veterans were put on a list, suggesting they had an
appointment. They did not. The circumstances in which those
individuals were listed as having an appointment, the
allegation certainly exists that there was death as a result of
the failure of the VA system to provide necessary health care.
Mr. Stumpf. Correct.
Senator Moran. I think a point that Senator Heitkamp made I
would make to you again. There are a number of us on this
Committee and in Congress who work to try to find the right
regulatory balance for financial institutions, and just to
stress with you the importance of then having our financial
institutions behave, their behavior, their conduct be a certain
level; otherwise, it undermines the efforts for that attempt to
change the regulatory environment for financial success. And we
particularly focused that on community banks, but we care about
those financial institutions that have a relationship with
their customers. And one of the arguments that has been made is
those relationship bankers can rely upon the relationship. And
what we are hearing from the circumstance that we find at Wells
Fargo is that relationship was taken advantage of; it did not
accrue to the benefit of the customer.
Mr. Stumpf. And, Senator, you are right for that portion,
and what hurts so much is that we spend so much time trying to
do the right thing, and when a customer gets a product that is
not used or not benefiting them, that hurts them and it hurts
us. We have no interest--and if I could just take 1 second, I
want to correct, Mr. Chairman, or share something that I was
not as clear on. On consumer deposit account fees, none of
those were reported to credit bureaus. So the consumer credit
bureau impact relates exclusively to credit cards, and we are
going to run each one of those down. Thank you.
Senator Moran. Mr. Stumpf, let me ask a final question. So
I do not think you have provided us with a precise timeframe in
which regulators were notified, but I would be interested in
knowing what regulators were notified when, who, and what steps
they then took as regulators in response to the information
they had.
Mr. Stumpf. OK. And, again, my recollection is that our
prudential regulator, the OCC, was involved and notified and
active in the 2013 timeframe. At about the time of the lawsuit
from the city of Los Angeles, we informed the CFPB. And so I
can tell you what we did. And I know you have a panel later
with them, but that is my recollection.
Senator Moran. None of these actions at Wells Fargo came to
light as a result of the regulators finding that behavior. It
was reported to them subsequent. Is that true?
Mr. Stumpf. You know, again, I want to be--I do not want to
speak for them, and I do not know what part of this is
confidential supervisory information. But my recollection of
what we did was deal with this issue, terminate people, inform
our prudential regulator, and after the city of Los Angeles,
inform the CFPB.
Senator Moran. Finally, I would say that in my experience
in dealing with the Department of Veterans Affairs and their
circumstance, in way too many instances, in my view, the
employees became the scapegoat for what I saw as actions or
encouragement, behavior by their supervisors. And I would
encourage you in your circumstance to make certain that the
employees are not the scapegoat for behavior at higher levels.
Mr. Stumpf. I think that is a great point, Senator, and I
am--you know, the 268,000 that come to work every day of our
team members, they are the most fabulous people, you know, and
I just love them and what they do. But the 5,300, for whatever
reason, they were dishonest, and I am not scapegoating, but
that is not part of our culture. And some of those--many of
those jobs, most of them, were very good American jobs.
Senator Moran. Thank you, Chairman.
Chairman Shelby. Senator Merkley.
Senator Merkley. Thank you.
Mr. Stumpf, did Wells Fargo create a pressure cooker sales
culture that put personal bankers and tellers in an impossible
situation between a rock and a hard place?
Mr. Stumpf. I do not believe that, because 90--you know,
the vast majority----
Senator Merkley. Let me continue.
Mr. Stumpf. OK.
Senator Merkley. I got your answer. Thank you.
So Rita Murillo, a branch manager, said, ``Regional bosses
required hourly conferences on her Florida branch's progress
toward daily quotas for opening accounts and selling customers
extras, such as overdraft protection''--an issue that has not
been addressed yet.
Employees who lagged behind had to stay late and work weekends
. . . Then came the threats: Anyone falling short after 2
months would be fired. We were constantly told we would be
working for McDonald's . . . If we did not make the sales
quotas--we had to stay for . . . after-school detention, it
felt like, or report to a call session on Saturdays.
Is that a pressure culture situation, putting tellers and
personal bankers in an impossible situation?
Mr. Stumpf. Senator, that has no place in our culture. I
have actually read that, and it hurt to hear those words. And
people like that do not belong here.
Senator Merkley. Erick Estrada, a former personal banker
and business specialist, said managers there coached workers on
how to inflate sales numbers. Employees opened duplicate
accounts, sometimes without customers' knowledge. They used a
database to identify customers who had been pre-approved for
credit cards, then ordered them. They were coached on it. Is
that a setting in which a pressure culture--pressure cooker
culture really puts the personal bankers in an impossible
situation?
Mr. Stumpf. That has no place in Wells Fargo. There is
nothing that we did to encourage that.
Senator Merkley. Nothing you did, but bank managers were
being coached on how to coach their employees on how to do
this? How about a branch manager in the Pacific Northwest,
where I come from? She was very upset, finding employees who
had talked a homeless woman into opening six checking accounts.
She said, ``It is all manipulation. We are taught exactly how
to sell multiple accounts. It sounds good, but in reality it
does not benefit most customers.''
Or let us talk about Yesenia Guitron, who, in 2008, after
being hired for 2 months, found that this was happening, these
false accounts were happening. She went to her trainer, then
she went to her manager, and she was basically found--she was
pushed very hard to shut up in all kinds of different ways.
So you say, ``Well, the employee could have gone to
somebody.'' She did. And eventually she filed a whistleblower
suit. And why did Wells Fargo say that that was not legitimate?
I will just save you the time. The answer is because Wells
Fargo said, ``We fired her because she did not meet her
quotas.''
So here we have a situation where employees are written up,
they have to stay late, they have to come in on weekends to be
coached, they are at risk of being fired. That sounds like a
systemic management strategy for cross-selling. But you refuse
to take any responsibility, blaming it on the personal ethics
of individual employees who were at risk of losing their job if
they did not meet their ``daily solutions target.''
Can you even conceivably place yourself in the position of
an ordinary working person, who has a child in day care, they
are told they are going to be fired if they do not meet these
solutions, they are being coached on how to do it by their
manager, and say there was no culture established that caused
these problems?
Mr. Stumpf. Sir, Senator, I am very sorry that that
happened. That was not what we wanted to have happen. When
those things happened, I wish we would have rooted all of it
out. And the vast majority of our people did it the right way--
--
Senator Merkley. Sharif Kellogg said:
The branch managers were always asking, `How many solutions'--
that is the signing of new accounts--`did you sell today?' They
wanted three to four a day. They wanted three to four a day. In
my mind, that was crazy. That is not how people's financial
lives work. I was always getting written up for failing to bump
up my solutions numbers.
Some employees would ask local business owners who they
knew well to open additional accounts as favors to them. ``It
seems as though you would have to be willfully ignorant to
believe that these goals are achievable through any other
means.''
Cross-selling is a major pride point for the management of
Wells Fargo, including your reports to--annual reports to
customers. It was so high because you created a culture of
cross-selling that pushed everyone to the maximum, and the
casualties are these folks who were going to be fired because
they would lose their jobs if they did not meet it. And yet you
can only sit here and say there was no coaching, there was no
management strategy. Cross-selling was at the heart of Wells
Fargo's program, and you were at the top of this for a very
long time.
Let us go back to 2005, 2007, 2010. You had one major
position and promotion after another. Cross-selling was at the
heart of it, and you just sit here and blame the little person
who was pressured into an impossible situation. Isn't that
really kind of, for want of another word, a failure to accept
responsibility?
Mr. Stumpf. Senator, I started out today by accepting full
responsibility. We like the idea----
Senator Merkley. Accepting full responsibility for
establishing a culture that put people in an impossible
situation would be to
resign, as my colleague suggested. It would be to return your
funds and help fund assistance for all these people who were
fired because of the culture you established and that you
personally benefited an enormous amount from. But all you say,
you say, ``I accept responsibility. And, by the way, it is the
fault of those 5,000 people who just were not ethical enough
and open an account they should not have opened.'' That is not
accepting responsibility. This was a systemic problem that you
benefited from enormously, the bank benefited from enormously,
and you are scapegoating the people at the very bottom.
Mr. Stumpf. Senator, I am--I just need--I do not want to be
confrontational, but I want to just tell you that the vast
majority did the right thing. We love the idea of having deep,
mutually beneficial relationships with our customers. Having a
product that a customer does not use, does not need, or does
not want does not help the customer, it does not help me, and
it does not help the shareholder.
Senator Merkley. You signed Sarbanes-Oxley reports. Did you
ever reveal the problems with this high-pressure sales strategy
in terms of fraudulent credit accounts at any time in that
course toward 2 million--2 million--fraudulent accounts? Did
you ever disclose that to your investors?
Mr. Stumpf. Well, let me just say----
Senator Merkley. Well, ``yes'' or ``no.'' It is a simple
question.
Mr. Stumpf. Senator, the question is 2 million fraudulent--
there were 2 million accounts that we could not rule out as a
possibility that they were not authorized.
Senator Merkley. I am so glad you crossed that ``t'' and
dotted that ``i.'' Did you ever disclose the systemic problem
of fraudulent accounts to your investors?
Mr. Stumpf. It was--it was not a material event.
Senator Merkley. So you bragged on the one end about the
intensive ability to get cross-selling and how that would be
beneficial, but the problems that came from that strategy, the
very problem that dozens and dozens of people have shared their
stories about how it was on the ground, and you can only blame
them for ethical lapses. You never disclosed you had a systemic
problem.
Mr. Stumpf. Again----
Senator Merkley. When you sign those reports personally--
that is what Sarbanes-Oxley was--didn't you think that that was
material when you are saying, ``This is our big win, our cross-
selling strategy,'' not to disclose that it also had a dark
side?
Mr. Stumpf. There was a lot of things that our customers do
and a lot of businesses that we have. This is one ratio, and
most of this business--first of all, most of the deposit
accounts are off the books. Most of them went on and off within
the same or next quarter in which they happened. Having a
customer have a product that they do not need is not helpful.
It is not what we want.
Senator Merkley. I want to close just by saying I would
like to hear about the amount of slamming that went on on
overdraft protection since that has come up, and a number of
the employees talked about how they were pressured into adding
that. Do you have details on that?
Mr. Stumpf. I do not. I can have my staff----
Senator Merkley. Can you get extensive details on that?
Mr. Stumpf. I do not know of that issue off the top of my
head, but I will have my staff--I will instruct them to work
with your team as quickly as they can.
Senator Merkley. Can you get the information for the full
Committee?
Mr. Stumpf. I will have my team work with your team. I do
not even know exactly what we are talking about.
Senator Merkley. You do not know what overdraft protection
is?
Mr. Stumpf. I know what overdraft protection is. I know
that we had a credit card product for an overdraft protection,
but I will have my team work with your team.
Senator Merkley. And please get the information to the full
Committee. Thank you.
Chairman Shelby. Senator Brown, you have another question?
Senator Brown. Thank you, Mr. Chairman, and thank you for
starting a second round. I appreciate that. There is so much
more to discuss.
First, I ask unanimous consent to enter into the record the
testimony in the House by Khalid Taha and Julie Miller, two
people who worked at Wells Fargo.
Chairman Shelby. Without objection.
Senator Brown. Thank you, Mr. Chairman.
Senator Brown. A couple of clarifications of points and
then two or three more questions, Mr. Stumpf. We have discussed
who was fired, whether the employees were fired. Understand--
and just for those watching and listening and for the record
especially--90 percent of the people fired were not managers.
That means they were tellers, $12 to $15 an hour; personal
bankers, $16 to maybe $18 or $19 or $20 an hour; but most of
the people fired were not branch managers and were not regional
managers.
Second, there was a mention that only credit cards would
affect credit scores in the answer to one of these questions.
But if funds were moved out of a checking account and someone
bounced a check for a car payment, that could end up affecting
credit scores. So while it may narrowly be only credit cards,
it really is not in that definition.
A couple of questions. Senator Scott asked about where
employees can go with ethics concerns, Mr. Stumpf. It sounded
from whistleblower lawsuits that an ethics complaint often
resulted in confronting the very managers condoning this
behavior. Is that true?
Mr. Stumpf. I do not believe that is true. I do not know. I
can get back to you on that.
Senator Brown. How do you register an ethics complaint
other than calling CFPB or the LA County Attorney or the Los
Angeles Times?
Mr. Stumpf. As I understand how our EthicsLine works, you
call. It is an anonymous call. It is handled by a third party
outside of the company who does work on that and then reports
it to the company.
Senator Brown. I would like more on that, because my
understanding is that at least initially you have to confront
your supervisor, who has much to say about it.
Senator Brown. Now that we know what we do, will Wells
Fargo continue to take the position in court that contractual
agreements on mandatory arbitration--this is a question about
mandatory arbitration, the fine print of so many of these
contracts, if you will. Will Wells Fargo continue to take the
position in court that contractual agreements on mandatory
arbitration covering real accounts will apply to fraudulent
ones as well and that customers will be forced into arbitration
rather than having access to the courts?
Mr. Stumpf. Well, I have instructed our team to do whatever
it takes within reason to take care of these customers. I would
have to talk to my legal team, and we can get back to you on
that.
Senator Brown. All right. Understanding what has happened
in the past, these mandatory arbitration clauses, which many of
us I know on this Committee do not think are fair generally and
most customers do not understand that they are part of a
mandatory--do not even know what it is and part of a mandatory
arbitration arrangement, that that has been applied to these
fraudulent accounts in addition to the ones that were not
fraudulent.
Understand that is what has happened, and I hope your answer is
specifically in response to that.
Mr. Stumpf. Well, again, I will talk to our team, and we
will get back to you. Again, I am not an expert in that.
Senator Brown. Ms. Tolstedt reported directly to you. How
frequently did you talk to one another?
Mr. Stumpf. We had at least weekly meetings.
Senator Brown. And from 2007, when you both took your
respective roles, until the end of 2013, did none of this
firing for fraudulent accounts and all, did none of this ever
come up in your weekly or more-than-weekly meetings?
Mr. Stumpf. I remember being--at least it making an
impression upon me in 2013.
Senator Brown. But from 2007, when you had your respective
roles--so for 6 years, regular meetings with one of your most
important--one of your most important managers, this discussion
of 1,000 people a year, beginning in 2011--but we may go
earlier than that, we think--those discussions, you have no
recall that that ever came up?
Mr. Stumpf. Not in the way I had in 2013.
Senator Brown. OK. Over the past 10 years, your bank has
had approximately 39 enforcement actions, just a few of which
have come up today. Many were related to failure to serve or
abusive conduct toward customers and investors. You talk much
about Wells' culture, how proud you are of it, and its ethics.
What does this say--if you have had 39 enforcement actions,
what does this say about Wells' culture and compliance
programs?
Mr. Stumpf. We have more work to do, and we are trying
very, very hard to build out all the compliance that we need to
be--you know, to treat customers fairly and to make sure that
we do things right every day.
Senator Brown. The last question, Mr. Chairman. I
appreciate your indulgence.
Chairman Shelby. Senator Menendez----
Senator Brown. No, could I just do this last question? I am
sorry, Mr. Chairman.
We know about the 5,300 employees who you say committed
some--many people up here have said that the pressure on them
was so great that they did things that they should not have, or
maybe you have--you said they all--I think you said they
deserved to be fired. What about the people who got--
understanding, too, that is 5,300. Then there were at least
hundreds more who refused to cheat or quit just because they
did not want to be part of this and they saw what happened to
others. But what about the people who got fired for not meeting
goals that you now are saying were ill-advised? So there was a
large--I think certainly a significant number of people who
were fired for not meeting their goals. Now you say those goals
were ill-advised. What do you do to make those employees--how
do you identify them? How many are there? And what do you do to
make those employees whole?
Mr. Stumpf. Yes, I have to talk with our team. I do not
know about those numbers. I do not know how significant or
widespread that is, and I can get back to you on that.
Senator Brown. Well, more precisely--I understand. I
expected you not to know that number. But if there is one, that
is one. If there are a hundred or a thousand. For those that
were fired for not meeting those goals that you say are now
ill-advised, do you have plans to make them whole?
Mr. Stumpf. Yes, I would have to talk to our team. Again, I
do not know the numbers, and I just--I frankly have not worked
closely----
Senator Brown. I did not expect you to know the numbers,
but does it--in your mind and your conscience, does it say
those people were fired because they did not meet goals, reach
goals, the goals were ill-advised, shouldn't you make it up to
them?
Mr. Stumpf. Well, again, I do not even--you know, I know
where you are going with your line of questioning. I am trying
to be cooperative. I just have not--I have not talked to our HR
team. I do not know the numbers. I do not know the situations.
I do not know if there are other things involved. So I----
Senator Brown. Again, I am less concerned about the numbers
than the morality of it. I would like to at least ask you to do
this, then: Once you have made that determination of how many
there are, I would like you to make them whole; and if you are
not willing to make them whole, I would like a written response
about why you have made the decision not to make them whole.
Mr. Stumpf. OK. I will talk to our team, and we will get
back to you.
Senator Brown. Thank you.
Chairman Shelby. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Mr. Stumpf, let me give you a real-life example. We are
talking about people whose credit scores were hurt. Linda
Edwards and her daughter are Wells Fargo customers from New
Jersey. Accounts were opened in the name--without their
acquiescence, knowledge, including credit cards--of her
daughter who was just starting college. She has a negative
consequence on her credit score, which has not been resolved by
Wells Fargo. She happened--you got the wrong person when you
did it to this lady because she happened to be a former staffer
at the New Jersey Division of Banking and Insurance. And when
she called your company and asked for the fraud division, she
was told, ``No. Just call customer service.''
So to this day, that question of her daughter's credit
score, who is starting college and obviously wants a good
credit score, is affected. So there are real live people who
Wells Fargo has not responded to.
Let me ask you this: Is cross-selling an industry-wide
reality, as is evidenced by Wells Fargo? Or is it unique to
Wells Fargo?
Mr. Stumpf. I do not know what other companies do. I know
that we view it as an important metric as it relates to depth
of relationship, and relationship----
Senator Menendez. You do not know if other banks do this?
Mr. Stumpf. I would--I do not know.
Senator Menendez. You do not review what your competition
is doing to figure out whether there is something you should be
doing, and so you do not have any idea if they do cross-
selling?
Mr. Stumpf. I do not know that.
Senator Menendez. OK. We will have to ask the regulators.
Let me ask you this: You said it was not a material event to
Senator Merkley. Not a material----
Mr. Stumpf. A material financial event.
Senator Menendez. How about a material event for the SEC
disclosure, which you said you never made?
Mr. Stumpf. You know, I am not a lawyer, and I rely on my
legal team----
Senator Menendez. Based upon what has happened to the stock
for your shareholders, it definitely was a material event that
should have come forward.
Let me ask you this: Ms. Tolstedt--in response to one of
the questions, you said that you and I think the COO met with
her and said you wanted to move in a different direction.
Mr. Stumpf. Correct.
Senator Menendez. And she decided to leave. That sounds to
me a lot like you can either leave or you are not going to--you
are going to be fired, maybe. But is it that you created a
situation to give her the option to leave because you were
concerned about what she might say about practices of the bank
and higher-ups?
Mr. Stumpf. In fact, when Tim Sloan, our Chief Operating
Officer and President, talked with her, said we want to go in a
different direction, there were a number of things he was
thinking about doing different in the business, and we had not
made enough--along with my consultation, not made enough
progress here, and she was retirement eligible. She decided to
retire. It never went beyond that.
Senator Menendez. You had no concerns of what she might say
if brought before the Senate or any other entity and put under
oath about what she might say about what was known or not
known?
Mr. Stumpf. That did not even come into the----
Senator Menendez. Well, let me ask you this: What were the
repercussions of not meeting sales quotas besides not getting
the bonus? Can you tell me how many workers faced discipline
over the same 5-year period for failing to meet sales goals?
How many workers that failed to meet those sales goals were
terminated?
Mr. Stumpf. I do not have those numbers, but I will tell
you this, Senator----
Senator Menendez. Well, I think it is important to know
those numbers. You do not know how many people you terminated--
you know how many people you terminated who you said did the
wrong thing, but you do not know how many people you terminated
because they did not meet the overwhelming cooker boiler that
you put them under?
Mr. Stumpf. I do not have those--I do not have those
numbers.
Senator Menendez. Well, I would like you to get those
numbers to the Committee.
Mr. Stumpf. I will talk with our team, and I will, as far
as I can.
Senator Menendez. You said to Senator Scott that, of
course, there were opportunities, when he asked about safe
harbors. You could raise your hand. There was an anonymous
EthicsLine. There was no pressure cooker.
Now, do you read your emails, Mr. Stumpf?
Mr. Stumpf. I read my emails.
Senator Menendez. OK. So I would like to read to you an
excerpt from an email one my constituents sent to you in 2011.
She was a branch manager at Wells Fargo, and I spoke to her
yesterday about her experiences at Wells Fargo. In 2011, she
wrote to you, and I am quoting now:
I am currently an Assistant Vice President Manager at----
----and I will leave the location out----
----in northern New Jersey. I have been an employee of Wachovia
for over 22 years, which Wells Fargo acquired. I am writing to
you because as a team member I feel hurt and disappointed with
this company. There are challenges that team members are faced
with, but those should not be the reason to move money from one
account to another and to fool the motivator----
----the person who you had to go to who constantly was
badgering you about whether or not you had opened enough
accounts----
----that we have new accounts. These funds that are moved to
new accounts to show growth when in actuality there is no net
gain to the company's deposit base is wrong. In the past
months, I was placed on warning for not meeting these goals,
and the reason that the bankers underneath me do not is because
I will not tolerate the movement of existing money just because
we need checking account solutions and profit proxy to move to
the motivator. These accounts make no sense for the customer.
Did you read that mail?
Mr. Stumpf. I do not remember that one.
Senator Menendez. OK. Well, she was fired. So much for the
safe haven, so much for coming forth. She went to the President
and CEO of the company--that is about as good as it gets--and
she found no safe haven there.
Finally, let me ask you this: In 2012, Wells Fargo, then
and now the largest mortgage lender in the country, agreed to
pay $175 million to settle accusations that the bank
discriminated against African Americans and Hispanic borrowers
in their mortgage lending from 2004 to 2009. An investigation
by the Department of Justice's Civil Rights Division found that
Wells Fargo discriminated by steering approximately 4,000
African American and Hispanic borrowers into subprime mortgages
when non-Hispanic white borrowers with similar credit profiles
received prime loans.
When I look at this history, I get concerned with what is
going on here. Do you have demographics of those customers who
were hurt in this process? And can you share it with the
Committee?
Mr. Stumpf. Yes. Let me just go back to that particular
case. I regret that. That was done through a wholesale
business. Other people outside of our company originated those
mortgages, and we were closing them, and we shut down that
division.
In this case, we do not--when we take applications or when
we do business for deposits and credit card, we capture age,
and there was no--in fact, deposit accounts skewed toward, you
know, younger to middle-age Americans.
Senator Menendez. Well, I would suggest you read page
36(d), item 36(d) on page 9 of the Los Angeles City Attorney's
2015 complaint filed against Wells Fargo describing a Wells
Fargo gaming practice of targeting individuals holding Mexican
consular cards.
Mr. Stumpf. I do not--I will look at that yes.
Senator Menendez. Thank you, Mr. Chairman.
Chairman Shelby. Senator Schumer.
Senator Schumer. Well, thank you, and I apologize to the
witness. It has been a busy morning.
First, I want to just say--and I know other people have
spoken about this--in terms of rescinding the bonuses, to the
average American it just seems appalling that somebody who
could make such large mistakes should be rewarded with almost
an obscene amount of money, $120 million. And so I would
simply--I am not going to--I know this has been discussed. I
would say your bank has overall a good reputation. For the
reputation of your bank, for the value of your shares, as well
as relationships with customers, I would urgently urge you to
not allow those bonuses to occur and urge that the compensation
committee--I know which you sit on--to do that. That is just a
statement for the record.
Now, I would like to talk a little bit about the CFPB
because they have done incredible work over the past 5 years.
But this case exemplifies why the CFPB was created. The
Consumer Financial Protection Bureau was formed to ensure that
financial institutions that harm consumers through unfair,
deceptive, or abusive practices are held accountable and that
the consumers are made whole again. In fact, over the course of
its short history, it has gotten $12 billion in relief and
restitution. Today's hearing reminds us why the CFPB was
formed. We needed a cop out on the beat. The incentives and
practices that cross-selling goals promoted at Wells Fargo were
very, very wrong and bad, as I am sure you said. They infected
the work environment at branches in the country, and including
in New York.
Beyond the financial damage, Wells Fargo's actions violated
consumer trust. Wells will have to work long and hard to regain
the trust of millions of Americans, but those Americans can
rest assured now more than ever, knowing that there is a CFPB
out there.
So I would just ask you, Mr. Stumpf, given what you have
been through--and I know it has not been a pleasant
experience--do you agree that Federal regulators like CFPB and
OCC serve a valuable role in promoting safety and stability as
well as necessary consumer protections? I am saying this
because a lot of our friends on the other side of the aisle
want to either get rid of or greatly reduce the power of the
CFPB.
Mr. Stumpf. We share the mission of all of our regulators
created by Congress, including the CFPB, and we are working
with all of them.
Senator Schumer. So you think the CFPB is a necessary
thing?
Mr. Stumpf. Well, again, it is created by Congress, and we
agree to work with all of them, and we have worked closely on
this matter with them.
Senator Schumer. OK. And do you believe that the reforms--I
will let the answer speak for itself. We think the CFPB has
done an outstanding job, and what has happened at the bank,
whether--you know, however it happened, shows the need for it.
OK. Do you believe that the reforms that Wells committed to
and goals required under the consent agreement you signed with
the CFPB will allow Wells to go back on a path of protecting
customers' interests in putting consumers first?
Mr. Stumpf. Yes, we believe--we have a lot of work to do.
Senator Schumer. OK. As per the terms of the consent
agreement, will you work with the CFPB to ensure that Wells'
customers that were negatively impacted are made whole?
Mr. Stumpf. Yes.
Senator Schumer. Good. OK. Were you aware that the CFPB was
aware of the cross-selling and looking into concerns about
cross-selling as early as 2013?
Mr. Stumpf. I only know what we did. I do not know what the
CFPB----
Senator Schumer. OK. They were. So they were on this case I
think before at least your top management discovered this,
which is to their credit.
Mr. Stumpf. I do not know that.
Senator Schumer. OK. Well, Director Cordray will be here---
Chairman Shelby. In a minute.
Senator Schumer.----in a little bit, so we will ask him and
see if that was the case. I believe it to be the case.
And, finally, do you believe that the actions taken by the
CFPB here will lead other financial institutions to reevaluate
and reconsider their own cross-selling practices?
Mr. Stumpf. Yes, I would have no idea on that.
Senator Schumer. Yes, I think they will. I think they will,
and I think the CFPB has had a very salutary influence, and I
would hope you would come around to the view that it is a
necessary part of our system of banking and governing.
Thank you, Mr. Chairman.
Mr. Stumpf. Thank you. Mr. Chairman, if I just might make
one comment.
Chairman Shelby. Go ahead.
Mr. Stumpf. Thank you, Senator Schumer, for your questions.
You made a comment that I am on the human resources and
compensation committee. I am not. I just want to make sure that
is part of the record.
Senator Schumer. OK. Well, I would still urge you to--is
that the committee, though, that is in charge of the bonuses?
Mr. Stumpf. That is the one that makes the recommendation
to the full board, and, of course, I am not part of the full
board in those decisions.
Senator Schumer. OK. I would urge you to urge everybody who
is on these committees to do just what we had asked.
Mr. Stumpf. OK. Thank you.
Senator Schumer. OK? Thank you.
Chairman Shelby. Senator Warren.
Senator Warren. Thank you, Mr. Chairman. And I want to say
again thank you very much for being so responsive to us, for
holding this hearing when we sent you a letter to ask you to do
it, and thank you for being so generous about time.
Chairman Shelby. I hope I am responsive to the American
people----
Senator Warren. I hope so, too.
Chairman Shelby.----not just to you.
Senator Warren. Thank you very much. I really appreciate
your holding this hearing.
Mr. Stumpf, as you know, some of my colleagues and I sent
you a letter last week about the board's plans to claw back
compensation from senior executives who were responsible for
overseeing this scam. Wells Fargo provided us with a response
yesterday. I noticed that although we sent the letter to you,
the response actually came from somebody else in the company,
which I guess is another example of holding yourself
accountable.
I want to focus now on the mysterious circumstances
surrounding Carrie Tolstedt's retirement in July. As you know,
Ms. Tolstedt ran the community banking division, the division
where this scam occurred, for the entire time that the scam
took place. She was in charge of all of the 5,300 employees who
were fired, and she oversaw the creation of 2 million fake
accounts.
Now, in July of this year, just 2 months before the
settlement was announced, and before those facts became public,
Ms. Tolstedt retired at age 56. You indicated in the letter
responding to our letter that she walks away with over $90
million in stock, stock options, and awards. Fortune Magazine
says it is actually about $125 million. But--and here is the
key part--according to Fortune, if Ms. Tolstedt had been fired
instead of retiring, she would have had to forfeit as much as
$45 million of that award.
Mr. Stumpf, the response to our letter confirms that you
knew of this scandal before Ms. Tolstedt retired. It said--and
this is from your letter:
Senior management and the board were aware of the pending
litigation, investigation, and discussions with our regulators
relating to sales practices when Ms. Tolstedt indicated her
decision to retire.
Is that accurate, Mr. Stumpf, what this letter says? Were you
personally aware of the massive problem that occurred under Ms.
Tolstedt's watch in July when she announced her retirement?
Mr. Stumpf. I was aware that we were involved in
discussions with the City Attorney, the OCC, and the CFPB, yes.
Senator Warren. So you had some indication there was a
massive problem?
Mr. Stumpf. We had some indication that we had 1 percent of
our people who were doing the wrong thing.
Senator Warren. Also known as a ``massive problem.''
Mr. Stumpf. Well----
Senator Warren. If you knew this, did you consider firing
Ms. Tolstedt before she retired?
Mr. Stumpf. Well, at the time she was reporting to our
President and Chief Operating Officer, and----
Senator Warren. It is a simple question. You knew there was
a problem. Did you consider firing her?
Mr. Stumpf. No, because of her----
Senator Warren. Seriously? You found out that one of your
divisions has created 2 million fake accounts, had fired
thousands of employees for improper behavior, and had cheated
thousands of your own customers, and you did not even once
consider firing her ahead of her retirement?
Mr. Stumpf. In fact, when I look at her full body of work
and I look at the customer loyalty improvement and the customer
service improvement----
Senator Warren. Are you sure that those were not fake?
Mr. Stumpf.----all the work that was done, she chose to
retire. And I would also like to make one other comment,
because you made----
Senator Warren. No, just on this, you never considered
firing her. So now Ms. Tolstedt has apparently retired, but is
also staying with the firm through the end of the year. And in
the response to our letter, you state--or the person writing it
states, ``Ms. Tolstedt is eligible to be considered for a 2016
annual incentive award.'' An incentive award for doing a great
job in 2016? Mr. Stumpf, that is unbelievable. You are the
Chairman of the Board and the CEO. In those roles, do you think
it would be appropriate for Ms. Tolstedt to get another bonus
on top of the millions that she has already gotten as a reward
for her role in this massive scam?
Mr. Stumpf. The board will consider that, and I do not want
to prejudice the board. But I also want to make one----
Senator Warren. I do not understand that answer. You know,
you and your board have already made changes. You have made
changes to the compensation scheme for thousands of employees.
You have sat here today and talked about that. You have removed
sales quotas, I think you told us. You have reformed
incentives. Why can that be done quick as a wink across the
entire bank, but a question about cutting compensation for a
highly placed executive who oversaw a massive fraud takes long
deliberation? Why is that?
Mr. Stumpf. Because there is a board governance process,
and we want that to work properly. And whether Carrie was
retired or she was fired, there would be no difference with
respect to how the board can deal with that.
Senator Warren. I am sorry. If she was fired, it is my
understanding she would not be entitled to large parts of her
compensation. It is not just a clawback issue. We are talking
about she does not get them to begin with if she gets fired.
But you let her walk out of the door with a retirement. I do
not quite understand. How do you explain this to your own
shareholders?
Mr. Stumpf. There is a process that the board goes through,
and they will do that. They have already met, and we want to
give that----
Senator Warren. Mr. Stumpf, I do not understand. You keep
saying, you know, ``the board, the board,'' as if these are
strangers that you met in a dark alley. Under the by-laws of
Wells Fargo--and I am quoting here--``The chairman shall
preside at all meetings of the board.'' You were able to make
changes. Why can you not make a change here?
Mr. Stumpf. I am not on the human resources committee of
the board. They have their own governance and structure. We
want that to proceed in the process in which we have.
Senator Warren. All right. So we will do this your way. Our
letter asked a number of questions about clawbacks of Ms.
Tolstedt's and other executives' pay, including yours. Wells
Fargo's answer to our letter was just basically you punted,
that the decision would be up to the board, the same punt you
have given here. So you are the chairman of the board. Let me
ask it this way: Will you personally support clawing back all
or part of Ms. Tolstedt's pay?
Mr. Stumpf. I am not going to in any way try to influence
or prejudice the board as they do their deliberations.
Senator Warren. So you have absolutely no opinion on this?
Mr. Stumpf. I am not going to opine on that----
Senator Warren. You are not going to opine on it. You are
going to say, ``Get out there, defraud, cheat, lie, steal, and
I have nothing to say about whether or not you ought to still
be getting your bonus.''
Mr. Stumpf. I have never said and we never say as our
company to go out there and do any of those things. We try to
do the right thing every day.
Senator Warren. But you say if you do them, you can count
on Chairman Stumpf not to stand up and say you should not get
your incentive bonus.
Mr. Stumpf. The board has a process, and----
Senator Warren. I think you started this whole thing by
saying, ``Do not tell me what you say. Tell me what your
actions are.'' And your actions are people do this, and you are
not going to take a single step to shut it down. So I guess I
can ask this question again: Will you personally support
clawing back any or all of the pay for the person in charge of
compliance, someone we have not talked about much today, the
person who is supposed to be responsible to make sure that the
bank is following the law? Will you have any recommendation
about that person?
Mr. Stumpf. I am going to have the board do their process.
Senator Warren. You are going to have no recommendation at
all, ever, at any point in this process?
Mr. Stumpf. Whatever the board accepts--whatever they do, I
will accept and I will support.
Senator Warren. You are not passive here. If you have
nothing to do, what are you doing serving as chairman of the
board? If you have no opinions on the most massive fraud that
has hit this bank since the beginning of time, how can it be
that you actually get to continue to collect a paycheck for
being chairman of the board?
Mr. Stumpf. First of all, I disagree with the fact this is
a massive fraud. But, second, the board will do their work, and
I am not going to prejudice their work. And I will be--and I
will accept whatever they come up with, and I will be
supportive.
Senator Warren. You accepted all along as this fraud built
up, this massive fraud, you accepted all of the performance
bonuses based on the cross-selling that is at the heart of
this. You watched your own stock go up by more than $200
million based in part on exactly this massive fraud. You got
out and you pumped it to Wall Street, and you said to Wall
Street, ``Hey, we are doing such a great job cross-selling here
at Wells Fargo. You should tell everybody to buy our stock.''
And now you turn around and say, ``I shall remain passive and
simply accept what Wells Fargo wants to do.''
You know, in 2008, Wall Street promised change, 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 will not change
until we make it change.
Thank you, Mr. Chairman.
Chairman Shelby. Mr. Stumpf, thank you for appearing today.
We have some questions for the record. We have another panel. I
hope you will answer these questions for the record. We have a
number of them.
Mr. Stumpf. OK. Thank you very much.
Chairman Shelby. Thank you.
Chairman Shelby. In our next panel, we will hear from Mr.
Jim Clark, the Chief Deputy for the Los Angeles City Attorney's
Office, whose office brought the 2015 case against Wells Fargo.
Next we will hear from Mr. Curry, the Comptroller of the
Currency, Wells Fargo's prudential regulator.
And then we will hear from Director Cordray of the Consumer
Financial Protection Bureau.
Gentlemen, we appreciate all of you. We appreciate your
patience today. We have had a very important and lengthy
hearing.
Mr. Clark, we will start with you, but all of your written
testimony will be made part of the record in its entirety. You
start. Hit the mic.
Mr. Clark. Sorry about that.
STATEMENT OF JAMES CLARK, CHIEF DEPUTY, OFFICE OF THE LOS
ANGELES CITY ATTORNEY, ON BEHALF OF MICHAEL N. FEUER, CITY
ATTORNEY, CITY OF LOS ANGELES, CALIFORNIA
Mr. Clark. Chairman Shelby, Ranking Member Brown,
esteemed Members of the Committee, I am Jim Clark, the Chief
Deputy City Attorney of the city of Los Angeles. I am appearing
on behalf of our City Attorney, Mike Feuer, who submitted
written testimony but could not be with us today.
I would like to tell you briefly what our office did and
why, what we discovered, and the relief for consumers we sought
and
obtained.
On a Sunday morning in December 2013, Angelenos opened the
Los Angeles Times to find a shocking story by Times reporter
Scott Reckard. The story described Wells Fargo Bank's sales
culture and the harm that culture had caused its customers. The
story read in part:
To meet quotas, employees have opened unneeded accounts for
customers, ordered credit cards without customers' permission,
and forged client signatures on paperwork. Some employees
begged family members to open ghost accounts.
Our City Attorney, like thousands of other California
consumers, was appalled by what he read. He immediately
convened a meeting of key lawyers in our office to begin an
investigation of the allegations of the story and determine if
an action should be brought by our office under the California
laws designed to protect consumers against unfair business
practices.
California's consumer protection laws do not afford our
office pre-litigation subpoena powers, so our investigation
essentially consisted of good old-fashioned detective work. We
conducted dozens of interviews with current and former Wells
Fargo employees and customers, pored over public documents,
including court documents that were records of wrongful
termination suits brought by
terminated Wells Fargo employees, and we went to the Consumer
Financial Protection Bureau and FTC consumer complaint
databases.
We found that the bank had victimized consumers by opening
customer accounts and issuing credit cards and other products
without the customer's knowledge or authorization. Our
investigation revealed that the bank had failed to notify
consumers once these unauthorized accounts had been opened and
had not refunded fees for those unwanted products and services
once the
misconduct had been detected. We found instances in which the
bank made it difficult, if not impossible, for customers to
receive accurate information as to what exactly had happened to
them. Many consumers were told that the unauthorized accounts
would be closed; however, often that was not the case.
We also found that Wells Fargo's business model imposed
unrealistic quotas on salespeople, which incentivized employees
to engage in highly aggressive sales tactics, creating a
perfect storm for the unlawful activities we discovered.
Our investigation consumed some 16 months and culminated on
May 4, 2015, with our filing of a civil enforcement action in
the name of the People of the State of California. That
proceeding sought relief for consumers harmed by Wells Fargo's
conduct and, equally important, was intended to put a stop to
the illegal practices Wells Fargo had employed.
In the days following our lawsuit, our office received
calls, letters, and emails from more than 1,000 Wells Fargo
customers and current and former employees. They described a
veritable litany of horrific experiences. The consumers had
money withdrawn from their authorized account to pay fees
assessed by Wells Fargo to their unauthorized accounts. They
complained that their unauthorized accounts were sent to debt
collection agencies, and derogatory notes were placed on their
credit reports.
For the Wells employees, we learned of the perverse sales
incentives Wells used and the extreme pressure placed upon
employees to achieve often unrealistic sales quotas. In short,
what we learned both before and after we filed our case was not
only that Wells Fargo's conduct was inexcusable, but that it
also seemed to be systemic and widespread.
Earlier this month, we reached a settlement with Wells
Fargo, which, in conjunction with the resolutions reached with
the Federal agencies represented here today, provides for
comprehensive remediation and corrective actions, and sends a
strong message to Wells and its customers by imposing a $50
million penalty, the largest in the history of our office. Our
agreement first establishes a complaint and mediation system
for California consumers harmed by the bank's practices, and it
also requires Wells to continue a restitution program for those
customers negatively affected by the practices. Wells Fargo
also must alert all of its California customers who have
consumer or small business checking or savings accounts, credit
cards, or unsecured lines of credit to visit their local bank
or call Wells Fargo to review their accounts, close accounts,
or discontinue services they do not want, and resolve any
remaining problems. Crucially, for the next 2 years, every 6
months Wells Fargo must provide our office with audit reports
signed by an officer or director of the bank under penalty of
perjury assessing the bank's compliance with our agreement.
It is critical to note that our settlement was coordinated
with the enforcement efforts of our Federal partners: the
Consumer Financial Protection Bureau and the Office of the
Complaint of the Currency. As a result, remediation and
corrective actions now extend nationwide. We would like to
thank both agencies for their outstanding work. In our view,
robust Government oversight is crucial to protecting consumers.
When Federal, State, and local
enforcement agencies collaborate and coordinate their efforts,
protections consumers need and are entitled to are much more
likely to be effective.
There is a sacred trust that consumers put in their
financial institutions--a faith that their hard-earned money
will be safe and secure, and that all of their banks' actions
will be at the highest ethical standards. Wells Fargo broke
that trust. It cannot be
allowed to happen again.
Thank you.
Chairman Shelby. Mr. Curry.
STATEMENT OF THOMAS J. CURRY, COMPTROLLER OF THE CURRENCY,
OFFICE OF THE COMPTROLLER OF THE
CURRENCY
Mr. Curry. Thank you. Chairman Shelby, Ranking Member
Brown, and Members of the Committee, thank you for holding this
hearing related to the unsafe and unsound sales practices at
Wells Fargo.
Let me begin by stating clearly that the sales practices at
Wells Fargo involving employees opening unwanted accounts and
making unauthorized transfers of customer funds, even
temporarily, are outrageous. These practices, driven by
misplaced incentives and
enabled by weak risk management controls, undermine the
fundamental trust that goes to the heart of the bank-customer
relationship. They are unacceptable and have no place in the
Federal banking system.
The OCC's September 8th enforcement action builds on
examination work that identified weaknesses in compliance risk
management and consumer protection and subsequently focused on
sales practices beginning in January 2014. The action requires
Wells Fargo to pay a $35 million penalty to the United States
Treasury, orders the bank to reimburse affected customers, and
directs comprehensive corrective action to prevent such
practices in the future. OCC examiners are closely monitoring
the bank's corrective action and its reimbursement of harmed
customers.
Our work on this matter continues. I have ordered agency
staff to review individual misconduct and culpability in this
case. I have also directed our examiners to review the sales
practices at all the large and mid-sized banks we supervise and
assess the sufficiency of controls with respect to sales
practices.
As we continue to review this matter, more facts may come
to light. My written testimony provides further details about
the OCC's supervision of Wells Fargo leading to our enforcement
action.
The actions the OCC took, together with the Consumer
Financial Protection Bureau and the Los Angeles City Attorney,
rightfully hold the bank accountable and require necessary
corrective action. However, I believe the OCC can and must do
better. To that end, I have asked my Senior Deputy Comptroller
for Enterprise Governance to conduct a postmortem to identify
potential gaps in our supervision, and I will address any
identified gaps.
Enforcement actions such as these require thousands of
hours of examination and investigation work. I want to express
my appreciation for the OCC staff, who worked tirelessly on
this issue, as well as our colleagues at the CFPB and the LA
City Attorney's
Office. The coordination in this case allowed us to take
collective
action that addressed the safety and soundness and the consumer
protection aspects of the bank's deficiencies. Together, the
orders demonstrate that such practices will not be tolerated.
Since I became Comptroller, I have worked to strengthen our
supervisory effectiveness, including through the 2014 adoption
and implementation of heightened risk governance standards for
our largest institutions. These enforceable guidelines
emphasize the importance of three lines of defense in the
detection and mitigation of risk--front-line business units,
independent risk management, and internal audit--as well as the
vital role of the board in providing a credible challenge to
management actions. Had these structural elements been
functioning properly, they would have prevented the type of
abuses we have witnessed at Wells Fargo.
The continued application of OCC's heightened standards for
large banks will help ensure that they have the governance and
controls necessary to prevent these sorts of practices in the
future.
The practices at the bank also demonstrate the importance
of aligning incentives with appropriate behavior, which
highlights the need to finalize the interagency incentives
compensation rule sooner rather than later. As proposed, the
rule would provide clear
direction regarding the application of sound incentive
compensation programs, including clawbacks, forfeiture, and
other mechanisms to hold senior executives and other employees
with significant responsibilities accountable. For those
reasons, I support prompt completion of the final rule.
Again, thank you for holding this important hearing today,
and I look forward to answering your questions.
Chairman Shelby. Mr. Cordray.
STATEMENT OF RICHARD CORDRAY, DIRECTOR, CONSUMER FINANCIAL
PROTECTION BUREAU
Mr. Cordray. Thank you, Chairman Shelby, Ranking Member
Brown, and Members of the Committee. I will briefly discuss:
one, what our investigations found about the sales practices at
Wells Fargo; two, what we are seeking to achieve by our order;
and, three, some thoughts about further steps to improve the
culture and practices of the banking industry.
On September 8th, the Consumer Bureau, together with our
partners at this table, took an enforcement action against
Wells Fargo Bank. Our investigations found that, in order to
meet sales goals and collect bonuses for themselves, bank
employees created unauthorized deposit and credit card
accounts, enrolled consumers in online banking services, and
ordered debit cards for consumers, all without their consent or
even their knowledge. Some of these practices involved fake
email accounts and phony PIN numbers.
The fraudulent conduct occurred on a massive scale. As
detailed in our order, Wells Fargo opened at least 1.5 million
deposit accounts that may not have been authorized, including
transferring funds from some customer accounts without their
knowledge or consent. Wells Fargo also initiated applications
for more than a half million credit card accounts that may not
have been authorized, by using consumers' information without
their knowledge or consent. These activities caused some
consumers to incur fees. And even apart from that, they
represent a staggering breach of trust and conduct that should
never occur at any bank. Wells Fargo has demonstrated the epic
scope of its failures by terminating at least 5,300 people thus
far, including branch managers and managers of managers.
The gravity and breadth of the fraud that occurred at Wells
Fargo cannot be pushed aside as the stray misconduct of just a
few bad apples. As one former Federal prosecutor has aptly
noted, the stunning nature and scale of these practices
reflects instead the consequences of a diseased orchard. As our
order identifies, Wells Fargo built and refined an incentive
compensation program and implemented sales goals to boost the
cross-selling of products, but did so in a way that made it
possible for its employees to pursue unfair and abusive sales
practices.
And I have a question for you: Do we really believe that
5,300 people applied for jobs with Wells Fargo over the years
intending and expecting and wanting that they were going to go
into the bank and abuse consumers' trust and open phony
accounts in their name? No. It was the Wells Fargo culture that
made that happen.
It appears that the bank did not monitor its program
carefully, allowing thousands of employees to game the system
and inflate their sales figures to meet their sales targets and
claim higher bonuses under extreme pressure. Rather than put
its customers first, Wells Fargo built and sustained a cross-
selling program where the bank and many of its employees served
themselves instead, violating the basic ethics of a banking
institution, including the key norm of trust.
Our order accomplishes several things. First, the details
in the order that are a result of our investigation expose
Wells Fargo's illegal misconduct, including its scale, for all
to see for themselves. It has spawned vigorous public scrutiny
over the past 2 weeks that no doubt will continue.
Second, the order helps answer one question many of you
have asked me from time to time: What does the term ``abusive''
mean in our governing statute? Although we have been careful in
analyzing all the ramifications of that new term, we did not
hesitate for 1 minute to apply it emphatically to what we found
here. In this matter, Wells Fargo engaged in abusive conduct
toward its customers and consumers. We have said so, and
executives, shareholders, and investors throughout the
financial system will now have to consider what that means in
their own efforts to address their cultures and practices going
forward.
Third, we have ensured that all consumers who suffered
financial harm as a result of these practices will be fully
compensated for that harm. Wells Fargo is required to set aside
$5 million to cover all of that, and if it turns out to exceed
$5 million--and it now appears we are going to go back further
years--the bank will cover that as well.
Fourth, we fined Wells Fargo $100 million, the largest fine
that the Consumer Bureau has imposed on any financial company
to date. That is a dramatic amount as compared to the actual
financial harm to consumers, but it is justified here by the
outrageous and abusive nature of these fraudulent practices on
such an
enormous scale. Some have said maybe this is not enough; some
have said it is too much. As for whether we have done enough
here, it is notable that the order itself is generating
considerable consequences, including market effects,
shareholder activity, further potential lawsuits, and follow-up
investigations by other public officials that may be either
civil or criminal in nature.
Fifth, the order requires independent consultants to be
installed at Wells Fargo to ensure that all consumers are fully
compensated and that changes in sales practices are fully
implemented so this misconduct does not recur. The top
executives at Wells Fargo and its board of directors will be
directly engaged in this work. If the independent consultants
identify any further issues or concerns--and they may--we will
address those as well.
Let me conclude with some more general concerns. As one of
the biggest and best known banks in the United States, Wells
Fargo is in a position to lead by example in terms of how every
bank should treat its customers. In the wake of this order, it
now must do so. Much bank growth these days occurs by cross-
selling customers on more products and services. There is a
right way to do that, which should lead banks to focus on
strong customer service that produces high levels of customer
satisfaction, which in turn generates repeat business from
existing customers and positive word of mouth to others.
There is also a wrong way to do that. As we have seen here,
unchecked incentives and an unrealistic and uncaring culture of
high-pressure sales targets can lead to serious consumer harm.
Incentive compensation structures are common in businesses, and
they can motivate positive behavior. Yet companies need to pay
close attention to their compliance monitoring systems in order
to prevent violations of the law and abusive practices.
This action should serve notice to the entire industry. If
sales targets and incentive compensation schemes are
implemented in ways that threaten harm to consumers and lead to
violations of the law, then banks and other financial companies
will be held accountable. We have seen the risk such programs
pose across the entire financial sector. We have dealt with it
in debt collection, mortgage origination, credit card add-on
products, and now here, and we will continue to take action to
protect consumers.
Thank you again to our partners here at this table--I am
proud of our team and their teams--who worked with us on this
important enforcement action, and I am happy to answer your
questions. Thank you.
Chairman Shelby. I thank all three of you for being here
today.
Mr. Clark, I will start with you. The LA City Attorney's
efforts are very important here.
Mr. Clark. Thank you, Senator.
Chairman Shelby. I applaud your efforts on this case by, as
you say it, engaging in good old-fashioned detective work. And
I just want to clarify the facts as I understand them and for
the record from your written testimony. Correct me if I am
wrong.
Mr. Clark. I will, Senator.
Chairman Shelby. A dozen or so attorneys in your office,
the LA City Attorney's Office, without subpoena power,
conducted
numerous interviews of former Wells Fargo employees, met with
aggrieved victims, pored over public documents, including
voluminous court records from wrongful termination lawsuits,
searching for victims to uncover fraud. Is that correct?
Mr. Clark. Yes, it is, Mr. Chairman.
Chairman Shelby. Other than accessing the CFPB's consumer
complaint database, your first contact with the CFPB or the
OCC, Office of the Comptroller of the Currency, did not come
until after your lawsuit was filed in May of 2015. Is that
correct?
Mr. Clark. That is correct.
Chairman Shelby. Mr. Cordray, the CFPB's efforts, in your
written testimony, sir, you state that Wells Fargo opened over
1.5 million deposit accounts that may not have been authorized.
That is a lot of accounts.
Mr. Cordray. The facts we found through our investigation,
yes.
Chairman Shelby. Is that number based on Pricewater-
houseCooper's analysis?
Mr. Cordray. It is based on our investigation, and there
were internal documents Wells Fargo provided that confirmed and
were consistent with what we found through our investigation.
Chairman Shelby. In your written testimony, you state that
Wells Fargo also initiated applications for over 500,000 credit
card accounts that may not have been authorized. Does that come
from internal analysis?
Mr. Cordray. These are staggering numbers. That is what we
found through our investigation, which included civil
investigative demands, disclosure of tremendous amounts of
documents from Wells Fargo, investigative testimony, and
working with our partners here and their staffs to uncover as
much as we could.
Chairman Shelby. Also in your written testimony, you
describe your engagement with the Los Angeles City Attorney's
Office--and you just a few minutes ago did--as a
``partnership.'' Prior to the filing of the City Attorney's
lawsuit in May of 2015, did CFPB personnel accompany Mr.
Clark's investigators as they did the following: conducted
numerous interviews with former Wells Fargo employees, met with
aggrieved victims, pored over public records, including court
records from wrongful termination lawsuits by Wells Fargo? Did
they?
Mr. Cordray. So these investigations----
Chairman Shelby. Or did you come later?
Mr. Cordray. These investigations merged over time, work we
were doing, work the OCC was doing, work the LA----
Chairman Shelby. But they initiated the investigation, did
they not?
Mr. Cordray. Well, they initiated their investigation. We
initiated our own efforts in our office.
Chairman Shelby. After they----
Mr. Cordray. No. No, we first heard about these problems in
mid-2013 through whistleblower tips. The Los Angeles Times
investigative series confirmed that there were issues in this
industry. Now, there were different kinds of issues, and we
were looking at financial incentive programs on a number of
fronts at that time. We were dealing with credit card add-on
deceptive marketing actions, which got back billions of dollars
for consumers. We were looking at debt collection, where we
ended up having the largest enforcement action against debt
buyers and debt sellers.
Chairman Shelby. Were you looking at Wells Fargo and other
banks?
Mr. Cordray. We have been looking at these problems in all
of the banks and nonbank financial companies. Believe me, there
has been a lot of problems to look at and a lot of problems to
deal with. This is a fairly major one, and there have been
other major ones. Our credit card add-on products work has led
to billions of dollars in relief for consumers.
Chairman Shelby. Is there anything that the Bureau has
learned from the work that the LA City Attorney's Office did?
Have you learned anything there?
Mr. Cordray. So I think we learned from their investigation
and they learned from our investigation. I do not want to speak
too much of what other people did here, and I do not know that
it matters. We do not sit around as partners and think about
what percentage of the credit we should allocate to one
another. We are looking to get a good result for consumers, and
together we did that here. But they conducted various parts of
the investigation. The OCC has conducted various parts of the
investigation. We have conducted various parts of the
investigation. We have been able to take this and turn it into
nationwide relief for consumers, which the LA City Attorney's
Office is unable to do under California law. And we and the OCC
going forward will be active in working to clean it up here and
across the industry.
And let me say something specific here about whistleblower
tips. We are getting a large and increasing number of
whistleblower tips all the time. When a bank like Wells Fargo
here does not come forward quickly with a problem that they
recognize is occurring at their bank, they should not assume
that we are not hearing about it from employees or customers or
others. We probably are. So it makes sense for them to come
forward more quickly and to self-report. That was not done
here. It was a very late contact from Wells Fargo on this
problem, as I see it.
Chairman Shelby. Thank you.
Senator Brown.
Senator Brown. Thank you, Mr. Chairman. And thank you all
for being here and for your public service, all of you.
Following up on this self-report, Mr. Cordray, are banks
required to report to you when they uncover fraud against
customers in their own banks?
Mr. Cordray. We think it is by far the best practice, and I
know that the Comptroller would agree and we see eye to eye on
this. We believe that----
Senator Brown. A statutory requirement----
Mr. Cordray. We believe that compliance at a bank starts
with the bank. They should not expect us to come along and make
sure they are complying with the law. They have that
responsibility in the first instance to do it themselves, and
our job is to make sure that they are doing it.
Senator Brown. But no legal requirement? They have no legal
requirement----
Mr. Cordray. There is no legal requirement for them to
report a problem, but they are in more trouble when they do
not.
Senator Brown. I understand.
Mr. Curry, or for all three of you, and we will start with
Mr. Curry. Your testimony states your agency started to receive
customer and employee complaints about improper sales practices
in early 2012. Mr. Cordray, your letter says your agency first
learned about this from whistleblowers in mid-2013. You both
heard Mr. Stumpf's answer to my question--I assume you were
watching. You both heard Mr. Stumpf's answer to my question
about when he learned. What does that say about the bank's
governance and priorities? Mr. Curry, if you would start with
that.
Mr. Curry. Sure. Our supervisory activity really has
focused historically--and this goes back to 2012--on the
adequacy of their operational risk and compliance risk
management systems. As our written testimony indicates, there
have been repeated issues with the sufficiency of those systems
and those controls, so this has been an ongoing issue.
The sales practices issues that have been uncovered by the
three agencies represented around this table are really a
manifestation of the overall weaknesses in their risk
management, particularly in the compliance area.
Senator Brown. I remember a discussion we had, I believe
soon after you took this position, about the importance of a
risk officer in a bank and the role they should play, and as
you pointed out, some do it better than others.
Mr. Curry, part of OCC's supervisory activities began in
2013. You would have been meeting with executives, and in my
understanding, you would meet regularly with the bank's board.
Correct?
Mr. Curry. Our teams meet regularly with management and
with the boards of directors, particularly the independent
members of the board.
Senator Brown. Not Mr. Stumpf, but those that are----
Mr. Curry. Those who are independent from operating
management.
Senator Brown. And we just checked. The compensation of
board members ranges from, I believe, the high 290s up to the
$400,000 a year--again, making the contrast of the 90 percent
of the employees who lost their jobs through various reasons,
but acts they committed, you know, were not managers who were
making under $35,000 or $40,000 a year.
Does it strain credibility that neither the board nor Mr.
Stumpf really knew this was going on, as it sounded like from
the testimony today?
Mr. Curry. I do not have personal knowledge what they knew
or did not know, but our focus is in making sure that they have
structures in place that facilitate the flow of important
information about deficiencies in the complaint processing
structure or in terms of escalating issues that arise in the
compliance function or in the ordinary business of the bank.
Senator Brown. Thank you. I found it particularly telling--
and then, Mr. Clark, I would like your comments just on this
whole area--that Mr. Stumpf said he met pretty much weekly,
sometimes more often, with Ms. Tolstedt, and these issues
apparently never came up until he learned about them in 2013
and part from the three regulators--or three Government
agencies. Mr. Clark?
Mr. Clark. We do not know precisely, Senator Brown, exactly
what they knew and when they knew it, but I think as a long-
time trial lawyer, one can draw inferences like courts and
lawyers do, and it is difficult to believe, based on the
information we developed in our investigation, both before and
after we filed our complaint, that knowledge of this did not
extend far beyond the regional manager level.
Senator Brown. Two more real quick questions of Mr. Curry
and Mr. Cordray. Your agencies have the authority to make
criminal referrals. Have you done so in this case? Is there
anything you can tell us about actions in that way? Both of you
answer that and then one more question.
Mr. Curry. Generally, our position is to cooperate with
criminal law enforcement. Our focus now at the conclusion of
our supervisory activity is really to look at the civil
enforcement remedies we have at our disposal. That would be
personal cease and desist orders, civil money penalties against
individuals, or removal or prohibition from banking, which
would prohibit someone from serving in any capacity at a bank.
That process is ongoing now.
Senator Brown. Mr. Cordray?
Mr. Cordray. So I have been told that I should not publicly
acknowledge whether we have made criminal referrals or not.
Thinking about this question, I thought there was something I
think I can do without getting in trouble, which is quote our
statute, 12 USC 5566. It says:
If the Bureau obtains evidence that any person, domestic or
foreign, has engaged in conduct that may constitute a violation
of Federal criminal law, the Bureau shall transmit such
evidence to the Attorney General of the United States, who may
institute criminal proceedings under appropriate law.
We follow that statute to the letter.
Senator Brown. OK. Mr. Cordray, a last question. I
mentioned that a group of Wells Fargo customers sought
compensation for their fraudulent accounts in 2013, even before
the Los Angeles Times series was published. Rather than
accepting responsibility, Wells Fargo forced them into
arbitration, effectively preventing them from being made whole.
How would the CFPB's arbitration rule have helped Wells'
customers in that case?
Mr. Cordray. You know, I am not familiar with all the
lawsuits, but my understanding is that these financial products
typically did carry an arbitration clause. When that happens,
as happened here, when there is massive wrongdoing on a wide
scale but small amounts of harm to individual consumers, it
would be very difficult to get any relief other than through a
class action. And yet I believe an arbitration clause here
might well defeat a class action. I think that is going to be
litigated here, and courts will decide it. But they have often
decided that it bars relief on an individual scale through a
class action mechanism.
Senator Brown. Thank you.
Chairman Shelby. Senator Reed.
Senator Reed. Well, thank you very much, Mr. Chairman, and
thank you, gentlemen.
Mr. Clark, you and your colleague did a superb job. Looking
back, when you filed your complaint, were you anticipating
extended litigation? Or was Wells Fargo cooperative from the
very beginning about recognizing this problem and settling?
Mr. Clark. It was interesting, Senator Reed. In the initial
response the day after we filed, they said something to the
effect of, ``We do not give our customers any accounts or
services or products they do not need.'' They did not say in
response to our complaint, ``We did not give Wells Fargo
customers anything they did not ask for.'' That was pretty
telling to us.
We negotiated with Wells over a period of time. Ultimately,
we were joined by our partners here before those negotiations
were complete. But at the end, I think they cooperated in the
sense that we ended up with what we believed to be a very
robust series of reforms, the largest penalty in the history of
our office. And because of the cooperation and working together
with the other agencies here, those reforms and practice
changes are nationwide.
Senator Reed. With respect to the negotiations, is it your
view that the added weight of OCC and the CFPB made a decisive
difference in terms of the outcome as well as the speed?
Mr. Clark. I cannot be sure of that, Senator, but I really
believe that to be the case.
Senator Reed. Thank you. There was one other aspect, too,
of your testimony. You said that Wells Fargo made it difficult,
if not impossible, for customers to receive accurate and clear
information as to how accounts had been opened up, which
suggests to me at least it was not just the individual ``bad
apple'' but it was larger than that. Is it your sense that
there was some type of either deliberate or negligent sort of
treatment of customers that contributed to this and is liable
at the company level?
Mr. Clark. Yes, I do, Senator, in this sense: that
customers would go into Wells Fargo's branches, would ask about
accounts, they got their statements either electronically or on
paper, could not figure out what was going on, and they just
could not get clear answers. And because the practices were
improper, in our view, the Wells employees in the experience of
our witnesses were not willing to come forward, and they did
not really give them honest answers. Sometimes, as I said in my
oral testimony here, accounts were asked to be closed, they
were supposed to be closed, and they were not closed.
Senator Reed. Thank you.
Mr. Curry, you point out that, you know, culture is key in
any organization, and I think that is obvious. It seems that
for years the culture at Wells Fargo was profit rather than
customer satisfaction and customer service. Do you think that
has changed? Or is that an accurate view of what is happening
recently?
Mr. Curry. This episode indicates how important it is, in
fact. What we are looking for as a supervisor is to make sure
that the institutions have a full understanding of the
importance of culture, the reputational risk, and the financial
consequences that can flow when you lose that reputation or
engage in activity that calls into question the culture of the
institution. And, again, our focus is making sure that they
have the appropriate oversight structure. Incentives, incentive
programs, compensation programs are
something that we look at very closely in our heightened
standards program because it does guide and dictate the culture
of the
institution.
Senator Reed. One of the impressions that emerges, and I
think not just for myself but across a wide spectrum of
opinion, is that the company might have been whispering about
ethical standards and treating the customer right, but they
were shouting about this is the way you make money, sell more
of these. Is that fair?
Mr. Curry. I think that is possible, yes.
Senator Reed. Director Cordray, the CFPB has been engaged
in this effort and, again, with your partnership, I think has
done an outstanding job. Protection of consumer laws is
something that you are expert in. Working with the Comptroller,
working with the city of Los Angeles, you brought special
expertise. Can you describe the special expertise you brought
to the issue?
Mr. Cordray. Yes, I think we all bring a different
expertise to this. The Los Angeles City Attorney's Office is
working purely from an enforcement perspective. They brought a
lawsuit. They are familiar with local conditions, which is
tremendously valuable as we partner across the country, often
with State Attorneys General or with State banking regulators,
in some cases with local officials who are forward-leaning on
consumer issues, like the LA City Attorney's Office.
The OCC brings its deep knowledge of safety and soundness
regulation at the institutions and under this Comptroller, I
will say, an increasing attention and focus on consumer
compliance and how safety and soundness actually affects the
individual consumer, which has been a point of collaboration
with the Bureau.
I think what we bring to this is both a unique ability to
engage not only in supervisory but also enforcement activity,
and we do both frequently. The fact that we have separate laws
that we can enforce here, including identifying abusive
practices, which is alone an authority granted to this agency,
that we also bring a consumer-focused perspective and market
analysis and expertise and the ability to use our CID power
aggressively even outside the scope of a lawsuit in order to
get information and process that information. And I think we
brought those tools to the table. Each of these other teams
brought their tools to the table. Together it makes for a
strong result.
If you look back at our enforcement actions over our 5
years, many of them have been done with partners; many of them,
I can tell you, almost all of them have been more effective for
doing that. Sometimes it takes a little longer because working
back and forth with other offices takes certain procedures and
other things to get into place. But it is always the best
answer if we can do it well. And people did it well here.
Senator Reed. Thank you very much.
Chairman Shelby. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman. Thank you all
for your service and the work that you have done here.
Director Cordray, the subject of today's hearing is, in my
mind, the ultimate affirmation of your agency and its
employees. In the wake of the 2008-09 financial crisis, when
unfair and abusive practices ran rampant in the industry, I
know that as a Member of the Committee at the time, one of the
things that I wanted to ensure that we did in the Wall Street
reform legislation, and to fight tooth and nail to get it, is
to empower a cop on the beat that would be on the side of
consumers. And I must say you as the Director and your Bureau
and agency have lived up to every bit of those expectations
from my point of view.
Now, I hope to use this as a teaching moment for some of my
colleagues that are not aware of the Bureau's latest list of
accomplishments. I would point out that since its creation in
2011, the Bureau has recovered and sent back nearly $12 billion
to 27 million consumers harmed by illegal practices of credit
card companies, banks, debt collectors, mortgage lenders, and
others--$12 billion to 27 million consumers.
And it is amazing that, despite all of those
accomplishments, my Republican colleagues are hell bent on
killing this agency. Just three legislative days after the
announcement of the settlement of Wells Fargo, one of my
Republican colleagues introduced and the Majority Leader,
Senator McConnell, fast-tracked a bill that would fundamentally
alter the funding mechanism for the Bureau and subject it to
the annual appropriation process.
So in view of that, can you tell me, Director, what would
it mean for the Bureau to be subject to the annual
appropriation process vis-a-vis the work that you are doing?
Mr. Cordray. Let me start in a general sense, which is what
we can see here is there is a very big job to be done to change
the culture and practices at the banks. It does not happen
overnight. This is on top of the robosigning mortgage servicing
scandal. It is on top of the mortgage origination scandals that
led to the financial crisis. It will take considerable time for
us to root out all of these things in the financial
institutions, banks as well as nonbanks.
But if we can remain on the job, if we can continue to
exert our authorities in matters like this, if we can continue
to work with our partners across the country, we will continue
to make progress.
Senator Menendez. I appreciate that. What happens if you
are put on the annual appropriation process?
Mr. Cordray. Well, it would compromise our independence and
make it harder for us to do our job, just as it is for all the
banking agencies.
Senator Menendez. Now, if the bill were to become law--and
trust me when I tell you that we will not let it--how might it
undermine the Bureau's efforts to protect consumers from
unfair, deceptive, and abusive practices?
Mr. Cordray. Again, anything that is attempting or
seeking--and some of these efforts are--to compromise our
independence will make it harder for us to do our job.
Senator Menendez. Now, let me ask all three of you, do any
of you disagree--and if so, please explain to me why--that in
essence here at Wells Fargo what we had was a pressure cooker
environment with perverse incentives and a culture that
ultimately led to the type of wrongdoing that took place? Does
anybody disagree with that view?
Mr. Cordray. Not at all.
Mr. Curry. No.
Mr. Clark. No.
Mr. Cordray. In fact, they sent mixed messages at best if
they countervailed that culture at all.
Senator Menendez. Now, Mr. Curry, let me ask you, do you
believe that you--meaning the Comptroller's office--should have
been notified earlier than what you were notified by Wells
Fargo?
Mr. Curry. It is critically important that there be open
and frank disclosure of relevant information by a bank with our
examiners. It is not entirely clear at what point that occurred
here, and----
Senator Menendez. Is it fair to say that this is a
material--what happened here is a material event as it relates
to----
Mr. Curry. I think there is always difficulty when you try
to define a term like ``material,'' depending on the context. I
would say from the OCC's standpoint and the facts of this
particular case, the fact that 5,300 employees were terminated
was material, and that there were 2 million accounts involved,
that would be material.
Senator Menendez. Let me ask you, did you--go ahead,
Director Cordray.
Mr. Cordray. There was something in the earlier testimony
that bothered me, which was an acknowledgment that the bank
alerted the OCC in 2013 but did not alert the CFPB until 2015.
We had known about these types of problems from our own
sources, but if any institution feels that they can divide and
conquer among the regulators, they should know that that is a
mistake.
Senator Menendez. Let me ask you this: How widespread is
the issue of cross-selling, at least in the perverse way that
it took place at Wells Fargo? Do you have any sense whether
this is a one-off, or is this an industry-wide concern?
Mr. Curry. Our view is--and I mentioned this in my
testimony--we generally look at incentive compensation at an
institution. With what we have seen here at Wells Fargo, I have
directed that we do a horizontal review, so we will be looking
specifically at sales practices at our largest banks and mid-
sized banks.
Senator Menendez. I look forward to you informing us on
that.
Mr. Cordray. I agree with the Comptroller on that. We will
be doing joint action on that. I would say the incentive
compensation has been a problem we have seen across a number of
different markets, so it is a broader issue. As to cross-
selling, Wells Fargo Bank no doubt was the industry leader in
aggressively cross-selling products, which led in part to the
extreme circumstances we find here. But to the extent others
are engaged in it, you should be focused on customer
satisfaction not on bare numbers, and there are monitoring
systems that can be put in place.
I agree with something the Comptroller said earlier, which
is we are all going to look back on this and think more about
what we can do to make sure that the cultures are changing at
these banks. We need to do some rethinking ourselves and, as
always, learn from new events.
Senator Menendez. Last, to Mr. Curry and then Mr. Clark, in
reading the OCC's consent order, I am struck by the group of
orders attempting to remedy what appears to be a longstanding
gross deficiency in the bank's risk management governance
structure and oversight protocols. For an institution with
$1.85 trillion in total consolidated assets, I am incredibly
concerned about the bank's ability to identify and manage risk
across its various lines of business.
At what point do you think Wells Fargo executives should
have been aware of these deficiencies? And how far back do you
think these risk management deficiencies go? And then
separately for you, Mr. Clark--and I would like to hear both
your answers, and I will rest there--I read with interest the
complaint that your office filed where you said--the complaint
says, ``Managers consistently hound, berate, demean, and
threaten employees to meet these unreachable quotas.'' And
where you talked about Wells Fargo gaming the practice of
targeting individuals holding Mexican consular cards, I assume
that when you made those assertions, they were based upon the
factual evidence that you discovered in the course of your
investigation.
Mr. Curry, could you speak to what I asked you? And, Mr.
Clark, to you.
Mr. Curry. Our testimony, which discusses our supervisory
history, demonstrates that there has been a significant period
where we have identified weaknesses in their operational risk
and compliance risk management. What we have attempted to do
with Wells Fargo is to address those weaknesses that have been
identified through our matters requiring attention that was
escalated after we conducted our heightened standards review to
be Part 30 of the Compliance Plan, which is an enforceable
requirement under our safety and soundness guidelines.
Ultimately the weaknesses that we saw in their safety and
soundness program resulted in the enforcement action that we
had. And that is a significant and major tool at our disposal
for institutional weaknesses in their programs.
Mr. Clark. Senator Menendez, let me answer your second
question first, and that is, we based our allegations on 16
months' worth of work. It was public documents, witness
interviews, former employees, every source we could come to--
again, lacking pre-filing subpoena power.
As to how they could have known, some of the documents we
looked at were wrongful termination lawsuits. They described
this kind of conduct, for example, in St. Helena, which is part
of our Napa Valley wine country, as early as 2009.
Senator Menendez. Thank you.
Chairman Shelby. Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
So buried in the fine print of Wells Fargo's checking and
credit card contracts is a forced arbitration clause. It says
that if a customer has any dispute with the bank about anything
related to that checking account or that credit card, then they
have to--they cannot go to court, and they cannot join with
other customers who have the same problem. Instead, they have
to go one by one through arbitration.
Now, a feature of arbitration that the banks particularly
love is that it is nearly always all secret. Filings and
documents are not available, and even if the customer wins,
there is no public record of it like there would be if we were
in a court case.
Director Cordray, do you think forced arbitration clauses
make it easier for big banks to cover up patterns of abusive
conduct, including the years of misconduct by Wells Fargo in
this case?
Mr. Cordray. I do think so, yes.
Senator Warren. So, in other words, these forced
arbitration clauses make it easier for Wells to get away with
scamming their customers, which is why it is good news for
customers that the CFPB has proposed strong new rules that
would ban forced arbitration clauses that prevent customers
from joining together to bring a public action in court. And I
think this is just one more way. We are talking here about the
CFPB's Enforcement Division, which I am very glad that we are
doing, and that is powerfully
important. But you get better rules in place, and this kind of
fraud gets exposed much earlier. If we had had class actions on
this back in 2010, 2009, 2008, then the problem never would
have gotten so out of hand. So I think that is really
important. Please.
Mr. Cordray. There is another sort of somewhat related
indicator here that shows you the focus on these things. One of
the first things that Wells Fargo did in the LA City action
that was brought was aggressively seek a protective order to
keep the proceedings, as much as possible, from public view.
Senator Warren. That is right, trying to keep it all
secret, and that is what the arbitration clause does that they
put in these contracts: everything out of public view for as
long as humanly
possible.
I also want to hit another point about how you make
structural change, because I think that is so important here.
Mr. Clark, I want to thank you for your testimony today and for
the great work that your office has undertaken in this case.
Mr. Clark. Thank you, Senator.
Senator Warren. One of the really powerful things that the
CFPB has done is to create a new complaint hotline which allows
customers to register complaints against any financial product.
We will just put it in the record. You can go to CFPB.gov and
file a complaint online, right? Anyone can do this. And since
its inception, the agency has fielded nearly a million
complaints. Is that right, Director Cordray?
Mr. Cordray. It is going to be a million later this week.
Senator Warren. All right. We are almost there. We will
have to mark the occasion.
Mr. Cordray. I think Thursday.
Senator Warren. And one of the best parts about this is not
just that you fielded the complaints, it is that you made them
public, and you made them searchable online. And that allows
everyone from researchers and academics to law enforcement
authorities to the banks themselves to be able to spot growing
problems and then to address them.
So, Mr. Clark, I wanted to ask, in the process of
conducting your investigation into Wells Fargo, did you use the
CFPB's complaint database?
Mr. Clark. Yes, we did.
Senator Warren. Good. And it was helpful to you?
Mr. Clark. Very helpful, as was the FTC's Sentinel
database.
Senator Warren. Excellent. I am very glad to hear that. You
know, this is yet another way that the consumer agency is
protecting customers and holding banks accountable. It is
bringing a lot more transparency to the market, which helps
identify banks that are consistently harming their customers.
And just as important, it rewards the banks that are doing a
good job for their customers. You know, there must be a lot of
community bank presidents who are standing by watching this
hearing saying, ``We do not engage in this kind of behavior.
You will not find those kind of complaints against us in the
CFPB database. Move your accounts over where you can actually
trust your banker.''
In light of all of the great CFPB work in investigating
this case and everyone working together on this, from the
arbitration rule to the complaint database to stop this kind of
scam from happening again, because that is the part we really
want to make sure we focus on, I think you are sending a very
loud message to the banks that--and a loud message to my
Republican colleagues who continue to attack the agency. You
know, Wells Fargo may wish that the CFPB would disappear, and
some Republicans may keep trying to leash up this watchdog. But
that is not going to happen. Thank you.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you.
Senator Merkley.
Senator Merkley. Thank you. Earlier I mentioned several of
the features that came out of interviews with employees of the
high-pressure environment, employees who were given daily
quotas for ``daily solutions,'' that is, sales of accounts,
that they had to stay late or come in on weekends if they did
not meet them, high-pressure sales meetings, bonuses that were
tied to meeting those threats of being put on probation or
being fired because they did not meet those quotas, in some
cases managers conducting coaching sessions on how to meet the
quotas through creating these accounts, regional sales meetings
conducted on an hourly basis to keep checking in.
In this whole structure that was established in the Wells
Fargo culture of how to do intensive cross-sales, was this a
high-pressure sales culture for the people who were the
personal bankers and the tellers? Just each of you, your
opinion on that.
Mr. Curry. Yes, that is really what we were addressing in
our supervisory letter from June of 2015. Those were all
deficiencies.
Senator Merkley. Thank you. Do both of you agree with that?
Mr. Cordray. Yes. If I could just elaborate? It was
excruciatingly high pressure in various settings. When you
first start to hear about something like this, it takes some
time to untangle conflicting accounts, and there are different
pieces of this. There were some different angles on it.
One issue was whether employees themselves were being
abused, and that was part of the complaints that people were
seeing.
Another issue was whether they were pressuring consumers to
open accounts, ultimately getting their consent but pressuring
them into improper or not suitable accounts.
And then the third, which sort of emerged a little later,
was potentially they were just opening accounts without
consumers even knowing about it. It is the third thing we are
focusing on here, but it takes some time to bring this into
focus as you conduct an investigation.
Senator Merkley. Thank you.
Mr. Clark, Director Cordray described it as
``excruciatingly high pressure.'' Does that fit your
impression?
Mr. Clark. It does, Senator. Let me tell you a quick
anecdote. I am a Wells Fargo customer. I was in my bank on
Friday doing a transaction. The senior person there recognized
me, asked me about this, and said, ``You cannot believe, Jim,
what the pressure was like. It was excruciating. I am so glad I
am out of that now because I am in a different kind of bank.''
This was on Friday, and he told me this. I found that
extraordinary, Senator.
Senator Merkley. So just a few moments ago, when I was
asking the CEO of Wells Fargo about the establishment of this
high-pressure situation that left bank tellers and personal
bankers in a no-win, between a rock and a hard place position,
he denied that there was any such structure. Is that completely
inconsistent with your complete understanding of the situation?
Mr. Curry. Senator, again, I would go back to our June 2015
supervisory letter in which we found that the program was
deficient.
Senator Merkley. And, Mr. Curry, that is a nice way of
saying ``yes.'' Yes, OK.
Mr. Cordray. It does differ from my understanding of the
situation that we found in our investigation.
Senator Merkley. So why after this extensive public review
of the establishment of this high-pressure culture, why would
the CEO, after working with you all and having these various
letters and so forth, after paying a fine, come in here and
say, ``No such thing existed. These were just individual
employees who had ethical lapses''? Why possibly did we hear
that testimony today?
Mr. Cordray. I do not know.
Mr. Clark. I do not either, Senator.
Senator Merkley. Any insight, Mr. Curry
Mr. Curry. No. It is inconsistent with our findings.
Senator Merkley. OK. It is inconsistent with everything. Is
it because the bank is trying to insulate itself from lawsuits?
Mr. Curry. I would not speculate. I do not know.
Senator Merkley. Is it possibly because the top executives
who were in charge during this whole period want to have kind
of no responsibility, claim no responsibility, and instead it
is just those 5,000 low-level people who had nothing to do with
the system they set up to sell?
Mr. Clark. I think there is responsibility here, that we
have a consent order with the OCC, with the CFPB, and with the
city of Los Angeles.
Senator Merkley. I would like to enter into the record,
``Banking on the Hard Sell,'' an article from the National
Employment Law Project.
Chairman Shelby. Without objection, so ordered.
Senator Merkley. It lays out these high-pressure cultures
that have happened in many financial retail banking groups. And
I think when the question was asked earlier, Mr. Curry, you
noted that that is something you will horizontally be looking
into. But do any of you have some impression based on what you
have seen so far that these practices, at least maybe not to
the same degree, but these high-sale practices, high-pressure
practices, did result in similar creation of fake accounts or
adding things to customers they did not ask for?
Mr. Curry. That really will be the focus on our horizontal
review. Banks are under enormous margin pressure, and that
could be----
Senator Merkley. That could be the case.
Mr. Cordray. I would just say that, for example, we started
with our first deceptive marketing of credit card add-on
enforcement action, many of which we took jointly with the OCC.
That eventually mushroomed into 12 enforcement actions across
the industry. The practice was worth billions of dollars. We
will certainly follow up aggressively here.
Senator Merkley. I have had the experience of opening an
account in partnership with--going to the bank with my
daughter, and it was very clearly--we went through it: ``This
is a no-fee account for a student, right?'' ``Yes, right,
right, right.'' Then the paperwork comes, and it is a fee
account.
And I had another case where I opened an account, and I
said, ``I do not want the overdraft protection or the fee that
goes with that. I want the free account.'' ``Yes, yes,
absolutely.'' Got the paperwork. Funny thing, I had the fee
account.
And I just thought it was sloppy paperwork. I had no idea
until now that there was a hard-sell system of quotas that was
causing folks to basically slam me with stuff that I had
explicitly said I did not want. And that was not at Wells
Fargo, so I will just say that I suspect that you will find
lots of this activity elsewhere.
Turning to Sarbanes-Oxley, where a CEO must sign off on the
sufficiency of internal audits, clearly from this hearing the
conduct was relevant to a bank's reputation and, therefore, to
its--certainly of material interest to its investors. Should
the SEC launch an investigation of this in terms of those
Sarbanes-Oxley reports?
Mr. Cordray. I will leave that to the SEC.
Senator Merkley. OK. And, finally, in the settlement, Wells
Fargo was allowed to neither admit nor deny wrongdoing, and we
heard today the result. The head of the bank comes in here and
says, ``We did not do anything. It is just a bunch of bad
apples who were ethically misguided.'' And it bothers me. Was
that debated and wrestled with? And why was Wells Fargo allowed
to not admit wrongdoing?
Mr. Cordray. So here is my point of view on that, Senator.
The order speaks for itself. It is very detailed. It tells the
facts as we established them through our investigation. That is
the story. People can quibble with it if they want, but that is
the story. It is the story that is forming vigorous public
scrutiny going forward and potentially other investigations by
other public officials, which we will be welcoming and
assisting in any way we can.
Senator Merkley. Does it not make it harder, though, to
hold the managers accountable to the board of directors of a
company when they have not admitted any wrongdoing?
Mr. Cordray. I think actions speak louder than words. The
notion that nothing happened here but they fired 5,300 people,
those things cannot possibly be squared.
Mr. Clark. I also think, Senator, that we wanted to get
relief to consumers as quickly as we could. It is very
typical--I practiced law at a big law firm for 35 years--for
these non-admissions to be part of an agreement. It would have
taken years to litigate this case, at least from our
perspective. And we would not have gotten relief for consumers.
We thought the consumers needed to get relief now, and the
practices had to stop. And so that is one reason from our
perspective it went that way.
Senator Merkley. I do applaud all of that, but I have got
to say from the men and women on the street perspective, it is
enormously frustrating to see the people at the bottom be fired
from their jobs, be threatened with firing, forced into an
untenable situation, and see the managers take no
responsibility. They take their bonuses. They are not clawed
back. They keep their jobs.
Let me take--and I will just close with this, Mr. Chairman.
The manager of this unit who worked to establish this very
successful--I say ``successful'' from the cross-selling
profitability--system that produced these fraudulent activities
is walking away--you can call it a bonus or you can call it a
platinum parachute or you can call it money she has already
earned, which is what we have heard, but more than $100
million, not counting what came previously. It would take a
bank worker earning $25,000 a year--and that is roughly in the
ball park because a lot of these workers were paid $11 to $12
an hour. At $25,000 a year, it would take them 4,000 years to
earn that $100 million. Four thousand years. Or to put it
differently, 100 lifetimes working 40 years. It is a phenomenal
distinction, and that managers are taking home those kinds of
profits from developing a system that destroyed so many
consumers and affected so many of their own employees by
putting them in an impossible situation, it is wrong, it is
ugly, it is criminal. There should be accountability for the
managers.
Thank you.
Chairman Shelby. Thank you, Senator Merkley.
We appreciate your appearance today. It has been a lengthy
hearing. Maybe this is the beginning of a lot of things, but a
lot of us are worried about that perhaps there are similar
doings going on in other banks. We hope not. As I have said
from the beginning, banking should be based on integrity, on
trust. I think you would agree with me on that.
Mr. Curry. We do.
Chairman Shelby. And most banks have that, but some do not.
Thank you. The hearing is adjourned.
[Whereupon, at 1:49 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF JOHN STUMPF
Chairman and Chief Executive Officer, Wells Fargo & Co.
September 20, 2016
Chairman Shelby, Ranking Member Brown, and Members of the
Committee, thank you for inviting me to be with you today.
I am the Chairman and Chief Executive Officer of Wells Fargo, where
I have worked for nearly 35 years. It is my privilege to lead the
company, which was founded 164 years ago and has played a vital role in
the financial history and development of our country. Today, we are
part of so many people's lives. We employ more than 268,000 team
members, 95 percent of whom are in the United States. One in every 600
working adults is a member of the Wells Fargo team, and we have a
presence in all 50 States.
I am deeply sorry that we failed to fulfill our responsibility to
our customers, to our team members, and to the American public. I have
been with Wells Fargo through many challenges, none that pains me more
than the one we will discuss this morning. I am here to discuss how
accounts were opened and products were provided to customers that they
did not authorize or want. I am going to explain this morning what
happened and what we have done about it. But first, I want to apologize
to all Wells Fargo customers. I want to apologize for violating the
trust our customers have invested in Wells Fargo. And I want to
apologize for not doing more sooner to address the causes of this
unacceptable activity.
I do want to make very clear that there was no orchestrated effort,
or scheme as some have called it, by the company. We never directed nor
wanted our employees, whom we refer to as team members, to provide
products and services to customers they did not want or need. It is
important to understand that when an employee provides a customer with
a product or service that she did not request or authorize, that
employee has done something flat wrong. It costs us satisfied
customers, and we lose money on these accounts. Wrongful sales practice
behavior goes entirely against our values, ethics, and culture and runs
counter to our business strategy of helping our customers succeed
financially and deepening our relationship with those customers.
That said, I accept full responsibility for all unethical sales
practices in our retail banking business, and I am fully committed to
doing everything possible to fix this issue, strengthen our culture,
and take the necessary actions to restore our customers' trust.
Let me assure you and our customers that Wells Fargo takes
allegations of sales practice violations extremely seriously and that
we will not rest until the problem is fixed. As I will explain shortly,
we are moving to demonstrate once again that Wells Fargo remains the
dependable, principled partner that it has been throughout its 164-year
history.
I will first provide some context around our business strategy of
serving customers; discuss some of the changes we have made to address
the problems we uncovered; discuss the terminations about which you
have read; and describe further efforts to strengthen our controls and
make things right for customers.
Cross Selling Means Deepening Relationships With Customers
A typical American household has multiple financial services and
products, and our goal is to have as deep a relationship as we can with
those households. Our cross-sell strategy is simply another way of
saying that we provide our customers a wide variety of products that
can satisfy their financial needs. The more products a customer uses,
the deeper the relationship of trust and value. Deep relationships with
products that are wanted and used are what furthers our business
strategy and truly helps our customers to succeed financially.
Retail Banking Has Made Progressive Changes To Detect and Deter
Unethical
Behavior
Our efforts to detect and deter unethical conduct have
progressively evolved over the last 5 years. They were put in place out
of concerns that some employees were not doing what was right for
customers and were providing products to customers they did not want.
For example, in 2011, we piloted our Quality-of-Sale Report Card in
California, and it was implemented in 2012 across retail banking. The
Quality-of-Sale Report Card was designed to, among other things, deter
and detect misconduct through monitoring of sales patterns that may
correlate with unethical
behavior.
In 2011, a dedicated team (now called the Sales and Service Conduct
Oversight Team) began to engage in proactive monitoring of data
analytics, specifically for the purpose of rooting out sales practice
violations.
In addition, during 2012, Wells Fargo began to reduce the number of
sales that team members would need to meet to qualify for incentive
compensation. Between 2012 and 2015, we steadily reduced sales goals by
up to 30 percent for branch-based team members.
Along with the reduction in sales goals in 2013, we introduced an
expanded set of training materials for our managers, which managers use
to train bankers on ethical practices and prohibited conduct. Further,
in the first quarter of 2013, we incorporated the Quality-of-Sale
Report Card into the incentive compensation plan for our retail banking
district managers.
Starting in 2013, we further strengthened our oversight of
potential sales integrity issues and revised our performance evaluation
system to put less emphasis on sales goals. These revisions were made
to enable bankers to earn acceptable ratings on their performance
evaluations, even if they did not meet their sales goals.
In 2013, the Sales and Service Conduct Oversight Team began its
first proactive analysis of ``simulated funding'' across the retail
banking business, reviewing employee-level data around account
openings. Let me explain: ``simulated funding'' is a prohibited
practice whereby an employee creates an account for a customer and then
funds it in order to make it look as if the customer had funded the
account. Based on the original proactive monitoring, our Internal
Investigations team began an intensive investigation into simulated
funding activity in the Los Angeles and Orange County markets. As a
result of these investigations, we terminated team members for sales
integrity issues.
Retail Banking, In Conjunction With Enterprise Risk, Expanded Oversight
From 2013 to 2015
Further improvements in our sales practice oversight continued in
2013-2015, following the terminations in California that occurred and
were reported by the media.
In 2013, we created a new cross-functional oversight team for
retail banking sales integrity issues comprised of representatives from
our Sales and Services Conduct Oversight Team, Corporate
Investigations, Human Resources, Employee Relations, and the Law
Department. The purpose of this team was to identify trends around
sales integrity issues, and to identify any additional improvements in
the process that would enhance our oversight of sales integrity issues,
with a goal of preventing future violations.
In 2013 and 2014, we made several changes to our incentive
compensation plans to better align incentive pay with ethical
performance, and we further restructured how we went about setting
goals in our bank branches.
In 2014, the Sales and Service Conduct Oversight Team expanded the
simulated funding review to a national scope.
In 2015, we continued to enhance our training materials and
practices, continued to make changes to incentive plans, and
substantially lowered incentive compensation goals for new team
members.
Sales-Related Terminations Took Place Over the Course of 2011-2015
I want to pause for a moment to discuss the issue of terminations.
We do not have tolerance for dishonest conduct or behavior inconsistent
with our Code of Ethics. It has been reported in the media that Wells
Fargo terminated approximately 5,300 individuals after the CFPB's
enforcement investigation. Instead, individuals were terminated over
time for sales-related misconduct as a result of investigations opened
from January 1, 2011 through March 7, 2016. In any given year,
approximately 100,000 individuals work in our retail bank branches, and
we have terminated approximately 1 percent of that workforce annually
for sales practice
violations.
Wells Fargo Is Working To Make it Right for Our Customers
Despite all of these efforts, we did not get it right. We should
have done more sooner to eliminate unethical conduct and unintended
incentives for that conduct to occur. Even one unauthorized account is
one too many. We should have addressed earlier the possibility that
customers could be charged fees in connection with accounts opened
without their authorization. Because deposit accounts that are not used
are automatically closed, we assumed this could not happen. We were
wrong.
In August 2015, we began working with a third-party consulting
firm, PricewaterhouseCoopers (``PwC''), and asked them to evaluate
deposit products,
unsecured credit cards, and other services from 2011-2015 to determine
whether customers may have incurred financial harm (specifically, fees,
other bank charges, and interest) from having been provided an account
or service they may not have
requested. Our charge to PwC was clear--using our account records for
our products and services, employ data analytics to determine who may
have suffered financial harm as a result of an account that may not
have been authorized, and to quantify what that financial harm might
have been.
I want to highlight that our direction to PwC was to err on the
side of the customer and to be over-inclusive in attempting to identify
a population of customers that may have suffered financial harm. In
other words, if it could not be ruled out that a deposit account or
credit card was unauthorized, we designated those accounts for further
analysis. We made available to PwC any records they needed.
Beginning in September 2015 and continuing well into 2016, PwC
conducted extensive large-scale data analysis of the more than 82
million deposit accounts and nearly 11 million credit card accounts
that we opened during that timeframe.
With respect to deposit accounts, PwC focused on identifying
transaction patterns that might be consistent with improper conduct.
Out of the 82 million deposit accounts, it identified approximately 1.5
million such accounts (or 1.9 percent) that could have been
unauthorized. To be clear, PwC did not find that each of these accounts
was unauthorized. Among these accounts, PwC calculated that
approximately 100,000 incurred fees in the amount of about $2.2
million.
With respect to credit cards, PwC identified a population of credit
cards that had never been activated by the customer nor had other
customer transaction activity. By itself, the lack of activation and
use by a customer does not mean that the customer had not authorized
the card to begin with. We know that some customers will request a
credit card for many reasons, including for emergencies and other
reasons, but then they may not activate the card. However, because we
could not confirm, based on account activity, that the customer
authorized the account in the first place, we elected to consider these
accounts for potential remediation. PwC calculated that approximately
565,000 consumer cards, or 5.8 percent of all credit cards opened, had
not been activated nor had other customer transaction activity, and
approximately 14,000 of these cards had incurred a fee. These fees
totaled approximately $400,000. PwC did not find that these cards were
unauthorized.
In February 2016, we began the process of remediating the deposit
and credit card customers identified above. For existing customers, we
credited their accounts. For former customers, we sent a check. All
customers received a letter informing them that they were receiving a
refund as a result of fees that may have arisen from an account they
may not have authorized. We were transparent with our customers and
provided them contact information to discuss the matter further with
us.
Wells Fargo Is Engaged in Multiple Efforts To Take Responsibility for,
and Rectify, Our Mistakes
We decided that product sales goals do not belong in our retail
banking business. Specifically, as announced last week, we are
eliminating all product sales goals for retail banking team members and
leaders, including those in branches and retail banking call centers,
effective January 1, 2017. We are doing this in order to better align
with the additional training, controls, and oversight implemented since
2011 and focus on rewarding excellent customer service rather than
product sales.
We have taken, and continue to take, other significant and
meaningful steps to prevent unauthorized accounts from being created.
These steps include:
Working closely with our primary regulator, the Office of
the Comptroller of the Currency (``OCC''), to strengthen our
enterprise oversight of sales conduct risk. We have established
an enterprise Sales Conduct Risk Oversight Office, reporting
into the Chief Risk Officer, and have regularly responded to
numerous inquiries and provided regular briefings to our
regulators;
Creating a new enhanced branch compliance program that will
be dedicated to monitoring for sales practice violations by
conducting data analytics and frequent branch visits. Results
will be reported to the enterprise Sales Conduct Risk Oversight
Office;
Implementing a process whereby, within 1 hour of opening an
account, a customer will receive an email that confirms the
opening of the account;
Revising procedures for credit cards, to require each
applicant's documented consent before a credit report is
pulled. Consent is manifested by a physical signature or, if
the applicant is unable to sign on the PIN pad, by a dual
attestation of the banker and the manager or branch designee;
and
To further address possible customer harm, we are
contacting all customers with open, inactive credit cards to
confirm whether the customer authorized the account. If the
customer indicates they did not authorize the card, we will
offer to close it (if it is still active) and suppress any
bureau inquiry.
I will close by saying, again, how deeply sorry I am that we failed
to live up to our expectations and yours. I also want to take this
opportunity to thank our 268,000 team members who come to work every
day to serve our customers. Today, I am making a personal commitment to
rebuild our customers' and investors' trust, the faith of our team
members, and the confidence of the American people.
______
PREPARED STATEMENT OF MICHAEL N. FEUER
Los Angeles City Attorney
September 20, 2016
Chairman Shelby, Ranking Member Brown, esteemed Members of the
Committee, thank you for the opportunity to provide testimony on this
critical matter.
On a Sunday morning in December, 2013, I was appalled when I opened
the Los Angeles Times and read an investigative story by Scott Reckard
regarding Wells Fargo Bank's sales culture. The story read in part,
``To meet quotas, employees have opened unneeded accounts for
customers, ordered credit cards without customers' permission and
forged client signatures on paperwork. Some employees begged family
members to open ghost accounts.''
I immediately instructed my staff to investigate to determine if
the facts warranted our Office filing an action pursuant to California
laws that protect consumers against, and provide relief for, unfair
business practices.
Because these laws do not afford my Office pre-litigation subpoena
power, our investigation consisted of good old-fashioned detective
work. We conducted numerous interviews with former Wells Fargo
employees and Wells Fargo consumers, pored over public records,
including voluminous court records from wrongful termination lawsuits
former employees filed against Wells Fargo, and made use of the
consumer complaint databases of the Consumer Financial Protection
Bureau and the Federal Trade Commission.
We found that the Bank victimized consumers by opening customer
accounts, and issuing credit cards and other products, without
authorization. Further, we found that the Bank failed to notify
customers that these accounts had been opened without their consent and
failed to refund fees incurred by those customers for these unwanted
products and services. We found instances in which the Bank made it
difficult, if not impossible, for customers to receive accurate and
clear information as to how this happened. Many were told that the
unauthorized accounts would be closed, only to find later that they
were not.
We found that Wells Fargo's business model imposed unrealistic
sales quotas that, among other things, incentivized employees to engage
in highly aggressive sales practices, creating the conditions for
unlawful activity, including opening fee-generating customer accounts,
and adding unwanted secondary accounts and products, without customer
permission.
Underlying all of this egregious conduct, we found a fundamental
breach of trust by the Bank through its misuse of consumers' personal
information. We sought to enforce the Bank's obligation to inform its
customers that their personal and private information had been accessed
by Wells Fargo in order to open unauthorized
accounts.
Our 16-month investigation culminated in our May 4, 2015, filing of
a civil enforcement action in the name of the People of the State of
California, an action that both sought relief for consumers harmed by
Wells Fargo's conduct and to end the illegal practices Wells Fargo
employed.
In the days following the filing of our lawsuit, my Office received
calls, letters, and emails from over 1,000 current and former Wells
Fargo customers and employees. Customers described their experiences,
including having money withdrawn from their authorized accounts to pay
fees assessed by Wells Fargo on unauthorized
accounts. They also complained that their unauthorized accounts were
sent to debt collection agencies, and derogatory notes were placed on
their credit reports.
Let's be clear what's at stake:
It's outrageous for a bank to use a customer's private
information for any unauthorized purpose, but especially to
enhance the bank's bottom line to the detriment of those with
whom it holds a position of trust.
It's outrageous for a bank to open unwanted accounts, and
then to transfer funds, without consent, from that customer's
existing account to fund an unauthorized account.
And it's outrageous for a customer to incur unexpected fees
or other negative consequences from the bank's conduct.
Earlier this month, we reached a settlement with Wells Fargo,
which, in concert with the settlements reached by the Federal
regulatory agencies, provides for
comprehensive retrospective and prospective remediation and corrective
actions, and sends a strong message by imposing a $50 million penalty.
Our agreement contains important protections for consumers. It
establishes a complaint and mediation system for California consumers
harmed by the Bank's practices, and requires Wells Fargo to continue a
restitution program for affected customers. Wells Fargo must also alert
all its California customers who have consumer or small business
checking or savings accounts, credit cards, or unsecured lines of
credit, that they should visit their local bank, or call Wells Fargo,
to review their accounts, close accounts or discontinue services they
do not recognize or want, and resolve any remaining problems.
Additionally, every 6 months for the next 2 years, Wells Fargo must
provide my Office an audit report assessing the Bank's compliance with
our agreement, verified under penalty of perjury by an officer or
director of the Bank.
We coordinated our settlement with the enforcement efforts of our
Federal partners, the Consumer Financial Protection Bureau and the
Office of the Comptroller of the Currency. As a result of this
collaboration, remediation and corrective actions extend nationwide. I
would like to thank both agencies for their incredible work.
Robust government oversight is key to protecting consumers and it is
important to maintain laws that are protective of consumers and support
collaboration between Federal, State, and local enforcement agencies.
There is a sacred trust that consumers put in their financial
institutions--a faith that their hard-earned money will be safe and
secure, and that their banks' actions will be in the best interests of
customers like themselves. Wells Fargo broke that trust. We should all
work to assure it never happens again.
______
PREPARED STATEMENT OF THOMAS J. CURRY
Comptroller, Comptroller of the Currency *
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* Statement Required by 12 U.S.C. 250:
The views expressed herein are those of the Office of the
Comptroller of the Currency and do not necessarily represent the views
of the President.
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September 20, 2016
I. Introduction
Chairman Shelby, Ranking Member Brown, and Members of the
Committee, thank you for the opportunity to testify today as the
Committee reviews matters relating to certain sales practices at Wells
Fargo Bank, N.A. (Bank or Wells Fargo). As described below, the Office
of the Comptroller of the Currency (OCC) recently took public
enforcement actions against Wells Fargo, finding that the Bank engaged
in reckless unsafe or unsound banking practices and directing it to
take comprehensive corrective action with regard to risk management of
its sales practices, reimburse harmed customers, and pay $35 million in
civil money penalties (CMPs). The OCC's actions focused on safety and
soundness issues, and we worked in close coordination with the Consumer
Financial Protection Bureau (CFPB) and the Los Angeles City Attorney. I
want to express my appreciation to Director Cordray of the CFPB and LA
City Attorney Mike Feuer.
While the OCC continues to review our supervision and actions
related to this case, my testimony provides additional detail, known
today, regarding our supervisory response and the steps the OCC is
taking to review our actions in this matter, as we continuously work to
enhance our supervision of national banks and Federal savings
associations.
Before discussing the details of our supervisory response, I want
to make clear that the unsafe and unsound sales practices at the Bank,
including the opening and manipulation of fee-generating customer
accounts without the customer's authorization, are completely
unacceptable and have no place in the Federal banking system. They
reflect a lack of effective risk management, a breakdown in controls,
and an inappropriate incentive structure. The actions announced on
September 8, 2016, are intended to remediate and deter such practices
and underscore the importance of robust risk management throughout the
Federal banking system. The coordinated and complementary efforts by
the OCC and the CFPB make clear to regulated institutions that
compliance and safety and soundness go hand in hand.
The actions against the institution hold it accountable, and
consistent with our practice in such enforcement matters, the OCC has
also initiated a review of individual misconduct and culpability. The
OCC may take formal enforcement actions against institution-affiliated
parties, including directors, officers, and employees, who violate any
law or regulation, engage in unsafe or unsound practices, or breach
fiduciary duty. These actions include personal cease and desist orders
and CMPs. In addition, the OCC has the authority to remove and prohibit
individuals from serving as directors, officers, or employees of
federally insured depository institutions if the legal standards for
such action are met. Removal and prohibition amount to a lifetime ban
on the culpable individual working in the banking
industry.
While I believe we have made progress since the financial crisis in
fostering healthier cultures at the largest institutions, meaning a
commitment to compliance with applicable laws, effective risk
management, good governance, and fair treatment of customers, there is
clearly more work to do. Regulators and the institutions themselves
must be especially vigilant when it comes to practices that can
undermine the trust and confidence in financial institutions.
II. OCC Supervision of the Bank's Sales Practices
The OCC charters, regulates, and supervises national banks, Federal
savings associations, and the Federal branches and agencies of foreign
banks. Our mission is to ensure these institutions operate in a safe
and sound manner, provide fair access to financial services, treat
customers fairly, and comply with applicable laws and regulations.
Compliance with consumer protection laws is dependent upon a bank's
ability to manage operational risk and conduct its business in a safe
and sound manner, and the opposite is also true: You cannot manage
operational risk without an effective compliance program.
OCC-regulated institutions are subject to comprehensive, ongoing
supervision designed to enable examiners to identify problems and
obtain corrective action. Such supervision permits most bank problems
to be resolved through the supervisory process without formal
enforcement action. Relevant examples of written supervisory actions
include comprehensive Reports of Examination, Supervisory Letters, and
Matters Requiring Attention (MRAs) tailored to the specific weaknesses
existing at a bank.\1\ MRAs focus the bank management's and board's
attention on supervisory concerns that require the board's immediate
acknowledgment and oversight to ensure timely corrective action. In
financial institutions with more than $10 billion in assets, such as
Wells Fargo, the OCC's supervisory responsibilities are related to, and
sometimes overlap with, the supervisory responsibilities of the CFPB
for financial institution activities subject to certain consumer
financial laws and regulations, including retail sales practices.
Pursuant to a 2012 interagency memorandum of understanding (MOU) on
supervisory coordination, the OCC's regular practice in these areas is
to provide the CFPB with copies of Reports of Examination and formal
supervisory correspondence. The OCC also shares other material
supervisory information with the CFPB pursuant to that MOU and a
subsequent statement of principles between the two agencies.
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\1\ MRAs describe practices that deviate from sound governance,
internal control, and risk management principles, and have the
potential to adversely affect the bank's condition, including its
financial performance or risk profile, if not addressed; or result in
substantive noncompliance with laws and regulations, enforcement
actions, supervisory guidance, or conditions imposed in writing in
connection with the approval of any application by the bank. The OCC
clarified its use of MRAs in 2014 (http://www.occ.gov/news-issuances/
bulletins/2014/bulletin-2014-52.html).
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In March 2012, the OCC received a small number of complaints from
consumers and Bank employees alleging improper sales practices at Wells
Fargo, which were forwarded to OCC supervision staff assigned to the
Bank, consistent with agency practice at the time. Following these
inquiries and a Los Angeles Times article \2\ in December 2013
regarding the Bank's aggressive sales practices, the examiners
initiated a series of meetings with various levels of Bank management,
including executive leadership, to evaluate the Bank's activities and
actions. The Bank stated that it terminated employees as a result of
consumer and internal ethics complaints, and that it was investigating
such reports and re-evaluating its oversight of sales practices at the
Bank. During this time, the OCC examiners were also reviewing, and
meeting with the Bank to discuss, the Bank's development of a corporate
risk strategy, risk framework, and implementation plan that included
its sales practices.
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\2\ See ``Wells Fargo's Pressure-Cooker Sales Culture Comes at a
Cost.'' Los Angeles Times, Dec. 22, 2013 (http://www.latimes.com/
business/la-fi-wells-fargo-sale-pressure-20131222-story.html).
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Between January 2012 and July 2016, the OCC conducted multiple
supervisory activities related to Wells Fargo, which included ongoing
supervision and targeted examinations through which examiners assessed
the Bank's governance and risk management practices related to
compliance and operational risk. These activities included assessments
of compliance with the OCC's heightened standards requirements that I
discuss further below, as well as other regulatory expectations for
compliance risk management. These activities also included components
that involved assessment of risk management related to sales practices.
The supervisory conclusions associated with these activities are
summarized below.
2011-2014 Examination Activity
Consumer Compliance Risk Management Assessment
Following earlier examination work relating to consumer practices
at the Bank that began in late 2011, the OCC took further supervisory
actions related to compliance risk management at the Bank in early 2013
and 2014. In February 2013, the OCC issued a Supervisory Letter \3\
requiring the Bank to develop its operational risk compliance program.
In early 2014, the agency directed the Bank to address weaknesses in
compliance risk through the establishment of a comprehensive compliance
risk management program related to unfair and deceptive practices.
Further, the OCC identified the need to assess cross-selling and sales
practices as part of its upcoming examination of the Bank's governance
processes. Examiner planning for that examination included meetings
with Bank management throughout 2014, as well as the review of the
Bank's management information systems, internal audit findings, and
documents describing the Bank's efforts to improve its capabilities to
manage and monitor the quality of compliance oversight. OCC examiners
continued their dialogue with Bank management to supervise and monitor
these efforts.
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\3\ A Supervisory Letter to a large bank such as Wells Fargo is an
official OCC communication that formally conveys supervisory findings
and conclusions, including any supervisory concerns, from the OCC's
ongoing supervision of the institution.
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2015 Examination Activity
Compliance Management Reviewed Under Heightened Standards
The OCC's ongoing review and supervisory response to the matters
discussed above continued into 2015, and included periodic meetings
with Bank management and review of extensive documentation, including
internal reports, board packages, and internal audit findings. In March
2015, OCC examiners completed a multi-year assessment of the Bank's
compliance management systems, applying the OCC's rule on heightened
standards for large banks that took effect in November 2014,\4\ and
identified the need for the Bank to improve its risk management and
governance related to operational and compliance risk.
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\4\ See OCC Bulletin 2014-45, ``Heightened Standards for Large
Banks; Integration of 12 CFR 30 and 12 CFR 170.'' Sept. 25, 2014
(http://www.occ.gov/news-issuances/bulletins/2014/bulletin-2014-
45.html).
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Community Bank Operational Risk Management Reviewed
The OCC conducted an examination of the Bank's Community Bank
Operational Risk Management in February 2015. The review focused on
governance of operational risk, use of risk tools, implementation of
strategic plans and new products, internal loss oversight, complaints
management processes, and sufficiency and quality of staff. The
examiners also evaluated the Community Bank division's sales practices
oversight. The examiners' conclusions noted that the Bank lacked a
formalized governance framework to oversee sales practices and thus,
the OCC issued a Supervisory Letter in April 2015 that included an MRA
requiring the Bank to address the governance of sales practices within
its Community Bank division.
Enterprise Sales Practices Reviewed
The OCC issued an additional Supervisory Letter to the Chairman and
Chief Executive Officer in June 2015 identifying matters related to the
Bank's enterprise-wide risk management and oversight of its sales
practices that required corrective action by the Bank. The OCC letter
included five MRAs that required the Bank to take significant action to
address the inappropriate tone at the top, that included the lack of an
appropriate control or oversight structure given corporate emphasis on
product sales and cross-selling; the lack of an enterprise-wide sales
practices oversight program; the lack of an effective enterprise-wide
customer complaint process; the lack of a formalized governance process
to oversee sales practices and effectively oversee and test branch
sales practices; and the failure of the Bank's audit services to
identify the above issues or to aggregate sales practice issues into an
enterprise view.
The June 2015 Supervisory Letter also instructed the Bank to take
certain corrective actions to address the practices at issue, including
improving processes to manage sales practices risk; re-evaluating
compensation and incentive plans to ensure they did not provide an
incentive for inappropriate behavior; improving processes to
independently oversee sales practices risk at an enterprise-wide level;
accelerating the implementation of a fully effective customer complaint
process and
establishing policy and processes for evaluating complaints related to
protected classes; having management of the Bank's Community Bank
division establish effective oversight, as well as a testing and
quality assurance function, to review branch sales practices; and
having the Bank's audit services develop an enterprise-wide risk
management process for sales practices. The OCC also instructed the
Bank to remediate any consumer harm that resulted from the sales
practices at issue.
As part of the corrective actions required by the June 2015
Supervisory Letter, the OCC also ordered the Bank to retain an
independent consultant to conduct a thorough review of the Bank's
approach to enterprise-wide sales practices and to assess consumer
harm. The Bank retained two consultants--one to review the practices
and another to assess consumer harm. The consultants issued their
findings in October 2015, February 2016, and May 2016. The consultants'
work and findings further informed OCC's ongoing supervision and
consideration of the matter.
2015 Report of Examination Issued
The OCC issued its annual Report of Examination in July 2015 and
noted the Bank needed to act more proactively to control compliance and
operational risk. The July Report of Examination was followed by a
Notice of Deficiency on July 28 citing the Bank's failure to comply
with the safety and soundness expectations in the OCC's heightened
standards rule. The OCC issued this notice to help ensure that Bank
management adhered on a timely basis to its plan to implement an
effective enterprise-wide compliance risk management program.
2016 Examination Activity
2016 Report of Examination Issued and Supervisory Letter Finding Unsafe
or Unsound Practices
The OCC continued its ongoing review of these matters into 2016,
holding monthly meetings with Bank management in order to monitor and
follow up on the Bank's progress in addressing the corrective actions
required by the OCC. The OCC concluded its 2016 examination work in
July, and issued its Report of Examination findings and a letter to the
board. The Report of Examination communicated the findings and
conclusions that the Bank's sales practices were unethical; the Bank's
actions caused harm to consumers; and Bank management had not responded
promptly to address these issues. A Supervisory Letter to the Bank's
Chairman on July 18, 2016, also stated the Bank engaged in unsafe or
unsound banking practices and shortly thereafter, the OCC's Major
Matters Supervision Review Committee approved recommendations to issue
the Consent Order and assess CMPs against the Bank for reckless unsafe
or unsound sales practices and the Bank's risk management and oversight
of those practices.
Enforcement Actions
The OCC's enforcement actions were coordinated closely with the
CFPB and the LA City Attorney and issued on September 8, 2016.\5\ Many
of the elements of the cease and desist order reflect requirements
included in the various OCC supervisory communications discussed above,
which were issued as part of the OCC's ongoing supervision prior to
issuance of the order.
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\5\ See NR 2016-106. ``OCC Assesses Penalty Against Wells Fargo,
Orders Restitution for Unsafe or Unsound Sales Practices.'' Sept. 8,
2016 (http://www.occ.gov/news-issuances/news-releases/2016/nr-occ-2016-
106.html).
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The September 2016 OCC enforcement actions included the assessment
of $35 million in CMPs, and required the Bank to make restitution to
customers who were harmed by the Bank's unsafe or unsound sales
practices and to develop a comprehensive enterprise-wide action plan to
address the underlying causes of the harm. The Bank was also required
to conduct a comprehensive assessment of any new or materially revised
incentive compensation structure in its sales practices prior to
implementation. Such an assessment is intended to ensure that the risks
related to the Bank's incentive compensation structure are well
managed, controlled, and adhere to policies, procedures, and processes
designed to prevent potentially unsafe or unsound sales practices.
Restitution payments made by the Bank to customers pursuant to the
OCC's order will also satisfy identical obligations required by the
CFPB and the LA City Attorney.
III. Next Steps
While the OCC has made many improvements to our supervisory program
in recent years, the actions against Wells Fargo highlight that we must
continue our efforts to improve and refine the agency's supervisory
program, to sharpen our early warning processes, and to enhance our
supervisory capabilities, particularly with respect to our largest,
most complex banks. And while the examination and investigation needed
to bring comprehensive and coordinated enforcement action against Wells
Fargo required deliberation and care, it is critically important that
the OCC identify issues and act more quickly. To that end, I have asked
the Senior Deputy Comptroller for Enterprise Governance to conduct a
review of our actions taken in this matter in order to identify gaps in
our supervision and assess any lessons the agency can learn from it.
At the same time, I have directed our examiners to review the sales
practices of all the large and midsize banks the OCC supervises and
assess the sufficiency of controls with respect to these practices.
IV. Enhancements to the OCC's Supervisory Programs
Since I began my term as Comptroller in April 2012, I have sought
to strengthen the OCC's supervisory programs. The enhancements
described below have put the agency on track to act in a more timely
and effective manner to address unsafe and unsound practices and
violations of law.
Heightened Standards
The financial crisis showed that supervisory expectations for front
line units, risk management, internal audit, and corporate governance
in our largest and most complex banks needed to be substantially
higher, especially for the most systemically important institutions. To
achieve that goal, the OCC developed a set of ``heightened
expectations.'' Starting in 2010, the agency introduced these
expectations to the large banks we supervise. By 2012, the OCC began
assessing compliance with the expectations, and incorporated our
findings into our risk assessments of those institutions. We found that
progress was too slow and that a more robust approach, providing for
the possibility of an enforceable response, was needed. Thus, in
January 2014, the OCC proposed enforceable guidelines and, in September
2014, issued final enforceable guidelines. Under this approach, if a
bank fails to satisfy a standard in the guidelines, the OCC may require
it to submit a compliance plan detailing how it will correct the
deficiencies and the applicable timeline. The OCC can issue an
enforceable order if the bank fails to submit an acceptable compliance
plan or fails in any material way to comply with an OCC-approved plan.
The heightened standards guidelines have two major components. The
first sets forth the minimum standards for the design and
implementation of a covered bank's risk governance framework,
stipulating that it should be based on what the industry commonly
refers to as the three lines of defense: front line units, independent
risk management, and internal audit. The risk governance framework and
the three lines of defense are intended to ensure that the bank has an
effective system to identify, measure, monitor, and control risk-taking
and standards of behavior. Those units must ensure that boards of
directors have enough information on their bank's risk profiles and
risk management practices so that the bank operates within the risk
appetite established by management and the board.
The second component of our heightened standards guidelines
pertains to the responsibilities of boards of directors. The guidelines
establish criteria to ensure that bank boards have a minimum number of
independent directors and that all board members have the information
they need to provide effective oversight, including the ability to pose
a credible challenge to management. The guidelines also require each
bank to establish and maintain an ongoing training program for all
board members and to conduct an annual self-assessment of the board's
effectiveness in meeting the standards in the guidelines. The date for
the largest banks to comply with these standards was in November 2014.
Major Matters Supervision Review Committee
As Comptroller, I established a committee comprised of my most
senior and expert executives to review major supervisory matters. The
committee operates independently of the supervision function and
replaces a less robust review and decisionmaking process previously in
place for significant enforcement cases, thereby strengthening and
enhancing the governance over decisionmaking.
The Committee's role is to ensure OCC bank supervision and
enforcement policies are applied fairly, effectively, and consistently.
The Committee considers all major enforcement cases, and its charter
recently was expanded as the Committee has added value to the OCC's
supervisory program. The matters that must be brought before the
Committee include all enforcement actions against large banks (informal
and formal) based on safety and soundness; all large bank enforcement
actions that include articles addressing the Bank Secrecy Act (BSA);
all enforcement actions against any bank based in whole or in part on
unfair or deceptive acts or practices in violation of section 5 of the
Federal Trade Commission Act; and certain fair
lending referrals and actions. The Committee's charter also requires
vetting by senior executives on the Committee of decisions made outside
of the Committee not to pursue enforcement actions that would otherwise
come before the Committee.
Compliance and Community Affairs (CCA)
Earlier this year, I established Compliance and Community Affairs
(CCA), a new business unit within the OCC's organizational structure.
CCA, led by a Senior Deputy Comptroller, is separate from the existing
supervisory units and is charged with addressing all aspects of
compliance and community affairs. The assignment of these
responsibilities to one unit avoids the risk of a fragmented approach
to these issues and inconsistent outcomes among different OCC
supervisory lines of business. The establishment of the CCA unit
reflects the significance of consumer and BSA/anti-money laundering
compliance issues within the OCC and the banking industry, and the
extent to which compliance risk management deficiencies may pose the
risk of great harm to consumers and the safety and soundness of banks.
The need for ongoing communication and effective collaboration with a
wide range of other regulatory agencies in these areas also contributed
to my decision to establish the CCA unit. By establishing this unit
with both supervision and policy functions, I recognized the need for a
change in the OCC's organizational structure to provide the best
possible platform and support for this work throughout the agency.
Fairness and compliance are critical aspects of the OCC's mission and
are interconnected with, and as important as, safety and soundness. As
I noted earlier, compliance and safety and soundness go hand in hand.
The compliance discipline, like its safety and soundness sibling,
requires dedicated staff and strong infrastructure to ensure the OCC
takes timely and appropriate actions with respect to compliance and
related safety and soundness issues.
Coordination Principles
The enforcement action against Wells Fargo follows other
coordinated enforcement actions we have issued with the CFPB since
2012. The actions have included significant consumer restitution as
well as penalties assessed by the OCC and the CFPB against institutions
that were found to have engaged in unfair billing practices and
deceptive sales and marketing practices, among other issues. However,
our coordination is not limited to enforcement actions. In June of this
year, the OCC and the CFPB jointly issued a set of 10 coordination
principles to guide how the staffs of the two agencies collaborate and
share information. The principles build on the 2012 interagency MOU on
supervisory coordination that I noted earlier and a 2012 interagency
MOU on information sharing, and reflect how closely the two agencies
work together to ensure that our country's financial services industry
meets the needs of consumers, communities, and businesses. Key to the
principles and the underlying coordination is that OCC and CFPB
employees should be responsive and share information; communicate
openly with each other; consult with each other especially when working
on a joint project; elevate to management issues of importance;
coordinate on approaches to their work; and respect the goals and
mission of each agency.
V. Additional Actions Required
It is clear from our work and the actions announced on September 8
against the Bank that the misaligned priorities and unacceptable
behavior at Wells Fargo
resulted in unsafe and unsound practices that led to widespread
consumer harm. Issues of incentive compensation are relevant to
ensuring behavior aligns with acceptable corporate practice. For those
reasons, the OCC strongly supports issuing a final rule on incentive
compensation that would address some of the issues I am raising today.
The OCC, along with the Federal Reserve, Federal Deposit Insurance
Corporation, the Securities and Exchange Commission, the Federal
Housing Finance Agency, and the National Credit Union Administration,
issued a proposed rule on incentive-based compensation earlier this
year that would apply to financial institutions with total consolidated
assets of $1 billion or more. The proposed rule would prohibit
incentive-based compensation arrangements that provide excessive
compensation and that could lead to material financial loss to a
financial institution. A financial institution covered by the proposed
rule would not be permitted to provide an incentive-based compensation
arrangement unless the arrangement appropriately balanced risk and
reward, was compatible with effective risk management and controls, and
was supported by effective governance.
The proposed rule also includes specific requirements for
incentive-based compensation arrangements at the largest financial
institutions, like Wells Fargo, with total consolidated assets of $50
billion or more. The most notable of these is the requirement that
larger financial institutions defer a certain percentage (40-60
percent) of the incentive-based compensation they pay to certain senior
executive officers and significant risk-takers for a minimum period of
time (1 to 4 years). Those deferred amounts would be subject to a
forfeiture review by the financial institution if certain triggering
events, such as a material risk management or control failure,
occurred. Incentive-based compensation paid to these employees would
also be subject to claw back for 7 years. Additionally, the proposed
rule would prohibit larger financial institutions from providing
incentive-based compensation based solely on transaction volume or
revenue, without regard to transaction quality or compliance with sound
risk management.
Further, the proposed rule includes risk management requirements,
including an independent compliance program and independent monitoring
of incentive-based compensation plans and programs. The comment period
for the proposed rule closed on July 22, 2016. The agencies are
carefully reviewing the comments that we received and are working
toward completion of a final rule. I strongly supported the proposed
rule,\6\ and while the content of the final rule will not be determined
until it is considered by the agencies' principals, I also strongly
support completing the work as quickly as practical.
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\6\ See NR 2016-46, ``Comptroller Statement Regarding the Proposed
Incentive-Based Compensation Rule.'' Apr. 26, 2016 (http://www.occ.gov/
news-issuances/news-releases/2016/nr-occ-2016-49.html).
---------------------------------------------------------------------------
VI. Conclusion
I remain committed to ensuring the OCC completes its review of this
matter and takes additional actions to hold the bank and individuals
accountable as warranted. Moreover, I will work to foster continuous
improvements at the OCC to fulfill our mission. I want to close by
expressing my appreciation again for my colleagues at the CFPB and in
the LA City Attorney's office. Our Nation's financial services industry
is complex and dynamic. Effective supervision and enforcement requires
regulators to work together to achieve a safe and sound banking system
that treats customers fairly. I look forward to continued collaboration
with my fellow
regulators.
______
PREPARED STATEMENT OF RICHARD CORDRAY
Director, Consumer Financial Protection Bureau
September 20, 2016
Chairman Shelby, Ranking Member Brown, and Members of the
Committee, thank you for the opportunity to speak with you today. In
these brief remarks, I will discuss: (1) what our investigation found
about the sales practices at Wells Fargo; (2) what we are seeking to
achieve by our Order; and (3) some initial thoughts about what further
steps need to be taken to improve the culture and practices of the
banking industry. On September 8, 2016, the Consumer Bureau, together
with our partners at the Los Angeles City Attorney's office and the
Office of the Comptroller of the Currency, took an enforcement action
against Wells Fargo Bank. Our investigations found that, in order to
meet sales goals and collect financial bonuses for themselves,
employees of the bank created unauthorized deposit and credit card
accounts, enrolled consumers in online banking services, and ordered
debit cards for consumers, all without their consent or even their
knowledge. Some of these practices involved fake email accounts and
phony PIN numbers.
The fraudulent conduct occurred on a massive scale. As detailed in
our Order, Wells Fargo opened 1,534,280 deposit accounts that may not
have been authorized, including transferring funds from some customer
accounts without their knowledge or consent. Wells Fargo also initiated
applications for 565,443 credit card accounts that may not have been
authorized, by using consumers' information without their knowledge or
consent. These activities caused some consumers to incur fees. Even
apart from that, they represent a staggering breach of trust and
conduct that should never occur at any bank. Wells Fargo has
demonstrated the epic scope of its failures by terminating at least
5,300 people thus far, including branch managers and managers of
managers.
The gravity and breadth of the fraud that occurred at Wells Fargo
cannot be pushed aside as the stray misconduct of just a few bad
apples. As one former Federal prosecutor has aptly noted, the stunning
nature and scale of these practices reflects instead the consequences
of a diseased orchard. As our Order describes, Wells Fargo built and
refined an incentive compensation program and implemented sales goals
to boost the cross-selling of products, but did so in a way that made
it possible for its employees to pursue unfair and abusive sales
practices. It appears that the bank did not monitor the program
carefully, allowing thousands of employees to game the system and
inflate their sales figures to meet their sales targets and claim
higher bonuses. Rather than put its customers first, Wells Fargo built
and sustained a program where the bank and many of its employees served
themselves instead, violating the basic ethics of a banking
institution, including the key norm of trust.
Our Order accomplishes several things. First, the kind of detail
that we always make it a point to provide in our enforcement orders
exposes Wells Fargo's illegal misconduct, including its scale, for all
to see for themselves. It has spawned vigorous public scrutiny over the
past 2 weeks that no doubt will continue.
Second, the Order helps answer one question that many of you have
asked me from time to time: what does the term ``abusive'' mean in our
governing statute? Although we have been careful in analyzing all the
ramifications of that new term, we did not hesitate for one minute to
apply it emphatically to what we found here. In this matter, Wells
Fargo engaged in abusive conduct toward its customers and consumers. We
have said so, and executives, shareholders, and investors throughout
the financial system will now have to consider what that means in their
efforts to address their own cultures and practices going forward.
Third, we have ensured that all consumers who suffered financial
harm as a result of these practices will be fully compensated for that
harm. Wells Fargo is required to set aside $5 million to cover all of
that, and if it turns out to exceed $5 million, the bank will cover
that as well.
Fourth, we levied upon Wells Fargo a fine of $100 million, the
largest fine by far that the Consumer Bureau has imposed on any
financial company to date. Some have said it should have been higher,
others have said it should have been lower. All told, the bank will pay
$185 million in fines for the illegal actions of these
employees. That is a dramatic amount as compared to the actual
financial harm to consumers, but it is justified here by the outrageous
and abusive nature of these fraudulent practices on such an enormous
scale. As for whether we have done enough here, it is notable that the
Order is generating considerable consequences, including market
effects, shareholder activity, further potential lawsuits, and follow-
up investigations by other public officials that may be either civil or
criminal in
nature.
Fifth, the Order requires independent consultants to be installed
at Wells Fargo to complete all further work on this matter, to ensure
that all consumers are fully compensated, and to ensure that changes in
the bank's sales practices are fully implemented to ensure that these
types of misconduct do not recur. Both the top executives at Wells
Fargo and its board of directors will be directly engaged in this work.
If the independent consultants identify any further issues or concerns,
we will address those as well.
Let me conclude with some more general concerns. As one of the
biggest and best known banks in the United States, Wells Fargo is in a
position to lead by example in terms of how every bank should treat its
customers. In the wake of this Order, it now must do so. Much bank
growth these days occurs by cross-selling customers on more products
and services. This approach should lead banks to focus on strong
customer service that produces high levels of customer satisfaction,
which in turn should generate repeat business from existing customers
and positive word of mouth to others.
As we have seen here, however, unchecked incentives and an
unrealistic and uncaring culture of high-pressure sales targets can
lead to serious consumer harm. Incentive compensation structures are
common in businesses and they can motivate positive behavior. Yet
companies need to pay close attention to their compliance monitoring
systems in order to prevent violations of the law and abusive
practices.
This action should serve notice to the entire industry. If sales
targets and incentive compensation schemes are implemented in ways that
threaten harm to consumers and lead to violations of the law, then
banks and other financial companies will be held accountable. We have
seen the risk that such programs pose to consumers across the entire
financial sector--in debt collection, mortgage origination, credit card
add-on products, overdraft products, and now in this action. Any such
initiatives should be carefully monitored as a basic element in a
company's compliance program.
Thank you again to our partners here at this table who worked with
us on this important enforcement action. And thank you for this
opportunity to testify. I will be happy to answer your questions.
RESPONSES TO WRITTEN QUESTIONS OF SENATORS BROWN, REED,
SCHUMER, MENENDEZ, TESTER, WARNER, MERKLEY, WARREN, HEITKAMP
AND DONNELLY FROM JOHN G. STUMPF
Q.1. As was requested of you at the hearing, what is the
precise date in 2013 when you became aware of these issues in
the Community Banking Division? How was this information
conveyed to you, and by whom?
A.1. It is our understanding that, from time to time, because
of Mr. Stumpf's position, individuals would contact him
directly and complain about issues and that Mr. Stumpf did
receive complaints about sales-practice issues over the years.
When Mr. Stumpf received such complaints, our understanding is
that his practice was to forward them to the appropriate
internal team, such as Human Resources, to address.
Mr. Stumpf has said that he recalls learning of the
increase in the number of reports of sales-practice issues in
late 2013.
Please note that the Independent Directors of Wells Fargo's
Board of Directors have launched an investigation into sales-
practice issues, and that investigation is ongoing.
Q.2. As was asked at the hearing, what is the precise date when
the board of directors became aware? How was this information
conveyed to the board, and by whom? Please provide a list of
the dates of the board meetings when this matter was discussed,
as well as which board members were in attendance at these
meetings.
Q.3. At the hearing, you were asked whether any board members
or executives had fraudulent accounts opened in their names.
Please provide any names and titles.
A.2.-A.3. From at least 2011 forward, the board's Audit and
Examination Committee received periodic reports on the
activities of Wells Fargo's Internal Investigations group
(which investigates issues involving team members), as well as
information on EthicsLine and suspicious activity reporting.
Among other things, several of those reports discussed
increases in sales integrity issues or in notifications to law
enforcement in part relating to the uptick in sales integrity
issues. Some reporting discussed reasons for increases in sales
integrity investigations and reporting, which
included improved controls, tightening existing controls, and
enhancements to better facilitate referrals of potential sales
integrity violations to Internal Investigations.
Later, the Risk Committee began to receive reports from
management of noteworthy risk issues, which included, among
other risks, sales conduct and practice issues affecting
customers and management's efforts to address those risks. The
board's Human Resources Committee also received reports from
management that it was monitoring sales integrity in Community
Banking. Sales integrity issues also were discussed
periodically with the board.
Q.4. At the hearing, you stated that you did not learn of the
systemic fraud occurring at Wells Fargo until late 2013, after
interventions at lower levels of the company had failed to stem
the creation of fraudulent accounts. Please provide a detailed
timeline, from 2007 to 2015, of when different segments of
Wells Fargo learned that employees were creating fraudulent
accounts and what actions those segments took to address the
problem, including which Wells Fargo employees (such as senior
executives) and Federal and State regulators they informed of
the problem.
A.4. Prior to the summer of 2011, it was Wells Fargo's practice
to address individual instances of alleged unauthorized
accounts as they were brought to its attention by customers or
bank team members. In 2012, the task of dealing with such
complaints was assigned to the risk management function within
Community Banking, which initiated a number of efforts to
proactively monitor sales-integrity issues--which might include
unauthorized accounts, but might also involve opening accounts
that are a poor fit for the customer. This monitoring included
tracking metrics such as how many accounts were funded within
the first 30 days, how many accounts were closed within the
first 30 days after opening, and how frequently accounts were
downgraded from a higher value account type to a lower value
account type. In April 2012, a report called the Quality of
Sales Report Card was created to assist managers to monitor how
their bankers were performing on these measures.
In 2013, Wells Fargo conducted its first data analysis
intended to identify bankers who were opening accounts in which
money was initially deposited, but then removed and no further
account activity occurred. This analysis was conducted out of
concern that bankers might be trying to manipulate the sales-
integrity metrics--particularly the rate of accounts funded
within the first 30 days, by ``simulating'' funding of the
accounts through transfers of funds. Based on the findings from
this analysis, Wells Fargo's Corporate Investigations conducted
an intensive investigation in the Los
Angeles/Orange County region, resulting ultimately in the
termination of several team members. The fact of this
investigation, and some of the terminations, were what was
publicized in the Los Angeles Times article on October 3, 2013.
Wells Fargo's investigation continued into 2014 and resulted in
further terminations.
Based on the information learned from this initial
proactive analysis, Wells Fargo began to implement changes to
its policies and procedures in 2014 to attempt to mitigate the
occurrence of sales-practices violations. Wells Fargo's efforts
to further refine its policies and procedures and to
investigate instances of sales-practices violations continued
up until, and after, the Los Angeles City Attorney lawsuit was
filed in May 2015. A third-party consulting firm,
PricewaterhouseCoopers (PwC), was engaged in September 2015 to
conduct a massive data-driven analysis of deposit and credit
card accounts going back to May 2011. The results of this
analysis for checking and savings accounts and credit cards
were
available in 2016.
Q.5. Does Wells Fargo have any information indicating that
company employees created bank accounts or credit card accounts
without customer consent prior to 2009? If so, how did the
company obtain this information? When was the first reported
case, and how many cases that occurred prior to 2009 have been
discovered? Have you reported those cases to Federal financial
regulators?
Q.6. At the hearing, Wells Fargo announced that it would expand
its ``remediation review'' to bank accounts and credit card
accounts created in 2009 and 2010.\1\ As was asked at the
hearing, we have received reports of company employees creating
false accounts before 2009, why have you limited your
remediation review to 2009-2015? What steps will Wells Fargo
take to ensure that customers with fraudulent accounts created
before 2009 are compensated?
---------------------------------------------------------------------------
\1\ Wells Fargo, ``Wells Fargo Chairman and CEO John Stumpf
Outlines a Series of New Actions to Strengthen Culture and Rebuild
Trust of Customers and Team Members at Senate Banking Committee Hearing
(press release)'' (September 20, 2016) (online at https://
www.wellsfargo.com/about/press/2016/new-actions-strengthen-
culture_0920.content).
A.5.-A.6. As is the case with any large organization involved
in sales, Wells Fargo has never been immune to issues of sales-
practice violations or related incidents of unethical behavior
on the part of some of our team members.
We appreciate and share your concern that any and all
customers who may have been impacted should be identified.
Therefore, we are continuing to examine whether there are ways
to identify unauthorized accounts opened prior to 2009. As an
important initial step, we are notifying all of our consumer
and small business Community Banking customers with a checking,
savings, credit card, or line of credit account of this issue;
we are also inviting and encouraging them to speak with a Wells
Fargo representative if they have any questions or concerns
about their accounts. Please also note that the Independent
Directors of Wells Fargo's Board of Directors have launched an
investigation into these issues, and that investigation is
ongoing.
Last, we would note again that pursuant to the CFPB and the
OCC Consent Orders, Wells Fargo will retain the services of an
independent consultant and develop redress and reimbursement
plans to identify the population of consumers who may have been
affected by improper sales practices. We fully expect that,
once approved by our regulators, the redress and reimbursement
plans will encompass various forms of harm, including harm
related to credit bureau inquiries, and that Wells Fargo will
issue and track reimbursement payments.
Q.7. As was asked at the hearing, are you confident that this
type of fraudulent activity does not exist in other Wells
business lines? Have you discovered other types of misconduct
involving other products aside from credit cards or basic
banking (such as misconduct related to applications for
mortgages or personal or other loans, or lines of credit,
insurance, or other investment areas)? If so, how did the
company obtain this information? When was the first reported
case, how many cases have been discovered, and what is the
nature of these cases? Have you reported those cases to Federal
financial regulators?
A.7. We believe that the activity at issue here was limited to
certain team members within the Community Banking Division.
Q.8. Have you discovered misconduct relating to additional
criminal or other misbehavior with the false accounts (such as
bank employees using improperly created credit cards accounts
for illegal purchases)? If so, how did the company obtain this
information? When was the first reported case, how many cases
have been discovered, and what is the nature of these cases?
Have you reported those cases to Federal financial regulators?
A.8. Although Wells Fargo can never be fully certain that it
has identified all team member misconduct, the Company has
increased its monitoring and compliance efforts to identify
further misconduct. In addition, Wells Fargo has made
significant changes to its policies and practices to prevent
misconduct, enhance oversight, expand customer transparency,
and improve the customer experience. We would like to highlight
the following points:
LWe have named a new head of our retail banking
business.
LWe have also changed the retail banking business's
risk management processes. This is consistent with the
reorganization of enterprise functions we have
conducted across the Company to create a stronger risk
and control foundation that allows senior team members
across the Company to provide more independent,
credible challenges to how we operate.
LTo this end, we are transitioning a number of
control functions out of the lines of business, which
includes Community Banking, and centralizing them
within Wells Fargo's independent corporate Risk
function, which will be responsible for sales-practice
oversight, as well as establishing an independent Sales
Practices Office.
LWe have eliminated product sales goals for all
Regional Bank team members who serve customers in our
retail branches.
LWe have made system and process enhancements,
including sending automated confirmation emails to our
customers every time a new personal or small business
checking account or a savings account is opened; and
acknowledgements are also sent for credit card
applications. We are also working to improve multi-
factor authentication to protect our customers'
information, and signatures are captured electronically
approximately 99 percent of the time for new checking,
savings, and credit card applications. In addition, we
are closing automatically inactive new deposit accounts
that, after 62 days, have a zero balance, without
assessing a monthly fee.
LThis year alone, we have committed more than $50
million to enhanced quality assurance monitoring.
LWe have expanded an independent third-party mystery
shopper program, adding risk professionals to provide
greater oversight, and expanding our customer complaint
servicing and resolution process.
LWe are surveying team members to understand their
views on our Company's approach to ethics and
integrity.
LWe also have commenced the process with our
regulators to engage an independent consultant to
review sales practices in Community Banking. In
addition, we will be engaging external consultants to
review sales practices across the Company.
LAnd we will be engaging outside independent culture
experts to help us understand where we have cultural
weaknesses that need to be strengthened or fixed.
Q.9. At the hearing you indicated that you met with Ms.
Tolstedt weekly, but you did not answer how often you talked
with her. How often did you have conversations with Ms.
Toldstedt? At any point in your regular conversations or
meetings did she raise concerns with you about the firms'
cross-selling focus, sales goals, firings related to
unauthorized accounts, or other related matters? When did she
first raise these concerns with you?
Q.10. You testified that it was in 2013 that the discussion
with Ms. Tolstedt on this topic made an impression upon you.
Does this mean that she raised this with you earlier and it did
not make an impression? Please explain.
Q.11. Did you ask Ms. Tolstedt when she first learned about
this wrongdoing? If so, when did you ask her? If you asked her,
what information did Ms. Tolstedt provide you to when you
asked? Did you ever ask her why she waited so long before
bringing this to the attention of other members of senior
management? What did she say?
A.9.-A.11. It is our understanding that, from time to time,
because of Mr. Stumpf's position, individuals would contact him
directly and complain about issues and that Mr. Stumpf did
receive complaints about sales-practice issues over the years.
When Mr. Stumpf received such complaints, our understanding is
that his practice was to forward them to the appropriate
internal team, such as Human Resources, to address.
Mr. Stumpf has said that he recalls learning of the
increase in the number of reports of sales-practice issues in
late 2013.
Additionally, Wells Fargo cannot determine for certain the
first time Ms. Tolstedt was told that a team member's
employment was terminated for committing a sales violation.
Like any large employer, Wells Fargo monitors sales-integrity
and integrity issues so that, as issues came up that needed to
be addressed, Ms. Tolstedt would be informed about those
issues. The ongoing investigation by the Independent Directors
of the board of directors and others is looking carefully at
this question.
Again, please note that the Independent Directors of Wells
Fargo's Board of Directors have launched an investigation into
sales-practice issues, and that investigation is ongoing.
Q.12. Please provide the Committee with all communication
between you and Ms. Tolstedt on this topic for which a record
exists from 2007 forward. By way of illustration, this should
include communication regarding gaming, pinning, bundling,
simulated funding, employee terminations, internal complaints,
lawsuits, etc.
Q.13. As was requested in the hearing, please provide a
timeline of Wells' first contact, and subsequent interactions,
with the CFPB, OCC, and Los Angeles City Attorney's office.
Please provide copies of the documents Wells Fargo produced to
the CFPB, OCC, the Los Angeles prosecutor, and PwC in
connection with this matter.
A.12.-A.13. As Comptroller Curry testified before the Senate
Banking Committee on September 20, 2016, Wells Fargo management
meets regularly with the Office of the Comptroller of the
Currency (OCC), our prudential regulator, about a variety of
issues. Wells Fargo immediately cooperated with the OCC upon
its first contact with the bank concerning these issues.
Ultimately that involved addressing Matters Requiring Attention
(MRAs) the OCC imposed as well as providing relevant documents
in 2015.
Wells Fargo's General Counsel notified the CFPB of the Los
Angeles City Attorney's lawsuit at or about the time it was
filed in May of 2015. The CFPB requested information shortly
after Wells Fargo notified the Bureau of the lawsuit. In June
and July 2015, Wells Fargo provided information to the CFPB.
The City Attorney filed its complaint in May 2015. Wells
Fargo did not have substantive conversations with the City
Attorney's office prior to that time.
Q.14. Please provide the Committee with all reports prepared
internally or by third parties to evaluate policies and
practices that led to these activities, the extent of these
activities, as well as any reports to understand and address
customer harm, including the PwC, Accenture and Skadden
studies.
Q.15. Please provide the Committee with all minutes and all
materials related to these activities (including, but not
limited to any report prepared by the investigations,
compliance, bank secrecy/anti-money laundering, audit or human
resources functions) provided to members of the Compensation,
Risk, and Audit and Exam Committees, as well as the full board,
for all meetings for the period 2007 to the present.
Q.16. Please provide the Committee with any communication that
the board of directors, any committee of the board or any
individual board member had with any government enforcement
agency, any institution personnel or other board member,
regarding any matter relating to the activities.
Q.17. Please identify the positions held by the personnel in
the corporate General Counsel's office and other senior
management
offices that are involved with complaints by employees, former
employees and customers that are filed in court and are subject
to
negotiation or arbitration and that allege or refer to the
activities associated with the misuse of customer personal
information or the opening of unauthorized accounts as well as
any other practices used to further those activities, including
but not limited to sales incentives and those practices
described as pinning, sandbagging, bundling, gaming, or like
actions.
Q.18. Please describe the role and level of involvement that
such personnel (and the General Counsel's office and other
senior management offices to which they belong) have in
monitoring, hiring outside counsel, directing, negotiating or
the decisionmaking in those matters, and how such matters are
reported up to the General Counsel, senior management, and
board members.
A.14.-A.18. The issues described above would be handled by a
range of Wells Fargo team members depending on the nature of
the allegations raised. Wells Fargo's Office of General Counsel
monitors all legal claims against the bank and makes
appropriate staffing decisions, including the use of outside
counsel, when
required.
Q.19. When asked whether you have referred any of your
personnel to law enforcement between when you learned about
this issue until the present, you said that you did when it was
required. Can you please specify the number of employees that
you have referred, their names and titles, the agencies to
which they have been referred, and the violations for which
they were referred?
Q.20. Please provide the number of Suspicious Activity Reports
(SARs) related to these activities that were filed for each
year from 2007 to the present.
A.19.-A.20. Wells Fargo has policies, procedures, and internal
controls that are reasonably designed to comply with its legal
obligations to monitor, detect, and report suspicious
activities. Under Federal law, Suspicious Activity Reports
(``SARs''), and any information that would reveal the existence
of a SAR, are confidential, 31 U.S.C. 5318(g)(2)(A)(i) and 12
C.F.R. 21.11(k).
Q.21. As was requested at that hearing, when did you begin to
disclose in SEC filings that you had this potentially material
adverse set of circumstances that could damage your
reputational value?
A.21. Each quarter, we look at the relevant and appropriate
facts available to us to determine whether a legal matter is
material and should be disclosed in our public filings.
Discerning materiality is not a mechanical exercise but rather
is a determination based on judgments informed by the facts and
circumstances known at the time the determination is made.
Based on the facts and circumstances as we knew them at the
time, we concluded that the sales-practices investigations by
the Consumer Financial Protection Bureau (CFPB), the Office of
the Comptroller of the Currency (OCC), and the Los Angeles City
Attorney were not material. This was a considered determination
based upon what we understood at the time these investigations
were occurring.
As part of our ongoing review process, we continued to
evaluate the ongoing developments since the announcement of the
settlements to determine whether any filings or disclosures
should be made. In conjunction with our Form 8-K filing on
September 28, 2016, announcing our former CEO John Stumpf's and
our former Community Banking head Carrie Tolstedt's forfeiture
of their unvested equity awards, we determined that it was
appropriate to disclose the relevant legal developments that
had occurred since the announcement of the settlements. As
noted in our Form 8-K, these included ``formal or informal
inquiries, investigations or examinations'' from ``[F]ederal,
State, and local government agencies, including the United
States Department of Justice, and State attorneys general and
prosecutors' offices, as well as Congressional
committees . . . ''\2\ Furthermore, our Form 10-Q filing on
November 3, 2016, contained additional disclosures concerning
sales practices matters, including an update to our legal
actions disclosures and the addition of a new risk factor
summarizing the legal developments and related events that had
occurred since the announcement of the settlements and noting
the potential that ``negative publicity or public opinion
resulting from these matters may increase the risk of
reputational harm to our business . . . ''\3\ We will continue
to review developments related to sales practices matters and
make additional disclosures as the facts and circumstances
warrant.
---------------------------------------------------------------------------
\2\ See Wells Fargo, September 28, 2016, Form 8-K (available online
at https://www.sec.gov/Archives/edgar/data/72971/000119312516722259/
d266244d8k.htm).
\3\ See Wells Fargo, November 3, 2016, Form 10-Q at 67 (available
online at https://www.sec.gov/Archives/edgar/data/72971/
000007297116001340/wfc-9302016x10q.htm).
---------------------------------------------------------------------------
Employees
Q.22. Please provide the Committee with information on the
following items for each year from 2007 to the present for the
Community Banking Group and all of Wells Fargo, broken out by
position (e.g., tellers, bankers, branch managers, district
managers,
regional managers, and senior management):
a. Lthe number of employees terminated for engaging in,
encouraging or tolerating such activities;
b. Lthe number of employees who were terminated because they
did not meet sales quotas;
c. Lthe number of employees who resigned or retired or were
asked or instructed to resign or retire for engaging
in, encouraging or tolerating such activities;
d. Lthe number of employees who were subject to internal
disciplinary measures for engaging in, encouraging or
tolerating such activities; and
A.22.a.-d. From 2011 to 2015, approximately 5,300 team members
were terminated for certain sales-integrity violations. The
majority of the terminated team members held banker,
management, or other functionally similar positions.
Approximately 1,000 were terminated each year. For example,
investigations by the Corporate Investigations group in 2013
resulted in the termination of 1,245 Community Banking team
members. That is approximately 1 percent of Wells Fargo's total
population of Community Banking
employees.
Approximately 65 percent of the terminated team members
were in Personal Banker positions or functionally similar roles
and 7 percent were in Teller positions. In addition, we
terminated the employment of over 480 team members in
supervisory positions, including store managers and persons up
to three levels above bankers and tellers, when investigations
have found that those team members engaged in or directed
improper sales practices or exhibited excessive pressure and
did not respond promptly and decisively to change their
behavior. All of these team members were terminated for sales-
integrity violations, not for failing to meet product sales
quotas.
Wells Fargo cannot quantify with any degree of confidence
how many team members were disciplined solely for not meeting
sales goals. Wells Fargo has safeguards in place to help ensure
that managers remain focused on assessing team members' overall
performance in helping customers succeed financially, not just
whether they meet an individual sales goal. This includes a
strong performance management program, which provides for
coaching and feedback to help team members succeed and
involvement of Human Resources in disciplinary decisions.
Wells Fargo team members who believe they were disciplined
for not meeting sales goals can raise those concerns through a
number of different channels, including through their
management chain, Human Resources, or the EthicsLine. Moreover,
Wells Fargo has established a process to enable former team
members who contact the Company today to request a review of
their termination, even if they did not utilize the Company's
termination appeal and review processes at the time of their
departure. Former team members who did utilize the Company's
appeal processes in the past will be provided with an
additional review. Former team members who express interest in
reemployment and are deemed to be eligible for reemployment
through this review process will be able to work with a special
recruiting team to assist in exploring opportunities at Wells
Fargo.
Q.22.e. Please provide the Committee with information on the
median pay by position for each year from 2007 to the present
for the Community Banking Group and all of Wells Fargo, broken
out by position (e.g., tellers, bankers, branch managers,
district managers,
regional managers, and senior management).
A.22.e. Below is a table that provides the median Full Time
Equivalent (FTE) base pay for positions within the Regional
Bank from 2007 through September 1, 2016. In addition, all
salaried and hourly team members classified as regular or part-
time (i.e., those who are regularly scheduled to work 17.5
hours or more per week) are eligible for Wells Fargo-sponsored
benefits, including tuition reimbursement, healthcare
insurance, dental insurance, vision insurance, life insurance,
short- and long-term disability, 401(k) plan, and paid parental
leave.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Q.23. Please provide the Committee with any documentation
related to sales quality metrics used by compliance, marketing,
or any other unit within the Community Banking Division to
evaluate employees' performance. Please provide documentation
of how these metrics changed between 2007 and the present.
Q.24. Please also provide copies of written policies or
procedures that outline how Wells Fargo disciplined employees
that did not meet their sales quotas from 2007-2015. Finally,
please provide your plans for making these employees whole.
A.23.-A.24. From 2011 to 2015, approximately 5,300 team members
were terminated for certain sales-integrity violations. The
majority of the terminated team members held banker,
management, or other functionally similar positions.
Approximately 1,000 were terminated each year. For example,
investigations by the Corporate Investigations group in 2013
resulted in the termination of 1,245 Community Banking team
members. That is approximately 1 percent of Wells Fargo's total
population of Community Banking employees.
Approximately 65 percent of the terminated team members
were in Personal Banker positions or functionally similar roles
and 7 percent were in Teller positions. In addition, we
terminated the employment of over 480 team members in
supervisory positions, including store managers and persons up
to three levels above bankers and tellers, when investigations
have found that those team members engaged in or directed
improper sales practices or exhibited excessive pressure and
did not respond promptly and
decisively to change their behavior. All of these team members
were terminated for sales-integrity violations, not for failing
to meet product sales quotas.
Wells Fargo cannot quantify with any degree of confidence
how many team members were disciplined solely for not meeting
sales goals. Wells Fargo has safeguards in place to help ensure
that managers remain focused on assessing team members' overall
performance in helping customers succeed financially, not just
whether they meet an individual sales goal. This includes a
strong performance management program, which provides for
coaching and feedback to help team members succeed and
involvement of Human Resources in disciplinary decisions.
Wells Fargo team members who believe they were disciplined
for not meeting sales goals can raise those concerns through a
number of different channels, including through their
management chain, Human Resources, or the EthicsLine. Moreover,
Wells Fargo has established a process to enable former team
members who contact the Company today to request a review of
their termination, even if they did not utilize the Company's
termination appeal and review processes at the time of their
departure. Former team members who did utilize the Company's
appeal processes in the past will be provided with an
additional review. Former team members who express interest in
reemployment and are deemed to be eligible for reemployment
through this review process will be able to work with a special
recruiting team to assist in exploring opportunities at Wells
Fargo.
Q.25. Please provide the States and Zip Codes of the Wells
Fargo branches where each of the 5,300 employees were
terminated.
A.25. Wells Fargo team members' employments were terminated in
the following States (and District of Columbia):
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
Washington, DC
Wisconsin
Wyoming
Please see Appendix I for the list of Zip Codes of the
affected branches.
Q.26. What was Wells Fargo's policy on the employees who
reported concerns to their managers, human resources division
or used the hotline and were fired? Please share with the
Banking Committee any internal memos, or pertinent exchanges,
outlining the strategy for firing employees who raised
concerns.
Q.27. At the hearing, you indicated that employee ethics
complaints were handled by an outside firm and to resolve an
issue an employee would not be confronted by his or her
supervisor. Please provide a detailed description of the ethics
complaint process in 2007, and any subsequent changes to it.
A.26.-A.27. It has never been a policy or practice of Wells
Fargo to terminate team members who voiced their concerns to
managers, the human resources division, or through the ethics
hotline. We are aware that certain former team members are
making these allegations and we take them very seriously. We
are currently investigating the issue.
Wells Fargo has long had internal processes in place for
team members to raise issues or concerns through multiple
channels, including managers, HR, Compliance and/or the
EthicsLine. We encourage team members to speak up if they
experience or witness something that makes them feel
uncomfortable and have measures in place to protect team
members from retaliation. The EthicsLine provides team members
with a confidential way to report possible violations of Wells
Fargo's Code of Ethics and Business Conduct or any laws, rules
or regulations. Team members have the option to remain
anonymous through the EthicsLine. It is available to all team
members (U.S. and international) 24-hours a day, 7-days a week,
via toll-free telephone or online Web reporting. The EthicsLine
has been operated and staffed by a third-party vendor since its
inception in 2004, and translation services are available. This
process helps ensure team member confidentiality and preserves
anonymity when requested.
All team members who call the EthicsLine are provided with
an EthicsLine ID that is associated with their EthicsLine
Report. Team members who elect to remain anonymous are asked to
either call back to the EthicsLine or log into the EthicsLine
Web Portal in 10 calendar days to provide additional
information or answer any questions relating to their report.
To further protect the integrity of the confidential hotline,
the vendor does not record any data related to the incoming
telephone calls or Web reports. Team members who self-identify
are advised that since they provided their name and contact
information, Wells Fargo now has the option to contact them
directly if needed. They are also told they can call the
EthicsLine at any time to provide additional information.
Interview specialists with the EthicsLine vendor listen,
ask clarifying questions if necessary, and then write a summary
report of the call. The summary is then provided to Wells
Fargo's Office of Global Ethics and Integrity for assessment
and referral to the appropriate review team.
Wells Fargo takes measures to protect team members from
retaliation, including maintaining confidentially during the
review process. Specifically:
LAll reports of suspected unethical or illegal
activities are taken seriously and measures are in
place to ensure concerns are promptly evaluated and
reviewed.
LThe review of concerns in many cases will require a
fact-finding that may involve interviews with
individuals the Company determines may have information
relevant to the underlying issue or concern. However,
management of any review and updates regarding facts,
progress and outcomes are limited to only those who
have a legitimate business need to know.
LIt may be possible in some cases for the
researcher/investigator to determine the identity of
the team member due to the nature of the issue reported
and the information shared by the team member. However,
the researcher/investigator would not ask the team
member to self-identify as the person who made the
EthicsLine Report.
In no circumstances is the team member told the specifics
about any corrective action taken against another team member
as it is not Wells Fargo's practice to discuss confidential
information regarding one team member with another. Wells Fargo
will only share information regarding the review, including any
corrective action taken, with those who have a legitimate
business need to know.
Wells Fargo's Nonretaliation Policy, which is available to
all team members in the Team Member Handbook and reiterated in
the Code of Ethics and Business Conduct, mandates that no team
member may be retaliated against for providing information in
good faith about suspected unethical or illegal activities,
including fraud, securities law, or regulatory violations, or
possible violations of any Wells Fargo policies. Retaliatory
behavior has always been, and continues to be, grounds for
corrective action, up to and including termination of
employment. Team members who believe that they or someone else
has been retaliated against for reporting an issue are
instructed to report it as soon as possible to their supervisor
or manager, H.R. Advisor team, or Corporate Employee Relations,
to ensure that a prompt review is conducted and, where
appropriate, corrective action is taken. Team members can also
report retaliation concerns via the EthicsLine.
Wells Fargo has additional safeguards to prevent any form
of
retaliation, including the fact that Wells Fargo's Human
Resources personnel are typically consulted in every
termination decision. Additionally, team members whose
employments have been terminated may utilize Wells Fargo's
termination review process to request to have that decision
reviewed by a Corporate Employee
Relations professional who was not previously consulted in the
termination decision.
To further strengthen our program and foster an environment
where all team members feel comfortable escalating matters
without fear of retaliation, we are making improvements to the
program, including:
LEnhancing our Company-wide standards to ensure a
consistent team member experience and safeguards,
regardless of the type of issue reported or which group
is conducting the
research or investigation.
LReinforcing our standards and processes that
protect team members from retaliation. This will
include requiring that the appropriate review unit
evaluating the underlying issues or concerns must
provide a reminder of the Company's Nonretaliation
Policy to all individuals interviewed or contacted as
part of the review, as well as all managers who may be
part of any corrective action decisions arising out of
the review.
LEnsuring that reports of suspected unethical or
illegal activities are evaluated, investigated, and
appropriately escalated in a timely and confidential
manner by continually monitoring and refining our
EthicsLine research and investigative processes. This
will include the adoption of Speak Up, Investigative,
and Nonretaliation Standards to help guide the research
and investigative process.
LCreating additional training, communications, and
resources to help team members understand their
responsibilities under the Code of Ethics and Business
Conduct and related policies, the importance of
speaking up, and what to do when faced with an ethical
dilemma.
With respect to allegations from former team members who
claim that their employment was terminated or they were demoted
after refusing to open unauthorized accounts and/or after
reporting concerns to the EthicsLine, we are reviewing each of
the situations. As described above, team members have the
option to raise concerns anonymously, so Wells Fargo likely
will not have records identifying former team members who
raised concerns anonymously through the EthicsLine.
Nevertheless, Wells Fargo is taking steps to review such
termination/demotion decisions where possible and has engaged
outside consultants to help us with this review. Moreover,
Wells Fargo has established a process to enable former team
members who contact the Company today to request a review of
their termination, even if they did not utilize the Company's
termination appeal and review processes at the time of their
departure. Former team members who did utilize the Company's
appeal processes in the past will be provided with an
additional review. Former team members who express interest in
reemployment and are deemed to be eligible for reemployment
through this review process will be able to work with a special
recruiting team to assist in exploring opportunities at Wells
Fargo.
Q.28. During your testimony, you consistently cited your
participation in ``Town Hall'' style meetings to explain how
you communicated to employees that they should not, under any
circumstances, create false accounts for customers in order to
meet sales quotas. Please provide transcripts from all Town
Hall-style meetings that you participated in from 2011 to 2015.
Please demarcate all areas of those transcripts in which you
clearly state that employees should not be defrauding
customers.
A.28. Mr. Stumpf addressed the unauthorized accounts issues
during a townhall meeting following the December 2013 Los
Angeles Times story. During that townhall, Mr. Stumpf informed
team members he ``want[ed] to address'' the issues discussed in
the article ``head on.'' Of note, he said:
Our culture is about service. We want to help our customers
succeed financially, and we're not in the product pushing
business. Think of . . . yourselves . . . no matter what
business you're in, whether you help those who service our
external customers or if you serve them directly, I think of
all of us as being financial physicians. We meet our customers
. . . and we have a conversation with them. And we listen
carefully for their needs. And once we discover a need, we then
through our skill set, understanding, and experience, our
value-add, we offer a product or a service or a series of
products and services to help them. We don't try to sell them
something that they don't need or don't want . . .
Here's my ask of you and for everybody listening today. If you
believe that your team, your boss, your boss' boss somehow is
putting pressure on you to sell things that your customers
don't want, don't need, raise your hand . . . And if you're not
comfortable doing that, there's an anonymous . . . EthicsLine,
[or you can] talk to somebody in HR. We want to do the right
thing. We're in the long-term business.\4\
---------------------------------------------------------------------------
\4\ Hollywood, FL, Town Hall, February 5, 2014 (Transcript on
file).
Q.29. Were fraudulent accounts created in one branch location
from the account information of customers of another branch?
Did employees establish accounts or claim to sell additional
---------------------------------------------------------------------------
products to customers in another State?
A.29. Wells Fargo customers frequently utilize multiple
branches and will themselves open accounts at different
locations at different times. Some potentially unauthorized
accounts were opened at different locations than other accounts
owned by the same customer, but we are not aware whether that
is due to customer choice or banker conduct. We are not aware
of unauthorized accounts being opened in States other than
those where the customer banked, however, our internal review
is ongoing.
Q.30. Did employees establish accounts or claim to sell
additional products for minor children?
A.30. Wells Fargo does not currently know the extent to which
unauthorized accounts were opened in the name of minor
children, however, our internal review is ongoing.
We would note that the Consumer Financial Protection Bureau
(CFPB) and Office of the Comptroller of the Currency (OCC)
Consent Orders both require Wells Fargo to retain the services
of an independent consultant and to develop redress and
reimbursement plans that will identify the population of
consumers who may have been affected by improper sales
practices.
Q.31. During your testimony, you denied that the Wells Fargo
incentive structure was responsible for the widespread
fraudulent activity at your bank. Further, you and your
colleagues at the bank have stated that the 5,300 fired
employees acted without guidance from management and were rogue
employees. In comparison, little has been reported on the
bonuses or incentive structures for regional and branch
managers. What bonuses did Wells Fargo pay to regional and
branch managers for successful (either meeting or exceeding
their sales quotas) cross-selling numbers?
A.31. Prior to our elimination of product sales goals, Regional
Bank store managers in our retail branches earned incentive
compensation based in part on the store's performance relative
to store goals. If a particular store met its sales goal, the
store manager would have been eligible for bonus compensation.
The store manager would have been eligible for additional bonus
compensation for exceeding the goal at various levels. For the
purposes of context, between 2011 and 2014, the median
incentive payout as a percentage of total salary earned by
store managers based on sales-related performance objectives
(versus incentive opportunities provided for service and other
performance objectives) declined from 8.5 percent in 2011 to
4.0 percent in 2014. The median payout earned by district
managers, who supervise store managers, also declined between
2011 and 2014, from 13.1 percent to 3.0 percent.
Consumer Harm
Q.32. Please provide a State-by-State list of the number of
Wells Fargo customers that you have determined may have been
harmed by this misconduct.
A.32. We asked PwC to analyze approximately 82 million deposit
accounts for instances of potential simulated funding and
approximately 11 million credit card accounts for instances of
lack of authorization. The accounts reviewed were opened
between 2011 and 2015. Of the accounts reviewed, PwC found that
approximately 623,000 consumer and business credit card
accounts could have been [emphasis added] unauthorized, and
approximately 1.5 million deposit accounts could have [emphasis
added] experienced simulated funding, that is, the unauthorized
deposit and withdrawal of funds intended to create the false
appearance that the account was being used by the customer. PwC
did not [emphasis added] conclude that these accounts were
unauthorized and/or experienced simulated funding; it just
could not rule out these possibilities.
Below is the State-by-State list of the number of deposit
and credit card accounts that PwC identified, within the total
of
approximately 2.1 million accounts identified. Although PwC
identified accounts in all 50 states, for the reasons discussed
it is not clear that unauthorized credit card accounts were
actually opened and/or deposit accounts experienced simulated
funding in all 50 States:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Q.33. As requested at the hearing, please provide the
proportion of customers who were harmed by Wells' misconduct
who are: elderly, racial/ethnic minorities, and military/
veterans.
Q.34. Please provide the number of customers identified by the
PwC study as having had a fraudulent account opened by age
cohort: 0-17; 18-30, 31-40, 41-50, 51-60, 61-70, 71-80, 81-90,
91+.
A.33.-A.34. Wells Fargo collects date-of-birth data and our
initial review indicates that elderly customers were not
overrepresented among the population of customers who may have
had an unauthorized deposit account opened in their name.
Of the 2.1 million accounts that PwC identified, 5,089
accounts were associated with customers who are identified in
the Defense Manpower Data Center (DMDC) as being active duty,
reserve, or National Guard. In other words, less than 0.3
percent of the accounts identified by PwC were associated with
customers who are identified in the DMDC.
We do not collect data concerning race or ethnicity during
the application process.
Q.35. Please provide the Committee with a list of the written
policies for 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014,
and 2015 that Wells Fargo provided to consumers upon their
opening of a bank account or credit card account that explain
the fees associated with those accounts.
Q.36. Will Wells Fargo be providing any nonmonetary
compensation (such as free credit reporting, ID protection, or
discounted or free Wells Fargo services) to customers? Please
explain.
Q.37. Does Wells Fargo have a policy for assisting customers
who had their identification stolen and faced significant costs
due to actions taken by Wells Fargo employees? Please explain.
A.35.-A.37. Wells Fargo is working very hard to remediate harm
that may have been caused to our customers. To that end,
pursuant to the CFPB and OCC Consent Orders, Wells Fargo will
retain the services of an independent consultant and develop
redress and reimbursement plans to identify the population of
consumers who may have been affected by improper sales
practices. We fully expect that, once approved by our
regulators, the redress and reimbursement plans will encompass
various forms of harm, including harm related to credit bureau
inquiries, and that Wells Fargo will issue and track
reimbursement payments.
Wells Fargo is contacting credit card customers for the
purpose of determining whether they want their credit cards and
to help us identify customers who may have an unauthorized
credit card account. We are not using these calls to promote
other products or services. Our script simply informs customers
that we are calling them about an inactive account and asks
whether they want the account.
For those customers who want the credit card, the account
will remain open. For any customer who does not want their
credit card, Wells Fargo is closing the account and correcting
credit bureau reporting. This means we are removing the account
from the customers' credit reports going forward and
suppressing the existence of the inquiry so that it is not
viewable to other lenders or requestors (the Fair Credit
Reporting Act prohibits us removing the inquiry altogether and
it will still be visible to customers pulling their own credit
reports).
Moreover, we are in the process of determining how many
customers obtained a credit product, with Wells Fargo or
another company, during the time period in which their credit
score may have been impacted by an unauthorized credit inquiry
or existence of the trade line. While it may be difficult to
calculate the precise impact for every customer, our intent is
to err on the side of the customer and compensate them for
impacts to their other credit accounts. This could include
impacts on pricing, line or loan size, or credit decision. We
have allocated significant resources to this effort and are
working with the credit bureaus to develop a plan for
submission to our regulators.
Going forward, Wells Fargo is voluntarily expanding its
review of accounts to include 2009 and 2010. Wells Fargo also
provides resources to help customers request free credit
reports and is offering a no-cost mediation option to impacted
customers to help identify and remediate any other forms of
harm.
Ultimately, if any customer has any questions or concerns
regarding his or her accounts--regardless of when those
accounts were opened--he or she is invited to contact us so
that Wells Fargo can address those questions or concerns.
Q.38. You indicated at the hearing that you would consult with
your team as to any data limitations that would prevent you
from identifying customers harmed earlier than 2009. What are
the results of those conversations? How far back can Wells
Fargo conduct an examination similar to the one conducted by
PwC?
A.38. We appreciate and share your concern that any and all
customers who may have been impacted should be identified.
Therefore, we are continuing to examine ways to discern if any
unauthorized accounts were opened prior to 2009. As an
important initial step, we are notifying all of our consumer
and small business Community Banking customers with a checking,
savings, credit card, or line of credit account of this issue;
we are also inviting and
encouraging them to speak with a Wells Fargo representative if
they have any questions or concerns about their accounts.
Please also note that the Independent Directors of Wells
Fargo's Board of Directors have launched an investigation into
these issues, and that investigation is ongoing.
Further, we would note again that pursuant to the CFPB and
the OCC Consent Orders, Wells Fargo will retain the services of
an independent consultant and develop redress and reimbursement
plans to identify the population of consumers who may have been
affected by improper sales practices. We fully expect that,
once approved by our regulators, the redress and reimbursement
plans will encompass various forms of harm, including harm
related to credit bureau inquiries, and that Wells Fargo will
issue and track reimbursement payments.
Q.39. As requested during the hearing, please provide specific
information related to overdraft protection products, including
sales goals related to overdraft, the number of consumers who
overdrew their accounts, the number of overdraft protection
products sold without customer knowledge, and dollar amount of
overdraft fees charged to consumers related to this episode.
A.39. Wells Fargo is committed to providing only those services
that our customers need or want. Overdraft protection is one of
those services. Customers are encouraged to contact us if they
have any issues or concerns.
Q.40. During the hearing you were asked how Wells Fargo's cross
selling and sales targets compare to its competitors. Please
provide your understanding of this answer.
A.40. Wells Fargo is not aware of the degree to which our
competitors use cross-sell strategies.
Restoring the Credit Scores of Wells Fargo Customers
Q.41. Has Wells Fargo contacted and instructed Transunion,
Equifax, and Experian, and any other credit bureaus, to
determine and remediate any possible harm resulting from the
opening of, and activity on, unauthorized credit cards? Please
provide the date(s) of any outreach by Wells Fargo to these
bureaus, the instructions and information provided to the
bureaus, and the proposed remediation for those customers who
may have suffered harm.
Q.42. Your credit restoration plan provides Wells Fargo with
the opportunity to push new products onto customers, urge them
to hold on to credit cards they may or may not have wanted, and
gather additional information from customers unrelated to
closing fraudulent accounts--opportunities that benefit Wells
Fargo, not affected customers. Please provide a copy of the
scripts that your company will use to contact affected
customers, highlighting any instance in which Wells Fargo
attempts to convince customers to purchase new products or
retain (potentially unwanted) accounts.
Q.43. Senator Tester asked you how you planned to identify and
provide restitution to customers whose credit ratings were
negatively impacted because of Wells Fargo employees' actions
against its customers, including but not limited to
transactions with other financial institutions. You stated that
you would call each of Wells' credit card customers to identify
any who have been harmed and ``have [y]our team come back and
report to you how we're working on it.'' Please provide a
detailed explanation of how Wells Fargo plans to identify and
provide remediation to these customers, and to other customers
who may not have had credit cards, but whose credit may have
been harmed due to other products.
Q.44. How will you confirm that inaccurate information on your
customers' credit files has been removed? It's one thing to say
they're removing the inaccurate information, it's another to
ensure the bureaus go ahead and actually remove it.
A.41.-A.44. Wells Fargo is working very hard to remediate harm
that may have been caused to our customers. To that end,
pursuant to the CFPB and OCC Consent Orders, Wells Fargo will
retain the services of an independent consultant and develop
redress and reimbursement plans to identify the population of
consumers who may have been affected by improper sales
practices. We fully expect that, once approved by our
regulators, the redress and reimbursement plans will encompass
various forms of harm, including harm related to credit bureau
inquiries, and that Wells Fargo will issue and track
reimbursement payments.
Wells Fargo is contacting credit card customers for the
purpose of determining whether they want their credit cards and
to help us identify customers who may have unauthorized credit
card accounts. We are not using these calls to promote other
products or services. Our script simply informs customers that
we are calling them about an inactive account and asks whether
they want the account.
For those customers who want the credit card, the account
will remain open. For any customer who does not want their
credit card, Wells Fargo is closing the account and correcting
credit bureau reporting. This means we are removing the account
from the customers' credit reports going forward and
suppressing the existence of the inquiry so that it is not
viewable to other lenders or requestors (the Fair Credit
Reporting Act prohibits us removing the inquiry altogether and
it will still be visible to customers pulling their own credit
reports).
Moreover, we are in the process of determining how many
customers obtained a credit product, with Wells Fargo or
another company, during the time period in which their credit
score may have been impacted by an unauthorized credit inquiry
or existence of the trade line. While it may be difficult to
calculate the precise impact for every customer, our intent is
to err on the side of the customer and compensate them for
impacts to their other credit accounts. This could include
impacts on pricing, line or loan size, or credit decision. We
have allocated significant resources to this effort and are
working with the credit bureaus to develop a plan for
submission to our regulators.
Going forward, Wells Fargo is voluntarily expanding its
review of accounts to include 2009 and 2010. Wells Fargo also
provides resources to help customers request free credit
reports and is offering a no-cost mediation option to impacted
customers to help identify and remediate any other forms of
harm.
Ultimately, if any customer has any questions or concerns
regarding his or her accounts--regardless of when those
accounts were opened--he or she is invited to contact us so
that Wells Fargo can address those questions or concerns.
Senior Executive Compensation
Q.45. Please provide any board or Compensation Committee
minutes describing (1) discussion of the pending Wells Fargo
settlement and any impact it had on Ms. Tolstedt's decision to
retire; (2) discussion of termination or any other penalty for
Ms. Tolstedt in relation to her role in the Wells Fargo actions
that resulted in the CFPB settlement; and (3) the impact of Ms.
Tolstedt's decision to retire on her final compensation.
Q.46. Fortune magazine reported that the decision to allow Ms.
Tolstedt to retire rather than terminating her resulted in her
retaining an extra $45 million in compensation. Is this report
accurate? If not, which portions are incorrect? How much did
Ms. Tolstedt earn or retain as compensation because of her
retirement that she would not have been allowed to earn or
retain if she had been terminated?
Q.47. What are the criteria that the board will use to
determine all elements of Ms. Tolstedt's 2016 compensation?
A.45.-A.47. Ms. Tolstedt has left Wells Fargo. She has agreed
to not exercise any outstanding stock options previously
awarded by Wells Fargo until the completion of the board of
directors' investigation and that, at the conclusion of this
investigation, the board (or the Independent Directors of the
board or the Human Resources Committee, through board
delegation) will have the authority to determine the extent to
which such options will be forfeited.\5\
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\5\ Wells Fargo, ``Independent Directors of Wells Fargo Conducting
Investigation of Retail Banking Sales Practices and Related Matters
(press release)'' (Sept. 27, 2016) (available online at https://
www.wellsfargo.com/about/press/2016/independent-directors-
investigation_0927/).
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The board's Independent Directors have determined that all
of Ms. Tolstedt's unvested equity compensation, valued at
approximately $19 million, would be forfeited, and that she
would not receive a bonus for 2016 or any retirement
enhancements or severance package in connection with her
separation from Wells Fargo. No incentive compensation was
granted to Ms. Tolstedt as a result of her separation from the
Company, and none of her equity awards will be ``triggered'' or
otherwise increased or accelerated by her separation. Ms.
Tolstedt could be subject to further compensation and other
actions based upon the results of the Independent Directors'
investigation.\6\
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\6\ Wells Fargo, September 27, 2016 Form 8-K, (available online at
https://www.sec.gov/Archives/edgar/data/72971/000119312516722259/
d266244d8k.htm).
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Wells Fargo has multiple recoupment or clawback policies
and provisions in place that are applicable to Wells Fargo's
current and former executive officers, including Ms. Tolstedt.
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\7\ Adopted June 15, 2009 and extended February 2010.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The board (or the Independent Directors or the Human
Resources Committee, through board delegation) will assess the
relevant facts and circumstances, the award terms, and Wells
Fargo's recoupment and clawback policies to determine whether
to cancel or clawback any more of Ms. Tolstedt's incentive
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compensation.
Q.48. You stated at the hearing that you are ``not an expert in
compensation'' and that you do not sit on the Wells Fargo
Board's Compensation Committee. To help us better understand
your role, as Chairman of the Board, in contributing to
compensation decisions, please provide a description of the
process by which your board makes decisions related to
compensation and supply any written policies or guidance on the
role of board members and Chairman on these matters.
Specifically, please comment on Wells Fargo's most recent proxy
statement which states on page 51 that part of Ms. Tolstedt's
incentive compensation award was determined based on your
assessment of her 2015 performance.
A.48. In deciding executive compensation, the Human Resources
Committee of the Board of Directors (HRC) is guided by four
compensation principles that have historically governed its pay
decisions for named executives:
1. LPay for Performance: Link compensation to Company,
business line, and individual performance so that
superior performance results in higher compensation and
inferior performance results in lower compensation;
2. LFoster Risk Management Culture: Structure compensation to
promote a culture of prudent risk management consistent
with the Company's Vision and Values;
3. LAttract and Retain Top Executive Talent: Offer
competitive pay to attract, motivate, and retain
industry executives with the skills and experience to
drive superior long-term Company performance; and
4. LEncourage Creation of Long-Term Stockholder Value: Use
performance-based long-term stock awards with
meaningful and lasting share retention requirements to
encourage sustained stockholder value creation.
In 2015, the HRC maintained the overarching compensation
structure for named executives that it had used in the past,
including the relative balance between annual fixed
compensation and annual variable ``at-risk'' compensation. The
HRC also continued to weight long-term over annual
compensation, and equity over cash compensation. Within this
framework, the HRC awarded the following primary elements of
compensation to the Company's named executive officers for
2015: base salary, annual incentive, and long-term equity-based
incentive.
In 2015, Ms. Tolstedt's 2015 annual incentive award was
determined by the HRC based on a broad set of factors,
including the Company's financial performance, the Company's
progress on key strategic priorities, compensation of similarly
situated executives in the Labor Market Peer Group (where such
information was available), success in achieving strategic
objectives in the Community Banking division, Ms. Tolstedt's
ability to operate as a member of a team, Ms. Tolstedt's
success against her objectives for 2015, which included the
financial performance of her respective business line and a
risk and other qualitative assessment of how those results were
achieved, as well as the recommendations of Mr. Stumpf based on
his assessment of her 2015 performance.\8\
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\8\ Wells Fargo, 2016 Proxy Statement, at 38-39, 52 (available
online at https://www.sec.gov/Archives/edgar/data/72971/
000119312516506771/d897049ddef14a.htm).
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The HRC awarded Ms. Tolstedt long-term incentive
compensation in the form of performance shares granted in
February 2015 and RSRs granted in July 2015. In granting the
2015 Performance Shares and establishing their terms, the HRC
considered the appropriateness of this award structure in the
context of multiple factors including applicable regulatory
guidance, the quality of the Company's performance from a risk
management perspective, and the need for continued leadership
over the 3-year performance period. The HRC determined the
dollar value of the Performance Share grants, taking into
account individual experience and responsibilities, to provide
an opportunity to realize variable compensation commensurate
with performance and with the intention that total compensation
be competitive with total compensation for comparable positions
and performance at peers. The HRC granted the July 2015 RSRs
following a mid-year evaluation of the senior executives'
compensation and contributions to the Company's strong
performance as part of an overall, balanced mix of competitive
pay and to provide an incentive for those executives to
continue their strong and effective leadership, consistent with
the Company's compensation principles to pay for performance,
to attract, retain, and motivate top executive talent, and to
encourage the creation of long-term stockholder value.\9\
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\9\ Wells Fargo, 2016 Proxy Statement, at 53-54 (available online
at https://www.sec.gov/Archives/edgar/data/72971/000119312516506771/
d897049ddef14a.htm).
Q.49. A recent CNNMoney report indicated that you received
millions of dollars in compensation for increasing the number
of ``primary consumer, small business, and banking checking
consumers'' and for ``reinforcing a culture of risk management
and
accountability at the company.''\10\ Please provide details on
all bonuses or incentive pay that you have received, based on
performance related to ``cross-selling,'' increasing the number
of consumers or consumer accounts. For each year, provide the
total value of all such incentives received, and the criteria
that qualified you for such incentives.
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\10\ http://money.cnn.com/2016/09/22/investing/wells-fargo-ceo-
john-stumpf-200-million/index.html?iid=hp-stack-dom.
A.49. As part of their investigation, the Independent Directors
and the Human Resources Committee will review the extent to
which Mr. Stumpf's compensation was based on performance
related to cross-selling or upon metrics that included
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unauthorized accounts.
Q.50. Please describe your full compensation package and
benefits plan, including base salary, incentive compensation,
and any retirement benefits such as a 10b5-1 plan, including
the dollar values of such packages and benefits.
A.50. In 2015, Mr. Stumpf received the following
compensation:\11\
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\11\ Wells Fargo, 2016 Proxy Statement, at 57 (available online
https://www.sec.gov/Archives/edgar/data/72971/000119312516506771/
d897049ddef14a.htm).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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\12\ Mr. Stumpf agreed to forfeit this award. See Wells Fargo,
``Independent Directors of Wells Fargo Conducting Investigation of
Retail Banking Sales Practices and Related Matters (press release)''
(Sept. 27, 2016) (available online at https://www.wellsfargo.com/about/
press/2016/independent-directors-investigation_0927/.
---------------------------------------------------------------------------
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\13\ Mr. Stumpf agreed to forfeit this award. See Id.
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Mr. Stumpf participated in, and other Wells Fargo
executives participate in the same benefit programs generally
available to all team members, including health, disability,
and other benefit programs, which include the Company 401(k)
Plan (with a company match and potential discretionary profit
sharing contribution) and, for team members hired prior to July
1, 2009, the Company's qualified Cash Balance Plan (frozen in
July 2009). The Company matched up to 6 percent of eligible
participants' certified compensation during 2015 and, in
January 2016, the Human Resources Committee of the Board of
Directors authorized a discretionary profit-sharing
contribution of 1 percent of each eligible participant's
certified compensation under the Company 401(k) Plan based on
the Company's 2015 performance.
Certain executives, together with team members whose
covered compensation exceeds IRC limits for qualified plans,
also participated in nonqualified Supplemental 401(k) and
Supplemental Cash Balance Plans prior to those plans being
frozen in July 2009. Following the freezing of the plans, the
Company no longer makes
additional contributions for participants in these plans,
although additional investment income continues to accrue to
participants'
individual accounts at the rates provided for in the plans.
Certain executives and certain other highly compensated team
members also can participate in our Deferred Compensation Plan.
Effective January 1, 2011, the Company amended this plan to
provide for supplemental Company matching contributions for any
compensation deferred into the Deferred Compensation Plan by a
plan participant, including Mr. Stumpf, that otherwise would
have been eligible (up to certain IRS limits) for a matching
contribution under the Company's 401(k) Plan.\14\
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\14\ Wells Fargo, 2016 Proxy Statement, at v, 55-56 (available
online at https://www.sec.gov/Archives/edgar/data/72971/
000119312516506771/d897049ddef14a.htm).
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The HRC has intentionally limited perquisites to executive
officers. In 2015, for security or business purposes, the
Company provided a car and driver to Mr. Stumpf and from time
to time to certain other executives, primarily for business
travel and occasionally for commuting. In addition, the HRC may
from time to time approve security measures if determined to be
in the business interests of our Company for the safety and
security of our executives and other team members. In 2012, the
HRC approved residential security measures for certain
executives and, in 2015, the Company paid for the cost of
regular maintenance for the previously installed home security
systems for certain of our executives. From time to time the
Company may pay the cost for a named executive's spouse to
attend a Wells Fargo business-related event where spousal
attendance is expected. All perquisites for Mr. Stumpf during
2015 did not exceed $10,000.\15\
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\15\ Wells Fargo, 2016 Proxy Statement, at v, 55-56, 59 (available
online at https://www.sec.gov/Archives/edgar/data/72971/
000119312516506771/d897049ddef14a.htm).
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The Company does not provide our executives with 10b5-1
plans, and none of our executive officers participate in a
10b5-1 plan related to Wells Fargo common stock.
Q.51. As was requested of you at the hearing, please provide
information on all senior executives at Wells Fargo who
suffered any
financial consequence as a result of the practices at issue
here.
A.51. The Independent Directors of the Board of Directors of
Wells Fargo announced on September 27, 2016, that they have
launched an independent investigation into the Company's retail
banking sales practices and related matters. A Special
Committee of Independent Directors is leading the
investigation, working with the board's Human Resources
Committee and independent counsel.
The Independent Directors have taken a number of initial
steps they believe are appropriate to promote accountability at
the Company. They have agreed with Mr. Stumpf that he will
forfeit all of his outstanding unvested equity awards, valued
at approximately $41 million. In addition, he will not receive
a bonus for 2016.
Ms. Tolstedt has left Wells Fargo. She has agreed to not
exercise any outstanding stock options previously awarded by
Wells Fargo until the completion of the board of directors'
investigation and that, at the conclusion of this
investigation, the board (or the Independent Directors of the
Board or the Human Resources Committee, through board
delegation) will have the authority to determine the extent to
which such options will be forfeited.
On September 27, 2016, the board announced that the
Independent Directors had determined that Ms. Tolstedt would
forfeit all of her unvested equity awards, valued at
approximately $19 million, and that she will not receive a
bonus for 2016 and will not receive any retirement enhancements
or severance package in
connection with her separation from Wells Fargo. No incentive
compensation was granted as a result of Ms. Tolstedt's
separation, and none of her equity awards will be ``triggered''
or otherwise increased or accelerated by her separation.\16\
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\16\ Wells Fargo, ``Independent Directors of Wells Fargo Conducting
Investigation of Retail Banking Sales Practices and Related Matters
(press release)'' (Sept. 27, 2016) (available online at https://
www.wellsfargo.com/about/press/2016/independent-directors-
investigation_0927/).
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These initial actions will not preclude additional steps
being taken with respect to Mr. Stumpf, Ms. Tolstedt or other
employees as a consequence of the information developed in the
investigation.
Forced Arbitration and Secret Settlements
Q.52. Please provide a copy of the current basic customer
agreement and any other customer agreements that have been in
place since 2007 for Wells Fargo customers that open credit
cards or bank accounts.
Q.53. Between 2007 and September 2016, how many customer
complaints related to the allegations in the CFPB settlement
were settled via the arbitration process? (i.e., how many total
cases were heard?) In how many cases did the arbitrator rule
for the customer and in how many did the arbitrator rule for
Wells Fargo?
Q.54. In cases where the arbitrator ruled for the customer,
what remediation was made to customers? What was the average
settlement amount?
Q.55. In cases where customers took cases to arbitration, did
secrecy clauses prevent them from making any information about
their grievances public?
Q.56. Did Wells Fargo disclose to investors or the public any
cases where arbitrators ruled in favor of customers in these
cases? How and when did the company do so?
Q.57. Between 2007 and 2016, did Wells Fargo settle any cases
related to the allegations in this settlement outside the
arbitration system? If so, how many cases were settled in this
fashion? Please explain.
Q.58. As was requested at the hearing, will Wells Fargo commit
to permitting customers bringing disputes related to these
actions to bring their claims in court, rather than forcing
them into
arbitration?
A.52.-A.58. Wells Fargo believes that the use of arbitration is
a fair and efficient process that serves the needs of both
parties. Nevertheless, Wells Fargo is offering a no-cost
mediation program to customers, in addition to arbitration. We
believe these options provide a fair and efficient means of
remediating any harm.
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------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM JOHN G.
STUMPF
Q.1.a. Please describe the personnel structure of the Community
Banking division of Wells Fargo Bank, N.A., including:
The name of each position, the description of each
position's responsibilities, and whether each position is
salary or hourly;\1\
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\1\ Please note that we are responding to these Questions for the
Record based on information we have available at this time.
Investigations relating to these issues are ongoing, and we expect to
learn more as they reach conclusions.
A.1.a. The improper sales practices at issue occurred in the
Regional Bank, which is a line of business within Community
Banking. Below is a table that identifies the primary positions
in the Regional Bank and for each position provides (1) average
headcount, (2) Fair Labor Standards Act (``FLSA'') overtime
classification, (3) median hourly base pay, (4) median Full
Time Equivalent (FTE) base pay, and (5) average annual overtime
hours for nonexempt positions. The table is followed by a
description of each position's responsibilities. In addition,
all salaried and hourly team members classified as regular or
part-time (i.e., those who are regularly scheduled to work 17.5
hours or more per week) are eligible for Wells Fargo-sponsored
benefits, including health insurance, life insurance, dental
and vision insurance, short- and long-term disability, 401(k)
plan, and paid parental leave.
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\2\ Data reported based on 2015 annual headcount.
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\3\ Data reported as of September 1, 2016.
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\4\ Median FTE base pay calculated as hourly rate X 2080.
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\5\ Data reported based on 2015 overtime.
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The job descriptions for these positions are as follows:
Teller
Tellers in the Regional Bank primarily perform the
following functions:
LGreeting customers;
LProcessing transactions for customers;
LFinding ways to make financial services more
convenient for customers;
LReferring customers with more complex needs to
Wells Fargo bankers and other internal partners; and
LAccurately maintaining and balancing a cash drawer.
Customer Sales and Service Representative (CSSR)
CSSRs in the Regional Bank primarily perform the following
functions:
LProviding excellent and prompt service in all
customer interactions to ensure satisfaction;
LFollowing up with customers who are referred by
tellers based on confirmed needs;
LCompleting teller job duties as necessary; and
LBased on the specific branch needs, a CSSR may
spend a portion of his or her time handling cash
transactions.
Personal Banker
Personal Bankers in the Regional Bank primarily perform the
following functions:
LHaving conversations with customers and conducting
detailed financial reviews, offering products and
services that meet their needs and help them succeed
financially;
LContacting customers by phone to follow up to
ensure customer satisfaction, build relationships, and
address any additional financial needs based on the
customers' financial priorities;
LSetting performance objectives and working with
branch manager to increase effectiveness in serving
customers and meeting their financial needs;
LBuilding loyalty while helping customers with
service requests; and
LMay handle cash transactions.
Business Banking Specialist
Business Banking Specialists in the Regional Bank primarily
perform the following functions:
LProactively growing and deepening relationships
with existing small business customers as well as
actively prospecting for new Wells Fargo small business
and retail customers;
LAttempting to earn all of the business of a small
business owner, including their consumer and small
business needs, while ensuring retention and exercising
excellent customer service in all customer
interactions;
LChampioning for small business and bringing focus
and attention to small business opportunities;
LOffering deposit, lending, and other small business
product solutions in order to serve as an expert to
meet the customer's needs and financial goals;
LProviding product delivery and service support to
retail customers; and
LReaching out into the community by visiting
businesses, making outbound calls to customers, and
conducting educational seminars in the community.
Service Manager
Service Managers in the Regional Bank primarily perform the
following functions:
LAssisting with hiring, training, coaching and
developing a highly engaged service team;
LFilling in for the Store Manager when necessary;
LObserving, coaching, and providing feedback to
ensure consistent service team performance and
excellent customer satisfaction;
LManaging complex customer concerns and
transactions;
LEnsuring compliance with all operational
regulations, sales and service processes, policies and
procedures, and completion of compliance requirements;
and
LAssisting with effective scheduling, managing the
Teller line, lobby management, and delegating essential
tasks to ensure operational integrity while creating a
positive customer experience.
Store Manager
Store Managers in the Regional Bank primarily perform the
following functions:
LDeveloping in-depth knowledge about products and
systems;
LUsing initiative and good judgment to manage the
branch's expense budget and lead the store to achieve
projected performance;
LSupporting the Service Manager and observing,
coaching, and providing feedback to the service team;
LHiring, coaching, training, scheduling, and
developing all branch team members to achieve
performance objectives;
LManaging the store's compliance requirements; and
LHolding team members accountable for the delivery
of exceptional customer service, performance
expectations, and operational integrity.
Private Banker
Private Bankers in the Regional Bank primarily perform the
following functions:
LProviding full-service banking to high-value
customers and overseeing a portfolio of simple and/or
packaged-product account relationships;
LConsulting with customers regarding financial
needs, recommending product/solutions, and financial
services to meet those needs;
LResolving inquiries, opening and servicing accounts
such as checking, savings, credit/loan, and identifying
investment
opportunities;
LPartnering and/or acting as a liaison to other
business partners and working to deepen customer
relationships by offering partner products and services
to existing clients; and
LBuilding a network of internal and external sources
and
resources to further enhance the customer experience
and meet the customer's needs.
District Manager
District Managers in the Regional Bank primarily perform
the following functions:
LManaging multiple Wells Fargo locations, each with
one line of business that provide products and services
to a designated marketplace;
LDeveloping and implementing sales and service
strategy, as well as the locations' retail banking,
marketing, and performance plans;
LWorking with staff to develop and implement
individual performance objectives against established
standards;
LManaging the relationship with various partner
business entities to ensure the ability to deepen
customer relationships along with managing service
quality to ensure ongoing customer satisfaction;
LServing as the sales product and services manager
and providing formal and informal training;
LImplementing and maintaining prescribed security
controls while managing within the framework of Wells
Fargo standards, policies, and procedures; and
LActively participating and representing Wells Fargo
in various community, civic, and professional
organizations.
Q.1.b. The number of employees in each position;
A.1.b. Please see the response to the first bullet point of
Question 1 above for additional detail. Currently,
approximately 75,000 team members work in the Regional Bank.
Q.1.c. The median salary of each salaried position;
A.1.c. Please see the response to the first bullet point of
Question 1 above.
Q.1.d. The median hourly wage of each hourly position;
A.1.d. Please see the response to the first bullet point of
Question 1 above.
Wells Fargo has set its own minimum pay at $12.00/hour
effective March 2016, which is significantly higher than the
Federal minimum wage of $7.25. In addition, all salaried and
hourly team members who are classified as regular or part-time
(i.e., regularly scheduled to work 17.5 hours or more per week)
are eligible for Wells Fargo-sponsored benefits, including
tuition reimbursement, healthcare insurance, dental insurance,
vision insurance, life insurance, short- and long-term
disability, 401(k) plan, and paid parental leave.
Q.1.e. Average overtime hours worked for each position; and
A.1.e. Please see the response to the first bullet point of
Question 1 above.
Wells Fargo's policy states that non-exempt team members
are compensated for all hours worked, including all overtime
hours. Wells Fargo's Team Member Handbook states:
If you're in a nonexempt position, you are entitled to pay for
all hours actually worked, even those exceeding your regular
schedule or those not authorized before working them.
Therefore, you must report all hours worked in Time Tracker.
Wells Fargo supports and enforces this policy and wage and hour
compliance.
Q.1.f. Whether each position is considered to be exempt or
nonexempt for FLSA purposes and the justification for any
exemptions.
A.1.f. Please see the response to the first bullet point of
Question 1 above.
At the time each new job is created, Wells Fargo completes
an analysis of job duties to determine FLSA classification. The
Wells Fargo Compensation Team also periodically reviews jobs or
adjusts job classification as necessary in accordance with
current regulations and court decisions.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED FROM JOHN G.
STUMPF
Q.1. Through the lens of my service on both this Committee and
the Armed Services Committee, I have been focused on the well-
being of our service members in the consumer finance
marketplace because predatory lending and personal financial
issues can have a real impact on military readiness. This is
why I worked on a bipartisan basis to establish the Office of
Service member Affairs at the CFPB. Can you please tell me how
many of the harmed customers are service members or veterans?
A.1. Wells Fargo is committed to serving our service member
customers. We are grateful for their significant sacrifices to
our country and are honored to serve their banking needs.
We asked PricewaterhouseCoopers (PwC) to analyze
approximately 82 million deposit accounts for instances of
potential simulated funding and approximately 11 million credit
card accounts for instances of lack of authorization. The
accounts reviewed were opened between 2011 and 2015. Of the
accounts reviewed, PwC found that approximately 623,000
consumer and business credit card accounts could have been
[emphasis added] unauthorized, and approximately 1.5 million
deposit accounts could have [emphasis added] experienced
simulated funding, that is, the unauthorized deposit and
withdrawal of funds intended to create the false appearance
that the account was being used by the customer. PwC did not
[emphasis added] conclude that any of these
accounts were unauthorized and/or experienced simulated
funding; it just could not rule out these possibilities. In
that way, its analysis of credit card authorization and
potential simulated funding in deposit accounts was designed to
be over-inclusive. We took this intentionally expansive
approach because we were willing to refund fees to customers
who, in fact, approved account openings, but subsequently
allowed the accounts to lapse, so that we did not exclude
customers who may have suffered harm.
We have found indications that the PwC number includes
accounts where the customer authorized its opening. For
example, Wells Fargo has worked to contact customers with open,
inactive credit card accounts identified by PwC (i.e., the
customers with accounts that could have been [emphasis added]
unauthorized) to determine whether they want these credit
cards. Approximately 25 percent have informed the bank that
they either did not apply, or did not recall whether or not
they applied, for their card.
Of the 2.1 million accounts that PwC identified, 5,089
accounts were associated with customers who are identified in
the Defense Manpower Data Center (DMDC) as being active duty,
reserve, or National Guard. In other words, less than 0.3
percent of the accounts identified by PwC were associated with
customers who are identified in the DMDC.
We are committed to making it right for all customers--
including any customer who is a service member or veteran. This
includes refunding any fees that were assessed on unauthorized
accounts, correcting credit bureau reporting, and addressing
any other forms of harm.
Q.2. In the most recent proxy statement dated March 16, 2016,
Wells Fargo discloses its intention to structure compensation
packages so that they are tax deductible under Section 162(m)
of the Internal Revenue Code. In Wells Fargo's last tax filing,
what was the value of these 162(m) deductions? What is the
cumulative value of these 162(m) deductions taking into account
the value of each and every 162(m) deduction Wells Fargo has
ever taken?
A.2. Wells Fargo is proud to be a valuable partner to the
communities we serve and pays all required Federal, State, and
local taxes.
Wells Fargo reports executive compensation on its Federal
income tax return according to the rules in the Internal
Revenue Code, including the rules under Section 162(m). The
amount of executive compensation paid by Wells Fargo is
reported on its proxy statement filed annually pursuant to the
Securities Exchange Act of 1934. For example, Wells Fargo's
2015 proxy statement reports that the 2015 compensation paid to
Wells Fargo's executive leadership was as follows:\1\
---------------------------------------------------------------------------
\1\ Wells Fargo, 2016 Proxy Statement, at 57 (available online at
https://www.sec.gov/Archives/edgar/data/72971/000119312516506771/
d897049ddef14a.htm).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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\2\ Mr. Stumpf agreed to forfeit this award. See Wells Fargo,
``Independent Directors of Wells Fargo Conducting Investigation of
Retail Banking Sales Practices and Related Matters (press release)''
(Sept. 27, 2016) (available online at https://www.wellsfargo.com/about/
press/2016/independent-directors-investigation_0927/).
---------------------------------------------------------------------------
---------------------------------------------------------------------------
\3\ Mr. Stumpf agreed to forfeit this award. See Id.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
---------------------------------------------------------------------------
\4\ The Independent Directors determined in September 2016 that Ms.
Tolstedt would forfeit all outstanding equity awards.
---------------------------------------------------------------------------
Q.3. In the Consent Order with the CFPB, Wells Fargo agreed not
to take advantage of tax loopholes to write off portions of
fines and civil penalties from its Federal taxes. But because
loopholes in the tax code are so broad and unclear, Wells Fargo
could still claim a business deduction for money it reimburses
to its victims. Your company agreed to pay consumers for the
harm it caused, and it should pay in full without help from
American taxpayers. Will you commit now that Wells Fargo will
not take any deduction for the amounts it pays under the
Consent Order?
A.3. Wells Fargo is currently reviewing these issues as they
relate to various tax implications. As noted in our response to
Question 2 above, Wells Fargo pays all required Federal, State,
and local taxes.
Q.4. In light of the revelations of unauthorized accounts being
opened, could you please describe how you are confident Wells
Fargo is still in compliance with anti-money laundering rules
and regulations?
A.4. Wells Fargo has policies, procedures, and internal
controls that are reasonably designed to comply with applicable
anti-money laundering laws and regulations.
Q.5. Did you or any member of the Wells Fargo Operating
Committee specifically notify Wells Fargo employees in writing
that using a customer's identification information to open
unauthorized accounts would not only be unethical, but also
unlawful? If so, please provide this written material,
indicating the date(s) on which this material was shared with
employees.
A.5. Language prohibiting the opening of unauthorized accounts
has existed for several years in sales integrity and ethics
training materials, and as part of essential learning paths,
among other communications Wells Fargo makes to its team
members.
Additionally, business ethics are discussed in quarterly
Company-wide townhalls. Specifically, Mr. Stumpf addressed the
unauthorized accounts issues during a townhall meeting
following the December 2013 Los Angeles Times story. During
that townhall, Mr. Stumpf informed team members that he
``want[ed] to address'' the issues discussed in the article
``head on.'' Of note, he said:
Our culture is about service. We want to help our customers
succeed financially, and we're not in the product pushing
business. Think of . . . yourselves . . . no matter what
business you're in, whether you help those who service our
external customers or if you serve them directly, I think of
all of us as being financial physicians. We meet our customers
. . . and we have a conversation with them. And we listen
carefully for their needs. And once we discover a need, we then
through our skill set, understanding, and experience, our
value-add, we offer a product or a service or a series of
products and services to help them. We don't try to sell them
something that they don't need or don't want[.]\5\
---------------------------------------------------------------------------
\5\ Hollywood, FL, Town Hall, February 5, 2014 (Transcript on
file).
Here's my ask of you and for everybody listening today. If you
believe that your team, your boss, your boss' boss somehow is
putting pressure on you to sell things that your customers
don't want, don't need, raise your hand . . . And if you're not
comfortable doing that, there's an anonymous . . . EthicsLine,
[or you can] talk to somebody in HR. We want to do the right
---------------------------------------------------------------------------
thing. We're in the long-term business.
Q.6. As of September 20, 2016, is it still possible that
unauthorized customer accounts may be opened by Wells Fargo
employees?
Q.7. What changes have you made to better protect the
identification information of your customers so that
unauthorized accounts are never opened again?
A.6.-A.7. Wells Fargo has made several recent changes to its
policies and practices to enhance oversight, expand customer
transparency, and improve the customer experience. We would
like to highlight the following points:
LWe have named a new head of our retail banking
business.
LWe have also changed the retail banking business's
risk management processes. This is consistent with the
reorganization of enterprise functions we have
conducted across the Company to create a stronger risk
and control foundation that allows senior team members
across the Company to provide more independent,
credible challenges to how we operate.
LTo this end, we are transitioning a number of
control functions out of the lines of business, which
includes Community Banking, and centralizing them
within Wells Fargo's independent corporate Risk
function, which will be responsible for sales-practice
oversight, as well as establishing an independent Sales
Practices Office.
LWe have made system and process enhancements,
including sending automated confirmation emails to our
customers when a new personal or small business
checking account or a savings account is opened; and
acknowledgements are also sent for credit card
applications. We are also working to improve multi-
factor authentication to protect our customers'
information, and signatures are captured electronically
approximately 99 percent of the time for new checking,
savings, and credit card applications. In addition, we
are closing automatically inactive new deposit accounts
that, after 62 days, have a zero balance, without
assessing a monthly fee.
LThis year alone, we have committed more than $50
million to enhanced quality assurance monitoring.
LWe have expanded an independent third-party mystery
shopper program, adding risk professionals to provide
greater oversight, and expanding our customer complaint
servicing and resolution process.
LWe are surveying team members to understand their
views on our Company's approach to ethics and
integrity.
LWe have also commenced the process with our
regulators to engage an independent consultant to
review sales practices in Community Banking. In
addition, we will be engaging external consultants to
review sales practices across the Company.
LAnd we will be engaging outside independent culture
experts to help us understand where we have cultural
weaknesses that need to be strengthened or fixed.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM JOHN G.
STUMPF
Q.1. When did Wells Fargo first institute cross-selling
strategies in the Community Banking Division? When did Wells
Fargo first start encouraging employees to engage in strategies
to boost sales, including but not limited to gaming, pinning,
sandbagging, bundling, and simulated funding? Please provide
copies of any company materials sent to retail banking
employees regarding cross-selling strategies.
A.1. ``Cross-selling'' is the term Wells Fargo uses to describe
its strategy for deepening its relationships with its
customers, and this strategy has been present in some form at
Wells Fargo since at least 1999.\1\ Wells Fargo offers a
variety of financial products and services. When an existing
customer has a financial need that Wells Fargo can fulfill with
a product or service that the customer does not have, Wells
Fargo wants to ensure that the customer is made aware that the
Company can fulfill that particular financial need. To do this,
Wells Fargo trains our team members to listen to our customers,
consider their financial needs, determine which Wells Fargo
product or service can fulfill that need, and offer that
product or service to the customer.
---------------------------------------------------------------------------
\1\ Wells Fargo, 1999 Annual Report, at 7 (available online at
http://www.wellsfargo
history.com/download/annualreports/1999annualreport_wf.pdf).
---------------------------------------------------------------------------
This approach is called needs-based selling, and it is the
essence of Wells Fargo's cross-selling strategy. This strategy
enables Wells Fargo to deepen its relationships with its
customers because Wells Fargo is fulfilling more of our
existing customers' financial needs. Cross-sell numbers are
therefore one metric for measuring relationship depth, and
Wells Fargo has traditionally encouraged its team members to
build and maintain strong customer relationships through needs-
based selling. It does not benefit either Wells Fargo or its
customers to open accounts that our customers do not need, use,
or want.
Q.2. When did Wells Fargo first institute product sales goals
in the Community Banking Division? Please provide details on
the structure of the sales goals and the specific thresholds
employees were required to meet.
A.2. Product sales goals have been present at Wells Fargo in
some form since at least the early 2000s. The specific goals
have varied across markets and years, and from 2012 to 2015,
Wells Fargo steadily reduced sales goals for Regional Bank team
members. Wells Fargo has now eliminated product sales goals
entirely for Regional Bank team members who serve customers in
our retail branches, effective October 1, 2016.
Q.3. For the employees required to meet product sales goals in
the Community Banking Division, on average, what percentage of
their pay was based on meeting and/or exceeding sales
thresholds?
A.3. Please see question 7, below.
Q.4. Has there been any attempt to quantify how many customers
succumbed to pressure from bank employees to sign up for bank
products they did not need or want? Will Wells Fargo attempt to
identify these customers?
A.4. Wells Fargo has worked to contact holders of an open
consumer or small business credit card account that the third-
party consulting firm, PricewaterhouseCoopers (PwC) identified
as never having been used and never having been ``fraud
activated'' by the customer calling an 800 number after
receiving the card, unless there were indications of customer
consent, under the assumption that non-activation may indicate
a customer's lack of desire or need for the account. The
purpose of contacting these inactive credit card account
holders is to determine whether they want these credit cards.
Approximately 25 percent have informed the bank that they
either did not apply, or did not recall whether or not they
applied, for their card. For those customers who want the
credit card, the card will remain open. For those customers who
want the credit card, the account will remain open. For any
customer who does not want their credit card, Wells Fargo is
closing the account and correcting credit bureau reporting.
This means we are removing the account from the customers'
credit reports going forward and suppressing the existence of
the inquiry so that it is not viewable to other lenders or
requestors. (The Fair Credit Reporting Act prohibits us
removing the inquiry altogether and it will still be visible to
customers pulling their own credit reports.) These results
demonstrate that PwC's findings were over-inclusive, containing
accounts where the customer authorized the opening of the
account.
Q.5. Does Wells Fargo utilize cross-selling strategies or other
similar initiatives across any of its other divisions? If so,
please describe the structure of the sales programs and any
related
incentives.
A.5. Businesses may sometimes use the terms ``referral
program'' and ``cross-sell'' interchangeably. These programs
exist across the Company and might typically involve:
LA line of business referring a customer to another
group or line of business at Wells Fargo for a product
or service offered by that separate group; or
LA line of business that is unable to approve a
customer's request for a product, helping the customer
pursue an alternative product or service from another
line of business.
Please refer to our answer to question 6, below, for
additional information on this topic.
Q.6. Does Wells Fargo provide compensation incentives based on
meeting product sales goals in any of its other divisions? If
so, please describe the structure of the programs and the
specific thresholds employees are required to meet.
A.6. Wells Fargo tailors its compensation structure to each
line of business, the services our team members perform,
compliance with applicable laws, and the best interests of our
customers. Incentive compensation plans require ongoing
compliance with Wells Fargo's Code of Ethics and Business
Conduct, Information Security Policy, Risk Management
Accountability Policy, and other employment and compliance
requirements applicable to the role. Violations may subject the
team member to disqualification from the plan or downward
adjustments to the incentive award.
None of our incentive plans currently have minimum product-
specific sales goals as a condition of eligibility for an
incentive; however, many of our plans have minimum revenue or
volume production thresholds that must be met to qualify for an
incentive.
As Wells Fargo previously announced, product sales goals
for our Regional Bank team members who serve customers in our
retail branches have been eliminated. This means there are no
minimum product-specific sales goals and no minimum revenue or
volume production thresholds for this group of team members.
However, two Community Banking business groups separate from
the retail banking business--Practice Finance (which provides
financial services to medical-related businesses) and Business
Payroll Services--are eligible for compensation incentives. The
incentive plans offered to team members in these two business
groups do not involve product sales goals: Practice Finance
incentives are based on funded volume goals, and Business
Payroll Services incentives are based on revenue goals.
Several business groups outside Community Banking--such as
Consumer Lending, Wealth and Investment Management, Wholesale
Bank, Insurance, and Capital Finance--also offer incentive
compensation plans to some of their team members. Many of these
team members are in business development or sales roles,
offering customers home mortgages, commercial loans, wealth
management advice, insurance plans, or other Wells Fargo
products and services. While some of these plans use production
thresholds, many are predominately commission-based and have no
product, revenue, or volume goals or thresholds.
Wells Fargo is currently reviewing all of its incentive
compensation plans to ensure the structures and production
thresholds are appropriate to the roles and do not
inadvertently incent inappropriate sales practices.
Q.7. How many Wells Fargo employees, across all divisions, are
eligible to receive compensation based on meeting and/or
exceeding product sales goals? For those employees, on average,
what percentage of their pay is based on meeting and/or
exceeding product sales goals?
A.7. Please see our response to Question 6 above for
information about Wells Fargo's incentive plans across
divisions that require minimum production thresholds (i.e., may
be minimum revenue or minimum volume) as a condition of
eligibility for incentive compensation. There are no minimum
product-specific sales goals.
With respect to the Regional Bank team members, as Wells
Fargo previously announced, effective October 1, 2016, product
sales goals for our Regional Bank team members in our bank
branches have been eliminated. Leading up to the elimination of
product sales goals, the actual incentive payouts based on
sales-related performance objectives (distinct from service and
other performance objectives) declined considerably: the median
incentive paid as a percentage of total salary for sales-
performance incentives for tellers, for example, declined from
4.6 percent in 2011 to 0.9 percent in 2015. Historically, the
target incentive payment for overall performance objectives,
not just sales-related objectives, was approximately 3 percent
of base compensation for tellers and the target for the
majority of personal bankers was approximately 10 percent of
base compensation. All incentive plans were capped.
We are currently reviewing our compensation structures with
respect to other Wells Fargo team members to ensure all
incentive programs are properly aligned with the interests of
our customers.
Q.8. What does Wells Fargo plan to do to address the issue of
the bank targeting individuals holding Mexican Matricula
Consular Cards, as raised in the Los Angeles City Attorney's
May 5, 2015, complaint?
A.8. Wells Fargo is committed to rectifying this situation for
all customers, regardless of the type of identification used to
open an account. This includes refunding any fees that were
assessed on unauthorized accounts, correcting credit bureau
reporting, and addressing any other forms of harm.
Q.9. Please provide the proportion of the employees terminated
who are: racial/ethnic minorities, military/veterans, and
persons with disabilities.
A.9. Of the 5,300 team members whose employments were
terminated for sales-integrity violations from 2011 to 2015, 39
percent were white, 33 percent were Hispanic, 15 percent were
black/African American, 1.9 percent self-identified as veteran,
and 0.7 percent self-identified as having a disability.
Q.10. How does Wells Fargo plan to address and remediate the
multiple reports of former employees who were fired or demoted
after refusing to open fake accounts, including those employees
who called the bank's ethics hotline about what they had
witnessed? What steps will Wells Fargo take to reform its
internal processes to ensure that employees have a mechanism to
report fraudulent and illegal practices without facing
retribution from their managers or the bank at large? How will
Wells Fargo ensure the anonymity of employees who raise flags
about questionable practices or behavior?
A.10. Wells Fargo has long had internal processes in place for
team members to raise issues or concerns through multiple
channels, including managers, HR, Compliance, and/or the
EthicsLine. We encourage team members to speak up if they
experience or witness something that makes them feel
uncomfortable and have measures in place to protect team
members from retaliation. The EthicsLine provides team members
with a confidential way to report possible violations of Wells
Fargo's Code of Ethics and Business Conduct or any laws, rules,
or regulations. Team members have the option to remain
anonymous through the EthicsLine. It is available to all team
members (U.S. and international) 24-hours a day, 7-days a week,
via toll-free telephone or online Web reporting. The EthicsLine
has been operated and staffed by a third-party vendor since its
inception in 2004, and translation services are available. This
process helps ensure team member confidentiality and preserves
anonymity when requested.
All team members who call the EthicsLine are provided with
an EthicsLine ID that is associated with their EthicsLine
Report. Team members who elect to remain anonymous are asked to
either call back to the EthicsLine or log into the EthicsLine
Web Portal in 10 calendar days to provide additional
information or answer any questions relating to their report.
To further protect the integrity of the confidential hotline,
the vendor does not record any data related to the incoming
telephone calls or Web reports. Team members who self-identify
are advised that since they provided their name and contact
information, Wells Fargo now has the option to contact them
directly if needed. They are also told they can call the
EthicsLine at any time to provide additional information.
Interview specialists with the EthicsLine vendor listen,
ask clarifying questions if necessary, and then write a summary
report of the call. The summary is then provided to Wells
Fargo's Office of Global Ethics and Integrity for assessment
and referral to the appropriate review team.
Wells Fargo takes measures to protect team members from
retaliation, including maintaining confidentially during the
review process. Specifically:
LAll reports of suspected unethical or illegal
activities are taken seriously and measures are in
place to ensure concerns are promptly evaluated and
reviewed.
LThe review of concerns in many cases will require a
fact-finding that may involve interviews with
individuals the Company determines may have information
relevant to the underlying issue or concern. However,
management of any review and updates regarding facts,
progress, and outcomes are limited to only those who
have a legitimate business need to know.
LIt may be possible in some cases for the
researcher/investigator to determine the identity of
the team member due to the nature of the issue reported
and the information shared by the team member. However,
the researcher/investigator would not ask the team
member to self-identify as the person who made the
EthicsLine Report.
In no circumstances is the team member told the specifics
about any corrective action taken against another team member
as it is not Wells Fargo's practice to discuss confidential
information regarding one team member with another. Wells Fargo
will only share information regarding the review, including any
corrective action taken, with those who have a legitimate
business need to know.
Wells Fargo's Nonretaliation Policy, which is available to
all team members in the Team Member Handbook and reiterated in
the Code of Ethics and Business Conduct, mandates that no team
member may be retaliated against for providing information in
good faith about suspected unethical or illegal activities,
including fraud, securities law, or regulatory violations, or
possible violations of any Wells Fargo policies. Retaliatory
behavior has always been, and continues to be, grounds for
corrective action, up to and including termination of
employment. Team members who believe that they or someone else
has been retaliated against for reporting an issue are
instructed to report it as soon as possible to their supervisor
or manager, H.R. Advisor team, or Corporate Employee Relations,
to ensure that a prompt review is conducted and, where
appropriate, corrective action is taken. Team members can also
report retaliation concerns via the EthicsLine.
Wells Fargo has additional safeguards to prevent any form
of
retaliation, including the fact that Wells Fargo's Human
Resources personnel are typically consulted in every
termination decision.
Additionally, team members whose employments have been
terminated may utilize Wells Fargo's termination review process
to request to have that decision reviewed by a Corporate
Employee
Relations professional who was not previously consulted in the
termination decision.
To further strengthen our program and foster an environment
where all team members feel comfortable escalating matters
without fear of retaliation, we are making improvements to the
program, including:
LEnhancing our Company-wide standards to ensure a
consistent team member experience and safeguards,
regardless of the type of issue reported or which group
is conducting the research or investigation.
LReinforcing our standards and processes that
protect team members from retaliation. This will
include requiring that the appropriate review unit
evaluating the underlying issues or concerns must
provide a reminder of the Company's Nonretaliation
Policy to all individuals interviewed or contacted as
part of the review, as well as all managers who may be
part of any corrective action decisions arising out of
the review.
LEnsuring that reports of suspected unethical or
illegal activities are evaluated, investigated, and
appropriately escalated in a timely and confidential
manner by continually monitoring and refining our
EthicsLine research and investigative processes. This
will include the adoption of Speak Up, Investigative,
and Nonretaliation Standards to help guide the research
and investigative process.
LCreating additional training, communications, and
resources to help team members understand their
responsibilities under the Code of Ethics and Business
Conduct and related policies, the importance of
speaking up, and what to do when faced with an ethical
dilemma.
With respect to allegations from former team members who
claim that their employment was terminated or they were demoted
after refusing to open unauthorized accounts and/or after
reporting concerns to the EthicsLine, we are reviewing each of
the situations. As described above, team members have the
option to raise concerns anonymously, so Wells Fargo likely
will not have records identifying former team members who
raised concerns anonymously through the EthicsLine.
Nevertheless, Wells Fargo is taking steps to review such
corrective action decisions where possible and has engaged
outside consultants to help us with this review. Moreover,
Wells Fargo has established a process to enable former team
members who contact the Company today to request a review of
their termination, even if they did not utilize the Company's
termination appeal and review processes at the time of their
departure. Former team members who did utilize the Company's
appeal processes in the past will be provided with an
additional review. Former team members who express interest in
reemployment and are deemed to be eligible for reemployment
through this review process will be able to work with a special
recruiting team to assist in exploring opportunities at Wells
Fargo.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER FROM JOHN G.
STUMPF
Q.1. One of the things that concerns me about this settlement
is how your individual customers may have been impacted. I
would like to know how many customers incurred overdraft fees
or had missed payments as a result of accounts being opened
without consent and, similarly, how FICO scores may have been
impacted by new credit accounts being opened without consent?
Q.2. You understand that new credit accounts and late payments
impact a person's FICO score. In Virginia, 22,000 fraudulent
deposit accounts and 19,000 fraudulent credit accounts were
opened by Wells Fargo employees. How many customers might have
been downgraded from Prime to Sub Prime as a result of this?
Q.3. If FICO scores were indeed affected due to Wells Fargo's
fraudulent behavior, resulting in denial of a loan in the
future or a higher interest payment, how will you make this
right for those customers?
Q.4. I understand you have paid back $2.6 million to customers
affected and the agreement is $5 million. Do you think that an
average payment of $25 per customer is sufficient for the harm
caused? Do you have any plans to expand customer compensation?
A.1.-A.4. Wells Fargo is working very hard to remediate harm
that may have been caused to our customers. To that end,
pursuant to the Consumer Financial Protection Bureau (CFPB) and
Office of the Comptroller of the Currency (OCC) Consent Orders,
Wells Fargo will retain the services of an independent
consultant and develop redress and reimbursement plans to
identify the population of consumers who may have been affected
by improper sales practices. We fully expect that, once
approved by our regulators, the redress and reimbursement plans
will encompass various forms of harm, including harm related to
credit bureau inquiries, and that Wells Fargo will issue and
track reimbursement payments.
We asked PricewaterhouseCoopers (PwC) to analyze
approximately 82 million deposit accounts for instances of
potential simulated funding and approximately 11 million credit
card accounts for instances of lack of authorization. The
accounts reviewed were opened between 2011 and 2015. Of the
accounts reviewed, PwC found that approximately 623,000
consumer and business credit card accounts could have been
[emphasis added] unauthorized, and approximately 1.5 million
deposit accounts could have [emphasis added] experienced
simulated funding, that is, the unauthorized deposit and
withdrawal of funds intended to create the false appearance
that the account was being used by the customer. In other
words, PwC did not [emphasis added] conclude that these
accounts were unauthorized and/or experienced simulated
funding; it just could not rule out these possibilities because
its analysis of credit card authorization and potential
simulated funding in
deposit accounts was intentionally designed to be over-
inclusive. For example, PwC flagged all credit card accounts
that were not used and were not ``fraud activated'' by the
customer calling an 800 number after receiving the card, unless
there were indications of customer consent, even though there
are many reasons why a customer may not activate their card.
Therefore, it is important to note PwC did not determine
that ``22,000 fraudulent deposit accounts and 19,000 fraudulent
credit accounts'' were opened in Virginia. Instead, PwC found
that approximately 22,000 deposit accounts could have [emphasis
added] experienced simulated funding and approximately 19,000
credit card accounts in Virginia could have been [emphasis
added] unauthorized.
Of the subset of accounts identified, nationwide PwC
determined that approximately 115,000 accounts were charged a
fee, averaging less than $25 per account and totaling $2.66
million in revenue to Wells Fargo. That figure is far surpassed
by the costs associated with opening and closing the unused
accounts. Wells Fargo has already made direct deposits and
issued checks to refund these fees. We took this intentionally
expansive approach because we were willing to refund fees to
customers who, in fact, approved account openings, but
subsequently allowed the accounts to lapse, so that we did not
exclude customers who may have suffered harm.
We have found indications that the PwC number includes
accounts where the customer authorized its opening. For
example, Wells Fargo has worked to contact customers with open,
inactive credit card accounts identified by PwC (i.e., the
customers with accounts that could have been [emphasis added]
unauthorized) to determine whether they want these credit
cards. Approximately 25 percent have informed the bank that
they either did not apply, or did not recall whether or not
they applied, for their card. These results demonstrate that
PwC's findings as to the credit card accounts analyzed were
over-inclusive, containing accounts where the customer
authorized the opening of the account.
For those customers who want the credit card, the account
will remain open. For any customer who does not want their
credit card, Wells Fargo is closing the account and correcting
credit bureau reporting. This means we are removing the account
from the customers' credit reports going forward and
suppressing the existence of the inquiry so that it is not
viewable to other lenders or requestors (the Fair Credit
Reporting Act prohibits us removing the inquiry altogether and
it will still be visible to customers pulling their own credit
reports).
Moreover, we are in the process of determining how many
customers obtained a credit product, with Wells Fargo or
another company, during the time period in which their credit
score may have been impacted by an unauthorized credit inquiry
or existence of the trade line. While it may be difficult to
calculate the precise impact for every customer, our intent is
to err on the side of the customer and make them whole for
negative repercussions that were tied to a drop in their credit
score. This could include impacts on pricing, line or loan
size, or credit decision. We have allocated significant
resources to this effort and are working with the credit
bureaus to develop a plan for submission to our regulators.
Going forward, Wells Fargo is voluntarily expanding its
review of accounts to include 2009 and 2010. Moreover, Wells
Fargo also provides resources to help customers request free
credit reports and is offering a no-cost mediation option to
impacted customers to help identify and remediate any other
forms of harm.
Ultimately, if any customer has any questions or concerns
regarding his or her accounts--regardless of when those
accounts were opened--he or she is invited to contact us so
that Wells Fargo can address those questions or concerns.
Q.5. Did you refer any of these individuals to law enforcement?
If not, why not?
A.5. Wells Fargo has policies, procedures, and internal
controls that are reasonably designed to comply with its legal
obligations to monitor, detect, and report suspicious
activities. Under Federal law, Suspicious Activity Reports
(``SARs''), and any information that would reveal the existence
of a SAR, are confidential, 31 U.S.C. 5318(g)(2)(A)(i) and 12
C.F.R. 21.11(k).
Q.6. How did you miss this activity for such a long time? What
have you changed about your internal controls to ensure this
type of behavior does not happen again and, if it does, is
caught at an earlier stage?
A.6. This was a problem of focus. While information relating to
sales-practice problems existed prior to 2013, it was believed
that the problem was more isolated than it actually was. We
were wrong.
To ensure problems like this do not get missed again, Wells
Fargo has made several recent changes to its policies and
practices to enhance oversight, expand customer transparency,
and improve the customer experience. We would like to highlight
the following points:
LWe have named a new head of our retail banking
business.
LWe have also changed the retail banking business's
risk management processes. This is consistent with the
reorganization of enterprise functions we have
conducted across the Company to create a stronger risk
and control foundation that allows senior team members
across the Company to provide more independent,
credible challenges to how we operate.
LTo this end, we are transitioning a number of
control functions out of the lines of business, which
includes Community Banking, and centralizing them
within Wells Fargo's independent corporate Risk
function, which will be responsible for sales-practice
oversight, as well as establishing an independent Sales
Practices Office.
LWe have eliminated product sales goals for all
Regional Bank team members who serve customers in our
retail branches.
LWe have made system and process enhancements,
including sending automated confirmation emails to our
customers every time a new personal or small business
checking account or a savings account is opened; and
acknowledgements are also sent for credit card
applications. We are also working to improve multi-
factor authentication to protect our customers'
information, and signatures are captured electronically
approximately 99 percent of the time for new checking,
savings, and credit card applications. In addition, we
are closing automatically inactive new deposit accounts
that, after 62 days, have a zero balance, without
assessing a monthly fee.
LThis year alone, we have committed more than $50
million to enhanced quality assurance monitoring.
LWe have expanded an independent third-party mystery
shopper program, adding risk professionals to provide
greater oversight, and expanding our customer complaint
servicing and resolution process.
LWe are surveying team members to understand their
views on our Company's approach to ethics and
integrity.
LWe also have commenced the process with our
regulators to engage an independent consultant to
review sales practices in Community Banking. In
addition, we will be engaging external consultants to
review sales practices across the Company.
LAnd we will be engaging outside independent culture
experts to help us understand where we have cultural
weaknesses that need to be strengthened or fixed.
Q.7. It was only recently that you ended the incentives policy
that apparently inspired the fraud. I have heard that Wells has
had a culture of exercising pressure on employees to bring in
accounts. Walk me through how you are going to change the
overall culture at the retail bank. Have you hired independent
auditors to suggest future changes to your compliance regime?
A.7. Please see the response to Question 6 above for a detailed
list of changes Wells Fargo is implementing to enhance
oversight, expand customer transparency, and improve the
customer experience.
Senior management has recognized that there are issues that
need to be fixed within our culture. There are weaknesses
within it that we must change. Undue pressure on team members
to do things inconsistent with our vision and values has no
place in our culture. That is why the terminations over the
last 5 years have included 483 managers, up to three levels
above bankers and tellers, when investigations have found that
managers engaged in or directed improper sales practices or
exhibited excessive pressure and did not respond promptly and
decisively to change their behavior. A team member has many
avenues to escalate, including our anonymous EthicsLine. We
take each matter seriously and enforce our Nonretaliation
Policy.
In addition to the steps outlined in Question 6 above,
Wells Fargo has also increased training in many areas related
to ethics and integrity. Currently, all team members in the
retail banking business go through sales-integrity training as
part of their Essential Learning Program when they begin at
their positions, and are required to complete additional annual
compliance training over the course of their careers. New
training programs implemented in 2015 are tailored to the
respective positions, and include scenario-based modules to
help prepare team members for situations that they are likely
to encounter in the course of their work. Wells Fargo Regional
Bank team members are also required to complete approximately
two dozen different modules of annual compliance training.
Additionally, in 2012, Wells Fargo began requiring bankers to
annually certify to having read the Sales and Service Quality
Manual, which is updated every year to address emerging sales-
integrity issues and specifically outlines proper and improper
sales practices. Wells Fargo also began to implement an annual
``Leadership Summit'' in 2014 to provide additional training
for all leadership personnel in the retail banking business
(more than 850 District Managers, Area Presidents and Regional
Presidents). This summit provides guidance on leading teams in
a way that is consistent with sales ethics, including on
incentivizing good behavior, and providing coaching to correct
undesirable activities.
Last, pursuant to the Consumer Financial Protection Bureau
(CFPB) and Office of the Comptroller of the Currency (OCC)
Consent Orders, Wells Fargo will retain the services of an
independent consultant to review the Company's policies and
procedures to determine if they are reasonably designed to
ensure that Wells Fargo's sales practices comply with all
applicable Federal consumer
financial laws.
Q.8. What percentage of compensation for the employees engaged
in the wrongful behavior was derived from the cross-selling
incentives? For example, if a banker earned $50,000 for the
year, was 50 percent derived from cross-selling?
A.8. For the terminated team members, the average incentive
compensation (sales and service) was 3.3 percent of base
salary. Sales incentives included incentives for Regional
Banking products and cross-sell partner referrals. There were
no specific percentages or delineation between the products, as
both were components of the sales-related incentive metrics.
Q.9. It looks like Carrie Tolstedt, the executive responsible
for the retail unit, conveniently announced plans to retire
over the summer and is walking away with up to $125 million, at
least $45 million of which would not have vested had she been
fired instead of allowed to retire, according to Fortune. How
do you explain this in light of the obvious misbehavior in her
unit? Why was she allowed to ``retire'' in the middle of your
negotiations with regulators? Put another way, she was in
charge of the retail unit. Why did you not terminate her
employment?
Q.10. Do you understand that some might find it odd that the
complaint was filed in 2015, but this summer you referred to
Carrie Tolstedt as a ``role model'' and ``standard-bearer for
our culture?'' Do you think that the way that Ms. Tolstedt ran
her division exemplifies your culture?
A.9.-A.10. In early 2016, Mr. Stumpf, in consultation with
Wells Fargo's Chief Operating Officer, decided that for various
reasons the business would move in a different direction,
meaning that Ms. Tolstedt would be removed from the leadership
of the Community Bank, which took place effective July 31,
2016. After Ms. Tolstedt was told of that decision, she decided
that she would retire at the end of 2016. In September 2016 the
board's Independent Directors determined that Ms. Tolstedt
should immediately separate from Wells Fargo, that all of her
unvested equity compensation, valued at approximately $19
million, would be forfeited, that she would not receive a bonus
for 2016, and that she could be subject to
further compensation and other actions based upon the results
of the Independent Directors' investigation. The Independent
Directors also took steps to ensure that stock options awarded
to Ms. Tolstedt in prior years would remain subject to
forfeiture based upon the board's determinations following its
investigation.\1\ Ms. Tolstedt has agreed to not exercise any
outstanding stock options previously awarded by Wells Fargo
until the completion of that
investigation.
---------------------------------------------------------------------------
\1\ Wells Fargo, September 27, 2016, Form 8-K, (available online at
https://www.sec.gov/Archives/edgar/data/72971/000119312516722259/
d266244d8k.htm).
Q.11. I supported claw backs for executives who commit fraud,
misstate earnings, or otherwise engage in wrongful behavior in
Dodd-Frank. Why shouldn't aggressive claw backs, relating to
the time period of this fraud (2011-2016), apply to all senior
executives responsible for management of Wells Fargo? If you do
not claw back a substantial amount of compensation, your
shareholders will shoulder the burden of the $185 million in
fines and restitution--do you think it is fair for your
shareholders to shoulder that burden, as opposed to senior
---------------------------------------------------------------------------
Wells Fargo management?
A.11. The Independent Directors of the Board of Directors of
Wells Fargo announced on September 27, 2016, that they have
launched an independent investigation into the Company's retail
banking sales practices and related matters, including to
determine whether compensation claw backs are appropriate. A
special committee of Independent Directors will lead the
investigation, working with the board's Human Resources
Committee and independent counsel.
The Independent Directors have taken a number of initial
steps they believe are appropriate to promote accountability at
the Company. They have agreed with Mr. Stumpf that he will
forfeit all of his outstanding unvested equity awards, valued
at approximately $41 million. In addition, he will not receive
a bonus for 2016. Carrie Tolstedt has left Wells Fargo, and the
Independent Directors have determined that she will forfeit all
of her outstanding unvested equity awards, valued at
approximately $19 million. Ms. Tolstedt will not receive a
bonus for 2016 and will not be paid severance or receive any
retirement enhancements in connection with her separation from
the Company. She has also agreed that she will not exercise her
outstanding options during the pendency of the investigation.
These initial actions will not preclude additional steps being
taken with respect to Mr. Stumpf, Ms. Tolstedt, or other
executives as a consequence of the information developed in the
investigation.\2\
---------------------------------------------------------------------------
\2\ Wells Fargo, ``Independent Directors of Wells Fargo Conducting
Investigation of Retail Banking Sales Practices and Related Matters
(press release)'' (Sept. 27, 2016) (available online at https://
www.wellsfargo.com/about/press/2016/independent-directors-
investigation_0927/).
Q.12. In the settlement with regulators, Wells Fargo did not
admit to any wrongdoing. Why not? Do you believe what Wells
Fargo
---------------------------------------------------------------------------
employees did was wrong?
A.12. The particulars of the settlement were reached upon
discussions with our regulators which are considered
confidential supervisory information. However, Wells Fargo's
management team did not identify or address the problems early
enough. And there is no question that we view the actions of
certain of our team members to be wholly unacceptable and
wrong.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MERKLEY FROM JOHN G.
STUMPF
Q.1. In the case of Gutierrez v. Wells Fargo, Judge William
Alsup found Wells Fargo guilty of manipulating the order of its
customers' transactions from 2004 to 2008 in order to maximize
overdraft fees. Judge Alsup found that Wells Fargo reordered
transactions, charging the largest transaction first rather
than charging the transaction in chronological order. By
reordering the transactions, Wells Fargo ensured that the
consumer's bank account was depleted faster and the bank would
be able to charge a higher number of overdraft fees.
After the 2008 lawsuit, are you aware of any more instances
and/or cases where Wells Fargo was accused of engaging in
reordering?
Q.2. If so, please list the instances and/or cases.
A.1.-A.2. Many banks, including Bank of America, Capital One,
Citibank, Citizens Bank, HSBC Bank, JPMorgan Chase Bank,
KeyBank, TD Bank, U.S. Bank, and Union Bank have confronted
lawsuits alleging transaction reordering. Several of the
lawsuits filed against Wells Fargo (and Wachovia, with which it
merged in 2008) have been dismissed, including Phillip Pena v.
Wachovia Bank, N.A. (D.N.J., Case No. 1:08-5263); Vollmer v.
Wachovia Bank, N.A. (N.D. Ga., Case No. 1:09-560); Poulin, et
al. v. Wachovia Bank, N.A. (S.D. Fla., Case No. 09-cv-21863-
JLK); Williams v. Wachovia Bank, N.A.(N.D. Cal., Case No. 3:09-
5622); Green, Jr. v. Wachovia Bank, N.A. (N.D. Ga., Case No. 1
10-1176); Churchwell v. Wells Fargo Bank, N.A. (S.D. Fla., Case
No. 1:09-cv-23153); McMillan v. Wells Fargo Bank, N.A. (N.D.
Cal., Case No. 3:08-5739); Egan v. Wells Fargo Bank, N.A. (D.
Col., Case No. 1:09-253); Mortenson v. Wells Fargo Bank, N.A.
(D. Nev., Case No. 3:09-65); Ray v. Wells Fargo Bank, N.A.
(N.D. Cal., Case No. 3:09-4700); Mitchell v. Wells Fargo Bank,
N.A. (S.D. Tex., Case No. 4:09-2578); Preston & Assoc. Int'l v.
Wells Fargo Bank, N.A. (D. Col., Case No. 1:09-2940); Braden v.
Wells Fargo Bank, N.A. (C.D. Cal., Case No. 2:10-3423);
Townsend v. Wells Fargo Bank, N.A. (C.D. Cal., Case No. 2:10-
550); and Kennedy v. Wells Fargo Bank, N.A. (N.D. Cal., Case
No. 3:11-01222).
The remaining cases brought against Wells Fargo and
Wachovia have been consolidated in a multidistrict litigation
proceeding in the United States District Court for the Southern
District of Florida. These cases include Garcia, et al. v.
Wachovia Bank, N.A. (S.D. Fla., Case No. 1:08-cv-22463-JLK);
Spears-Haymond v. Wachovia Bank, N.A. (S.D. Fla., Case No.
1:09-cv-21680-JLK); Dolores Gutierrez v. Wells Fargo Bank, N.A.
(S.D. Fla., Case No. 1:09-cv-23685-JLK); Martinez v. Wells
Fargo Bank, N.A. (S.D. Fla., Case No. 1:09-cv-23834); and
Zankich v. Wells Fargo Bank, N.A. (S.D. Fla., Case No. 1:09-cv-
23186-JLK). The consolidated cases against Wells Fargo and
Wachovia are currently on appeal to the Eleventh Circuit.
Q.3. Earlier this month Wells Fargo admitted to opening 2
million unauthorized bank accounts and credit cards. Given the
recent
revelations of unauthorized activity committed by Wells Fargo,
along with a history of reordering transactions, your consumers
deserve to know if they were unknowingly opted-in to overdraft
protection.
During your tenure, has Wells Fargo ever enrolled customers
in overdraft protection without their knowledge or
authorization?
Q.4. If yes, how many customers were opted-in to overdraft
protection without their authorization?
A.3.-A.4. Wells Fargo is committed to providing only those
services that our customers need or want, including overdraft
services. The reviews to be undertaken will examine this issue.
Customers are encouraged to contact us if they have any issues
or concerns.
Please note that Wells Fargo has not ``admitted to opening
2 million unauthorized bank accounts and credit cards.'' That
figure
refers to accounts that could have been [emphasis added]
unauthorized. Please see our response to Senator Reed's
Question 1 for additional details.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE FROM JOHN G.
STUMPF
Q.1.a. I'd like to discuss how this scandal impacted Nebraska.
Of the roughly 5,300 employees who were fired, how many of
them worked in Nebraska?
A.1.a. Of the approximately 5,300 Wells Fargo team members
whose employments were terminated for sales-integrity
violations from 2011 to 2015, 47 worked in Nebraska.
Q.1.b. During the 2011 through 2015 period covered by the
CFPB's fine, were any Wells Fargo employees fired for failing
to meet sales quotas? If so, how many?
Q.1.c. Of those fired employees working in Nebraska, how many
of them were at risk of being fired for failing to meet product
sales quotas?
A.1.b.-c. Wells Fargo cannot quantify with any degree of
confidence how many team members' employments, if any, were
terminated, solely for not meeting sales goals. The bank tracks
involuntary terminations for failure to perform job duties,
which can include a range of issues. It is possible that team
members' employments were terminated solely for not meeting
sales goals; however, Wells Fargo has safeguards in place to
help ensure that managers remain focused on assessing team
members' overall performance in helping customers succeed
financially, not just whether they meet an individual sales
goal. This includes a strong performance management program,
which provides for coaching and feedback to help team members
succeed, involvement of Human Resources in disciplinary
decisions, including termination decisions, and a termination
review process undertaken by the Employee Relations function
that is independent of the members of business management who
made the termination decision. Additionally, Wells Fargo has
established a process to enable former team members who contact
the Company today to request a review of their termination,
even if they did not utilize the Company's termination appeal
and review processes at the time of their departure. Former
team members who did utilize the Company's appeal processes in
the past will be provided with an additional review. Former
team members who express interest in reemployment and are
deemed to be eligible for reemployment through this review
process will be able to work with a special recruiting team to
assist in exploring
opportunities at Wells Fargo. All of the team members
referenced in Question 1(a) were terminated for sales-integrity
violations, not for failing to meet product sales goals.
Q.1.d. Of those fired employees working in Nebraska, please
provide a percentage breakdown of the position held by each of
the fired employees before they were fired.
A.1.d. The majority held personal banker (51 percent) or teller
(23 percent) positions at the time of termination. The other
team members who were terminated were employed in a variety of
Regional Bank roles, including Customer Sales & Service
Representative, Business Banking Specialist, Assistant Store
Manager, Service Manager, and Store Manager.
Q.1.e. How many of those accounts classified as potentially
fraudulent were opened in Nebraska?
Q.1.f. How many unauthorized fees and fines were levied on
Nebraska consumers in relation to this scandal? What is the
total cost of these fees and fines?
A.1.e.-f. We asked PricewaterhouseCoopers (PwC) to analyze
approximately 82 million deposit accounts for instances of
potential simulated funding and approximately 11 million credit
card accounts for instances of lack of authorization. The
accounts reviewed were opened between 2011 and 2015. Of the
accounts reviewed, PwC found that approximately 623,000
consumer and business credit card accounts could have been
[emphasis added] unauthorized, and approximately 1.5 million
deposit accounts could have [emphasis added] experienced
simulated funding, that is, the unauthorized deposit and
withdrawal of funds intended to create the false appearance
that the account was being used by the customer. PwC did not
[emphasis added] conclude that any of these accounts were
unauthorized and/or experienced simulated funding; it just
could not rule out these possibilities because its analysis of
credit card authorization and potential simulated funding in
deposit accounts was intentionally designed to be over-
inclusive. For example, PwC flagged all credit card accounts
that were not used and were not ``fraud activated'' by the
customer calling an 800 number after receiving the card, unless
there were indications of customer consent, even though there
are many reasons why a customer may not activate their card. We
took this intentionally expansive approach because we were
willing to refund fees to customers who, in fact, approved
account openings, but subsequently allowed the accounts to
lapse, so that we did not exclude customers who may have
suffered harm.
We have found indications that the PwC number includes
accounts where the customer authorized its opening. For
example, Wells Fargo has worked to contact customers with open,
inactive credit card accounts identified by PwC (i.e., the
customers with
accounts that could have been [emphasis added] unauthorized) to
determine whether they want these credit cards. Approximately
25 percent have informed the bank that they either did not
apply, or did not recall whether or not they applied, for their
card.
Of the approximately 2.1 million accounts that PwC
identified, PwC identified approximately 12,000 Nebraska-based
deposit and credit card accounts in its review for which it
could not rule out the possibility that they were unauthorized
and /or experienced simulated funding. For the reasons
described, it is likely that not all of these accounts had
simulated funding and/or were
unauthorized.
For the approximately 2.1 million deposit and credit card
accounts that PwC identified, Wells Fargo refunded all
potentially unauthorized charges. PwC's review found that of
the roughly 2.1 million accounts identified, approximately
115,000 accounts were charged a fee, totaling $2.66 million in
revenue to Wells Fargo. That figure, substantially all of which
has been refunded to affected customers via check or direct
deposit, is far surpassed by the costs associated with opening
and closing the unused accounts.
To Nebraska customers specifically, Wells Fargo paid
approximately $14,000 to remediate potentially unauthorized
charges. Again, for the reasons described, the remediation
amount likely overstates the actual amount of unauthorized
charges on these
accounts.
Q.2.a. I'd like to ask about Carrie Tolstedt's role in the
fraudulent accounts scandal.
When was Ms. Tolstedt first informed about Wells Fargo
employees who were fired for creating fraudulent accounts?
Please provide a specific date.
A.2.a. Wells Fargo cannot determine for certain the first time
Ms. Tolstedt was told that a team member's employment was
terminated for committing a sales violation. Like any large
employer, Wells Fargo constantly monitors sales-integrity
issues so that, as issues came up that needed to be addressed,
Ms. Tolstedt would be informed about those issues. It is our
present understanding that these issues were likely raised with
Ms. Tolstedt in or around 2011 but the ongoing investigation by
the Independent Directors of the Board of Directors and others
is looking carefully at this question.
Q.2.b. If Ms. Tolstedt was fired for her role in the scandal,
would she have received less total lifetime compensation (in
any form)? If so, how much less compensation?
Q.2.c. How much of Ms. Tolstedt's total, lifetime compensation
(in any form), as of September 20, 2016, was eligible for
clawback?
Q.2.d. How much of Ms. Toldstedt's total, lifetime compensation
(in any form) was earned from 2011 through 2016?
Q.2.e. What legal and/or contractual standard must Wells Fargo
evaluate in order to determinate if any of Ms. Tolstedt's
compensation (in any form) should be clawed back?
A.2.b.-e. Ms. Tolstedt has left Wells Fargo. She has agreed to
not exercise any outstanding stock options previously awarded
by Wells Fargo until the completion of the board of directors'
investigation and that, at the conclusion of this
investigation, the board (or the Independent Directors of the
Board or the Human Resources
Committee, through board delegation) will have the authority to
determine the extent to which such options will be
forfeited.\1\
---------------------------------------------------------------------------
\1\ Wells Fargo, September 27, 2016, Form 8-K (available online at
https://www.sec.gov/Archives/edgar/data/72971/000119312516722259/
d266244d8k.htm).
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The board's Independent Directors have determined that all
of Ms. Tolstedt's unvested equity compensation, valued at
approximately $19 million, would be forfeited, and that she
would not
receive a bonus for 2016 or any retirement enhancements or
severance package in connection with her separation from Wells
Fargo. No incentive compensation was granted to Ms. Tolstedt as
a result of her separation from the Company, and none of her
equity awards will be ``triggered'' or otherwise increased or
accelerated by her separation. Ms. Tolstedt could be subject to
further compensation and other actions based upon the results
of the Independent Directors' investigation.\2\
---------------------------------------------------------------------------
\2\ Wells Fargo, ``Independent Directors of Wells Fargo Conducting
Investigation of Retail Banking Sales Practices and Related Matters
(press release)'' (Sept. 27, 2016) (available online at https://
www.wellsfargo.com/about/press/2016/independent-directors-
investigation_0927/).
---------------------------------------------------------------------------
Ms. Tolstedt's total compensation from 2011 to 2015, as
reported in accordance with SEC rules, is provided in the table
below:\3\
---------------------------------------------------------------------------
\3\ 2011-2013 compensation figures available in Wells Fargo, 2014
Proxy Statement, at 53 (available online at https://www.sec.gov/
Archives/edgar/data/72971/000119312514104276/d663896ddef14a.htm); 2013-
2015 compensation figures available in Wells Fargo, 2016 Proxy
Statement, at 3 (available online at https://www.sec.gov/Archives/
edgar/data/72971/000119312516506771/d897049ddef14a.htm).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Tolstedt's stock holdings and outstanding compensation
as of September 16, 2016, fell into three categories: (a) Wells
Fargo shares that Ms. Tolstedt owned outright and acquired
during her 27-year career with the Company; (b) vested, but
unexercised stock options granted in February 2008 and February
2009; and (c) unvested and unpaid restricted share rights and
performance share awards granted between February 2014 and
---------------------------------------------------------------------------
February 2016:
(1) LMs. Tolstedt owned 960,175 shares of Wells Fargo stock
that were worth approximately $43.6 million based on
Wells Fargo's September 16, 2016, closing stock price.
(2) LMs. Tolstedt had vested, but unexercised stock options
granted in February 2008 and February 2009 that were
worth approximately $34.1 million pre-tax, based on
Wells Fargo's September 16, 2016, closing stock price
and each award's
exercise price.
(3) LMs. Tolstedt had unvested and unpaid equity awards in
the form of restricted share rights and performance
share awards, granted between February 2014 and
February 2016, with a target value of approximately
$18.9 million pre-tax based on Wells Fargo's September
16, 2016, closing stock price.
On September 27, 2016, the board announced that the
Independent Directors had determined that Ms. Tolstedt would
forfeit all of this last category, i.e., the outstanding
unvested equity awards, valued at approximately $19 million.\4\
Ms. Tolstedt also agreed that she would not exercise her
outstanding options during the pendency of the investigation
undertaken by the Independent Directors. These initial actions
do not preclude additional steps being taken with respect to
Ms. Tolstedt as a consequence of the information developed in
the investigation.
---------------------------------------------------------------------------
\4\ Wells Fargo, ``Independent Directors of Wells Fargo Conducting
Investigation of Retail Banking Sales Practices and Related Matters
(press release)'' (Sept. 27, 2016) (available online at https://
www.wellsfargo.com/about/press/2016/independent-directors-
investigation_0927/).
---------------------------------------------------------------------------
For example, the board has the authority to evaluate
previously paid incentive compensation, including prior annual
incentive awards, under its Extended Clawback Policy. Wells
Fargo's Extended Clawback Policy applies to any bonus payment
(such as previously paid annual incentive awards and vested
equity awards)
already made to Wells Fargo's executive officers, if the bonus
payment was based on materially inaccurate financial statements
or any other materially inaccurate performance metric criteria.
The board delegated to the Human Resources Committee the
authority to make determinations with respect to the
application of the
Policy, including the value of the bonus payment, the amount of
bonus payment (if any) that was based on materially inaccurate
performance metric criteria, whether a performance metric
criteria is material or materially inaccurate, and whether the
inaccurate measurement of performance or application of
performance to performance criteria is material. Under the
Policy, the Company must exercise its rights to the fullest
extent permitted, unless it would be unreasonable to do so.
More generally, Wells Fargo has multiple recoupment or
clawback policies and provisions in place that are applicable
to current and former executive officers, including Ms.
Tolstedt. The following table \5\ describes these policies:
---------------------------------------------------------------------------
\5\ Wells Fargo, 2016 Proxy Statement, at 47-48 (available online
at https://www.sec.gov/Archives/edgar/data/72971/000119312516506771/
d897049ddef14a.htm).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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\6\ Adopted June 15, 2009, and extended February 2010.
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The board (or the Independent Directors or the Human
Resources Committee, through board delegation) will assess the
relevant facts and circumstances, the award terms, and Wells
Fargo's recoupment and clawback policies to determine whether
to cancel or clawback any more of Ms. Tolstedt's incentive
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compensation.
Q.2.f. On what specific date did Ms. Toldstedt (or any other
Wells Fargo employee) first inform you of any item relating to
the fraudulent accounts scandal?
A.2.f. It is our understanding that, from time to time, because
of Mr. Stumpf's position, individuals would contact him
directly and complain about issues and that Mr. Stumpf did
receive complaints about sales-practice issues over the years.
When Mr. Stumpf received such complaints, our understanding is
that his practice was to forward them to the appropriate
internal team, such as Human Resources, to address.
Mr. Stumpf has said that he recalls learning of the
increase in the number of reports of sales-practice issues in
late 2013.
Please note that the Independent Directors of Wells Fargo's
Board of Directors have launched an investigation into sales-
practice issues, and that investigation is ongoing.
Q.3.a. It has been reported that Wells Fargo is going to end
sales goals for its retail products by the end of the year.
Please describe the new system that will replace these
sales goals.
A.3.a. While our go-forward plan is still being developed under
the leadership of Mary Mack, the new head of our Community
Banking Division, we contemplate using customer service,
growth, and risk management as criteria on which we will
evaluate our teams and individual team members, focused on
positive customer outcomes.
Q.3.b. Will any employee compensation be contingent on this new
system?
A.3.b. Regional Bank team members who serve retail customers in
bank branches will be eligible for bonus compensation based
upon a combination of the factors enumerated in Question 3,
subpart (a) above.
Q.3.c. Will employees who fail to meet the criterion under this
new system be fired?
A.3.c. As has always been, and will remain, the case in the
Community Banking Division, decisions to terminate a team
member are made on a case-by-case basis upon consideration of
all relevant facts and circumstances.
Q.3.d. Will product sales be considered as a part of this new
system?
A.3.d. No. Regional Bank team members who serve retail
customers in bank branches will not be evaluated on product
sales goals going forward.
Q.3.e. What steps will Wells Fargo take to ensure that the new
system does not incentivize the creation of fraudulent
accounts?
A.3.e. While our go-forward plan is still being developed, we
are confident that our customer service, growth, and risk
management metrics will align our team member incentives with
our customers' interests.
Q.4.a. I'd like to discuss the geographic distribution of the
potentially fraudulent accounts.
What percentage of the potentially fraudulent accounts were
located in the city of Los Angeles? What about the percentage
of employees fired for creating potentially fraudulent
accounts?
A.4.a. Approximately 9 percent of the deposit and credit card
accounts identified by PwC were located in the city of Los
Angeles. Please see the response to Question 1, subparts (e-f)
above for more information about PwC's process for identifying
these accounts.
Of the approximately 5,300 Wells Fargo team members whose
employments were terminated from 2011 to 2015 for sales-
integrity violations, approximately 5 percent worked in zip
codes located in the city of Los Angeles.
Q.4.b. What percentage of the potentially fraudulent accounts
were located in the Southwest Region? What about the percentage
of employees fired for creating potentially fraudulent
accounts?
A.4.b. Approximately 16 percent of the deposit and credit card
accounts identified by PwC were located in the Southwest
region, specifically the States of Texas, Oklahoma, Arizona,
and New Mexico. Please see the response to Question 1, subparts
(e-f) above for more information about PwC's process for
identifying these
accounts.
Of the approximately 5,300 Wells Fargo team members whose
employments were terminated from 2011 to 2015 for sales-
integrity violations, approximately 15 percent worked in the
Southwest region.
Q.4.c. What factors contributed to the geographic distribution
of the fraud?
A.4.c. Wells Fargo is working hard to address any Company-wide
or region-specific processes that may have led certain team
members to behave in a way contrary to Wells Fargo's vision,
values, and culture. That is one reason Wells Fargo has
eliminated product sales goals entirely for Regional Bank team
members who serve customers in our retail branches.
Q.4.d. Did Wells Fargo evaluate the potential for geographic
diversity in terms of the ability to meet product sales goals?
A.4.d. Yes. From 2011 to 2016, product sales goals varied by
store year-to-year and across regions.
Q.4.e. Did Wells Fargo adjust the product sales goals to match
each region?
A.4.e. Effective October 1, 2016, Wells Fargo no longer uses
product sales goals for Regional Bank team members who serve
customers in our retail branches. From 2009 to October 1, 2016,
for the western markets and following the Wachovia/Wells Fargo
conversion for the eastern markets, Wells Fargo centralized
responsibility for setting store goals with its national
leadership team working in conjunction with regional and local
managers to determine appropriate goals for each store. A
variety of factors were considered in determining the specific
goals at the regional and store level, including customer
demand and traffic, market demographics, and staffing levels.
Q.5.a. I'd like to discuss the employees who were fired for
creating fraudulent accounts.
Starting in 2009, when was the first employee fired for
creating fraudulent accounts? Please provide a specific date.
Q.5.b. Starting in 2009, when were the first 100 employees
fired for creating fraudulent accounts? Please provide a
specific date.
Q.5.c. Starting in 2009, when were the first 1,000 employees
fired for creating fraudulent accounts? Please provide a
specific date.
A.5.a.-c. From 2011 to 2015, the employments of approximately
5,300 team members were terminated for sales-integrity
violations. Approximately 1,000 were terminated each year. For
example, investigations by the Corporate Investigations group
in 2013 resulted in the termination of 1,245 Community Banking
team members. That is approximately 1 percent of Wells Fargo's
total population of Community Banking team members.
Q.5.d. How many employees were fired for failing to meet sales
quotas during the 2011 through 2015 period covered by the
CFPB's fine?
Q.5.e. Were any of the employees who were fired for creating
fraudulent accounts at risk of being fired for missing product
sales goals? If so, what percentage of these employees were at
risk?
A.5.d.-e. Wells Fargo cannot quantify with any degree of
confidence how many team members' employments, if any, were at
risk of being terminated for not meeting sales goals. The bank
tracks involuntary terminations for failure to perform job
duties, which can include a range of issues. It is possible
that team members' employments were terminated solely for not
meeting sales goals; however, Wells Fargo has safeguards in
place to help ensure that managers remain focused on assessing
team members' overall performance in helping customers succeed
financially, not just whether they meet an individual sales
goal.
Q.5.f. During the period covered by the CFPB's fine, how much
of an employee's salary was contingent upon meeting product
sales goals? Please provide a detailed breakdown, covering each
category of employees who were fired for creating fraudulent
accounts.
A.5.f. Prior to our elimination of product sales goals,
Regional Bank team members serving customers in our retail
branches were eligible for earned incentive compensation based
in part on sales performance. Leading up to the elimination of
product sales goals, effective October 1, 2016, the actual
incentive payouts based on sales-related performance objectives
(distinct from service and other performance objectives)
declined considerably: the median incentive paid as a
percentage of total salary for sales-related objectives for
tellers, for example, declined from 4.6 percent in 2011 to 0.9
percent in 2015. Historically, the target incentive opportunity
for overall performance objectives was approximately 3 percent
of base compensation for tellers and the target for the
majority of personal bankers was approximately 10 percent of
base compensation. All incentive plans were capped.
Q.5.g. What was the position of the highest ranking Wells Fargo
employee who was fired in connection with this scandal?
A.5.g. Of the approximately 5,300 team members whose
employments were terminated for sales-integrity violations from
2011 to 2015, the highest ranking Wells Fargo team member
terminated held the position ``Regional Banking Area President
2.''
Q.5.h. Please provide a percentage breakdown of the position
held by each of the fired employees before they were fired.
A.5.h. Approximately 65 percent of the terminated team members
were in Personal Banker positions or functionally similar roles
and 7 percent were in Teller positions. In addition, we
terminated the employment of over 480 team members in
supervisory positions, including store managers and persons up
to three levels above bankers and tellers, when investigations
have found that those team members engaged in or directed
improper sales practices or exhibited excessive pressure and
did not respond promptly and decisively to change their
behavior.
Q.6.a. I'd like to follow up on Senator Toomey's questioning
about Wells Fargo's SEC filings.
Did Wells Fargo ever disclose in its SEC filings that it
had a materially adverse set of circumstances relating to false
accounts that could result in a large fine from multiple
regulators? If so, when? If not, why?
Q.6.b. If Wells Fargo did not disclose this information, would
Wells Fargo have disclosed it if Wells Fargo had known about
the public and market reaction to the fraudulent accounts
scandal, along with the size and the associated fines?
Q.6.c. If not, what are the conditions under which Wells Fargo
would disclose in its SEC filings that it is facing a
significant regulatory or criminal risk?
Q.6.d. In response to the fraudulent accounts scandal, has
Wells Fargo changed its standards and process for evaluating if
and how to disclose potential regulatory risk in SEC filings?
A.6.a.-d. Each quarter, we look at the relevant and appropriate
facts available to us to determine whether a legal matter is
material and should be disclosed in our public filings.
Discerning materiality is not a mechanical exercise but rather
is a determination based on judgments informed by the facts and
circumstances known at the time the determination is made.
Based on the facts and circumstances as we knew them at the
time, we concluded that the sales-practices investigations by
the Consumer Financial Protection Bureau (CFPB), the Office of
the Comptroller of the Currency (OCC), and the Los Angeles City
Attorney were not material. This was a considered determination
based upon what we understood at the time these investigations
were occurring.
As part of our ongoing review process, we continued to
evaluate the ongoing developments since the announcement of the
settlements to determine whether any filings or disclosures
should be made. In conjunction with our Form 8-K filing on
September 28, 2016, announcing our former CEO John Stumpf's and
our former Community Banking head Carrie Tolstedt's forfeiture
of their unvested equity awards, we determined that it was
appropriate to disclose the relevant legal developments that
had occurred since the announcement of the settlements. As
noted in our Form 8-K, these included ``formal or informal
inquiries, investigations or examinations'' from ``[F]ederal,
State, and local government agencies, including the United
States Department of Justice, and State attorneys general and
prosecutors' offices, as well as Congressional committees . . .
''\7\ Furthermore, our Form 10-Q filing on November 3, 2016,
contained additional disclosures concerning sales practices
matters, including an update to our legal actions disclosures
and the addition of a new risk factor summarizing the legal
developments and related events that had occurred since the
announcement of the settlements and noting the potential that
``negative publicity or public opinion resulting from these
matters may increase the risk of reputational harm to our
business . . . ''\8\ We will continue to review developments
related to sales practices matters and make additional
disclosures as the facts and circumstances warrant.
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\7\ See Wells Fargo, September 28, 2016, Form 8-K (available online
at https://www.sec.gov/Archives/edgar/data/72971/000119312516722259/
d266244d8k.htm).
\8\ See Wells Fargo, November 3, 2016, Form 10-Q at 67 (available
online at https://www.sec.gov/Archives/edgar/data/72971/
000007297116001340/wfc-9302016x10q.htm).
Q.7.a. I'd like to discuss the compensation that Wells Fargo
provided to its customers that were impacted by the fraudulent
accounts scandal.
When did Wells Fargo first learn that it had customers who
were charged fraudulent fines and fees for fake accounts that
were opened in their name?
A.7.a. Because of the way that inactive accounts are
automatically closed and the way that fees are assessed, Wells
Fargo did not initially realize that certain customers may have
paid fees on accounts that they did not authorize or use. In
2015, the Company realized that, in a small percentage of
cases, fees had been paid.
Q.7.b. How soon after learning about these inappropriate fines
did Wells Fargo compensate their customers for this fraud?
A.7.b. After realizing that fees were paid in a small
percentage of cases, PwC analyzed deposit and credit card
accounts. PwC's analysis focused on potential simulated funding
in deposit accounts, and the potential lack of customer
authorization of credit card accounts. After PwC completed its
analysis, Wells Fargo promptly made direct deposits and issued
checks to refund substantially all fees, with interest, that
were assessed on the approximately 2.1 million accounts
identified by PwC.\9\ These refunds were issued without
determining that any particular account was unauthorized.
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\9\ Refunds were not made if the amount paid by the customer plus
interest was less than $1.00.
Q.7.c. Does Wells Fargo plan on compensating its customers for
all reasonable costs associated with this fraud, including any
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potential drop in their customer's credit score?
Q.7.d. If so, how does Wells Fargo plan on identifying and
compensating every customer who may have suffered a drop in
credit score in association with the fraudulent accounts
scandal?
A.7.c.-d. Wells Fargo is working very hard to remediate harm
that may have been caused to our customers. To that end,
pursuant to the CFPB and OCC Consent Orders, Wells Fargo will
retain the services of an independent consultant and develop
redress and reimbursement plans to identify the population of
consumers who may have been affected by improper sales
practices. We fully expect that, once approved by our
regulators, the redress and reimbursement plans will encompass
various forms of harm, including harm related to credit bureau
inquiries, and that Wells Fargo will issue and track
reimbursement payments.
We asked PwC to analyze approximately 82 million deposit
accounts for instances of potential simulated funding and
approximately 11 million credit card accounts for instances of
lack of authorization. The accounts reviewed were opened
between 2011 and 2015. Of the accounts reviewed, PwC found that
approximately 623,000 consumer and business credit card
accounts could have been [emphasis added] unauthorized, and
approximately 1.5 million deposit accounts could have [emphasis
added] experienced simulated funding, that is, the unauthorized
deposit and withdrawal of funds intended to create the false
appearance that the account was being used by the customer. In
other words, PwC did not [emphasis added] conclude that these
accounts were unauthorized and/or experienced simulated
funding; it just could not rule out these possibilities because
its analysis of credit card authorization and potential
simulated funding in deposit accounts was intentionally
designed to be over-inclusive. For example, PwC flagged all
credit card accounts that were not used and were not ``fraud
activated'' by the customer calling an 800 number after
receiving the card, unless there were indications of customer
consent, even though there are many reasons why a customer may
not activate their card.
Of the subset of accounts identified, PwC determined that
approximately 115,000 accounts were charged a fee, averaging
less than $25 per account and totaling $2.66 million in revenue
to Wells Fargo. That figure is far surpassed by the costs
associated with opening and closing the unused accounts. Wells
Fargo has already made direct deposits and issued checks to
refund these fees. We took this intentionally expansive
approach because we were willing to refund fees to customers
who, in fact, approved account openings, but subsequently
allowed the accounts to lapse, so that we did not exclude
customers who may have suffered harm.
We have found indications that the PwC number includes
accounts where the customer authorized its opening. For
example, Wells Fargo has worked to contact customers with open,
inactive credit card accounts identified by PwC (i.e., the
customers with accounts that could have been [emphasis added]
unauthorized) to determine whether they want these credit
cards. Approximately 25 percent have informed the bank that
they either did not apply, or did not recall whether or not
they applied, for their card. These results demonstrate that
PwC's findings as to credit card accounts were over-inclusive,
containing accounts where the customer authorized the opening
of the account.
For those customers who want the credit card, the account
will remain open. For any customer who does not want their
credit card, Wells Fargo is closing the account and correcting
credit bureau reporting. This means we are removing the account
from the customers' credit reports going forward and
suppressing the existence of the inquiry so that it is not
viewable to other lenders or requestors.
(The Fair Credit Reporting Act prohibits us removing the
inquiry altogether and it will still be visible to customers
pulling their own credit reports.)
Moreover, we are in the process of determining how many
customers obtained a credit product, with Wells Fargo or
another company, during the time period in which their credit
score may have been impacted by an unauthorized credit inquiry
or existence of the trade line. While it may be difficult to
calculate the precise impact for every customer, our intent is
to err on the side of the customer and make them whole for
negative repercussions that were tied to a drop in their credit
score. This could include impacts on pricing, line or loan
size, or credit decision. We have allocated significant
resources to this effort and are working with the credit
bureaus to develop a plan for submission to our regulators.
Going forward, Wells Fargo is voluntarily expanding its
review of accounts to include 2009 and 2010. Wells Fargo also
provides resources to help customers request free credit
reports and is offering a no-cost mediation option to impacted
customers to help identify and remediate any other forms of
harm.
Ultimately, if any customer has any questions or concerns
regarding his or her accounts--regardless of when those
accounts were opened--he or she is invited to contact us so
that Wells Fargo can address those questions or concerns.
Q.7.e. Is Wells Fargo aware of a material amount of fraudulent
accounts created in the names of customers prior to 2009?
Q.7.f. What constraints would prevent Wells Fargo from
compensating customers for losses associated with fraudulent
accounts, from actions dating back prior to 2009?
Q.7.g. Does Wells Fargo plan to reach back earlier than 2009 to
refund customers for losses associated with their fraudulent
accounts scandal? Why or why not?
A.7.e.-g. We appreciate and share your concern that any and all
customers who may have been impacted should be identified.
Therefore, we are continuing to examine whether there are ways
to identify unauthorized accounts opened prior to 2009. As an
important initial step, we are notifying all of our consumer
and small business Community Banking customers with a checking,
savings, credit card, or line of credit account of this issue;
we are also inviting and encouraging them to speak with a Wells
Fargo representative if they have any questions or concerns
about their accounts. Please also note that the Independent
Directors of Wells Fargo's Board of Directors have launched an
investigation into these issues, and that investigation is
ongoing.
Further, we would note again that pursuant to the CFPB and
the OCC Consent Orders, Wells Fargo will retain the services of
an independent consultant and develop redress and reimbursement
plans to identify the population of consumers who may have been
affected by improper sales practices. We fully expect that,
once approved by our regulators, the redress and reimbursement
plans will encompass various forms of harm, including harm
related to credit bureau inquiries, and that Wells Fargo will
issue and track reimbursement payments.
Q.8.a. I'd like to discuss Wells Fargo's interactions with law
enforcement officials and regulators.
Please provide the specific date that Wells Fargo first
discussed the fraudulent accounts scandal with the Consumer
Financial Protection Bureau (CFPB).
A.8.a. Wells Fargo's General Counsel notified the CFPB of the
Los Angeles City Attorney's lawsuit at or about the time it was
filed in May of 2015. The CFPB requested information shortly
after Wells Fargo notified it of the lawsuit. In June and July
2015, Wells Fargo provided information to the CFPB.
Q.8.b. Does the CFPB have any employees embedded in Wells
Fargo? If so, how many?
A.8.b. The CFPB has 4 employees who are resident onsite. In
addition, additional CFPB employees may be onsite at Wells
Fargo when they are engaged in conducting examinations of our
consumer businesses.
Q.8.c. When (if at all) did Wells Fargo first provide the CFPB
with internal documents relating to the fraudulent accounts
scandal?
A.8.c. Wells Fargo's General Counsel notified the CFPB of the
Los Angeles City Attorney's lawsuit at or about the time it was
filed in May of 2015. The CFPB requested information shortly
after Wells Fargo notified it of the lawsuit. In June and July
2015, Wells Fargo provided information to the CFPB.
Q.8.d. Please provide the specific date that Wells Fargo first
discussed the fraudulent accounts scandal with the Office of
the Comptroller of the Currency (OCC).
A.8.d. As Comptroller Curry testified before the Senate Banking
Committee on September 20, 2016, Wells Fargo management meets
regularly with the Office of the Comptroller of the Currency
(OCC), our prudential regulator, about a variety of issues.
Wells Fargo immediately cooperated with the OCC upon its first
contact with the bank concerning these issues. Ultimately that
involved addressing Matters Requiring Attention (MRAs) the OCC
imposed as well as providing relevant documents in 2015.
Q.8.e. Does the OCC have any employees embedded in Wells Fargo?
If so, how many?
A.8.e. Several OCC employees are embedded at Wells Fargo.
Q.8.f. When (if at all) did Wells Fargo first provide the OCC
with internal documents relating to the fraudulent accounts
scandal?
A.8.f. As Comptroller Curry testified before the Senate Banking
Committee on September 20, 2016, Wells Fargo management meets
regularly with the Office of the Comptroller of the Currency
(OCC), our prudential regulator, about a variety of issues.
Wells Fargo immediately cooperated with the OCC upon its first
contact with the bank concerning these issues. Ultimately that
involved addressing Matters Requiring Attention (MRAs) the OCC
imposed as well as providing relevant documents in 2015.
Q.8.g. Please provide the specific date that Wells Fargo first
discussed the fraudulent accounts scandal with the Office of
the Los Angeles City Attorney.
A.8.g. The City Attorney filed its complaint in May 2015. Wells
Fargo did not have substantive conversations with the City
Attorney's office prior to that time.
Q.8.h. When (if at all) did Wells Fargo first provide the OCC
with internal documents relating to the fraudulent accounts
scandal?
A.8.h. As Comptroller Curry testified before the Senate Banking
Committee on September 20, 2016, Wells Fargo management meets
regularly with the Office of the Comptroller of the Currency
(OCC), our prudential regulator, about a variety of issues.
Wells Fargo immediately cooperated with the OCC upon its first
contact with the bank concerning these issues. Ultimately that
involved addressing Matters Requiring Attention (MRAs) the OCC
imposed as well as providing relevant documents in 2015.
Q.9.a. I'd like to discuss the fraudulent accounts that were
created by Wells Fargo.
What standards did the independent audit consult in
identifying the fraudulent accounts?
A.9.a. Please see the response to Question 7, subparts (c-d)
above.
Q.9.b. Could a fraudulent account had escaped notice of the
independent audit if it had all of the characteristics of a
fraudulent account, but it contained or was billed for more
than $100? What about more than $1,000?
A.9.b. PwC's analysis looked at all consumer and small business
checking, savings, and credit card accounts opened during the
relevant period--over 93 million accounts in total--to identify
characteristics consistent with potential simulated funding in
deposit
accounts, and a potential lack of customer authorization in
credit card accounts. Accounts were not excluded on the basis
of how much they were charged in fees. The characteristics of
deposits and withdrawals were factors considered by PwC in
conducting its analysis and so the nature of the deposits made
in an account would have affected whether the account was
identified as possibly having simulated funding.
Q.9.c. Of the fraudulent accounts, roughly what percentage of
them were canceled within 3 days?
Q.9.d. Of the fraudulent accounts, roughly what percentage of
them were canceled within a week?
Q.9.e. Of the fraudulent accounts, roughly what percentage of
them were canceled after a month?
A.9.c.-e. Deposit accounts that are not used by a customer are
automatically closed pursuant to Wells Fargo's policies and
procedures. Under those policies and procedures, unused
accounts typically would not automatically be closed within a
30-day period.
Q.9.f. Did any of these fraudulent accounts ever contain or
were billed for more than $1? If so, roughly, what percentage
of
accounts?
Q.9.g. Did any of these fraudulent accounts ever contain or
were any of them ever billed for more than $10? If so, roughly
what percentage of accounts?
Q.9.h. Did any of these fraudulent accounts ever contain or
were billed for more than $100? If so, roughly what percentage
of
accounts?
Q.9.i. Did any of these fraudulent accounts ever contain or
were billed for more than $1,000? If so, roughly what
percentage of
accounts?
Q.9.j. Did any of these fraudulent accounts ever transfer money
to other accounts, other than those that were held by the named
customer of the account? If so, roughly what percentage of
accounts?
A.9.f.-j. Please see the response to Question 7, subparts (c-d)
above. In some instances, Wells Fargo team members temporarily
funded unauthorized accounts with their own deposits. After a
certain time period, those funds were removed by the team
member.
Q.9.k. Did Wells Fargo ever file suspicious activity reports in
association with the accounts that were identified by the
independent audit as potentially fraudulent? If so, how many?
A.9.k. Wells Fargo has policies, procedures, and internal
controls that are reasonably designed to comply with its legal
obligations to monitor, detect, and report suspicious
activities. Under Federal law, Suspicious Activity Reports
(``SARs''), and any information that would reveal the existence
of a SAR, are confidential, 31 U.S.C. 5318(g)(2)(A)(i) and 12
C.F.R. 21.11(k).
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN FROM JOHN G.
STUMPF
Fees Charged as a Result of the Creation of Fraudulent
Accounts
Q.1.a. Working with PwC, Wells Fargo identified 1.5 million
deposit accounts and 565,000 credit card accounts that ``may
have been unauthorized.'' However, ``PwC did not find these
accounts had been unauthorized''--it simply ``could not rule
out the possibility.'' Please provide a detailed explanation of
why PwC was
unable to identify whether all of the 565,000 accounts were
unauthorized.
Q.1.b. What records does Wells Fargo have of the number and
amount of fees charged on unused accounts between 2011 and
2015?
A.1.a.-b. We asked PricewaterhouseCoopers (PwC) to analyze
approximately 82 million deposit accounts for instances of
potential simulated funding and approximately 11 million credit
card accounts for instances of lack of authorization. For
example, PwC flagged all credit card accounts that were not
used and were not ``fraud activated'' by the customer calling
an 800 number after receiving the card, unless there were
indications of customer consent, even though there are many
reasons why a customer may not activate their card. By itself,
the lack of activation and use by a customer does not mean that
the customer had not authorized the card to begin with. We know
that some customers will request a credit card for many
reasons, including for emergencies and other reasons, but then
they may not activate the card. However, because we could not
confirm, based on account activity, that the customer
authorized the account in the first place, we elected to
consider these accounts for potential remediation. Similarly,
for checking and savings accounts, the fact that the accounts
have certain characteristics consistent with potential
simulated funding does not mean that those accounts experienced
simulated funding.
Of the approximately 2.1 million accounts identified, PwC
determined that approximately 115,000 accounts were charged a
fee, averaging less than $25 per account and totaling $2.66
million in revenue to Wells Fargo. Wells Fargo has already made
direct deposits and issued checks to refund these fees. We took
this intentionally expansive approach because we were willing
to refund fees to customers who, in fact, approved account
openings, but subsequently allowed the accounts to lapse, so
that we did not exclude customers who may have suffered harm.
We have found indications that the PwC number includes
accounts where the customer authorized its opening. For
example, Wells Fargo has worked to contact customers with open,
inactive credit card accounts identified by PwC (i.e., the
customers with accounts that could have been [emphasis added]
unauthorized) to determine whether they want these credit
cards. Approximately 25 percent have informed the bank that
they either did not apply or did not recall whether or not they
applied for their card. For those customers who want the credit
card, the account will remain open. For any customer who does
not want their credit card, Wells Fargo is closing the account
and correcting credit bureau reporting. These results
demonstrate that PwC's findings as to credit card accounts were
over-inclusive, containing accounts where the customer
authorized the opening of the account.
Q.1.c. Please provide the annual revenue that Wells Fargo
gained from deposit and credit card account fees for 2011-2015.
A.1.c. The following table shows the line-item revenue data for
Service Charges on Deposit Accounts and Card Fees as reported,
according to generally accepted accounting principles, in Wells
Fargo's income statements for the years 2011 through 2015.
These figures are inclusive of both consumer and commercial
businesses, with the commercial businesses contributing
proportionately more in the Service Charge category than in
Card Fees. Service Charges on Deposit Accounts are primarily
composed of periodic account fees and overdraft fees. Card Fees
are primarily composed of interchange fees, as well as annual
and other fees.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Fair Labor Standards Act (FLSA)
For years Wells Fargo employees have described a management
culture characterized by ``mental abuse,'' being forced to work
overtime ``for what felt like after-school detention'' during
the week and on weekends, and being ``severely chastised and
embarrassed in front of 60-plus managers.''\1\ And as a June
2016 report from the National Employment Law Project, ``Banking
on the Hard Sell,''\2\ documents, these kinds of practices are
pervasive across the
industry.
---------------------------------------------------------------------------
\1\ E. Scott Reckard, ``Wells Fargo's pressure-cooker sales culture
comes at a cost,'' Los Angeles Times (December 21, 2013) (available at
http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-
20131222-story.html).
\2\ Anastasia Christman, ``Banking on the Hard Sell: Low Wages and
Aggressive Sales Metrics Put Bank Workers and Customers at Risk,''
National Employment Law Project (June 2016) (available at http://
www.nelp.org/content/uploads/NELP-Report-Banking-on-the-Hard-Sell.pdf).
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Even in this context, however, Wells Fargo stands out,
given allegations that the bank repeatedly violated wage and
hour provisions in the FLSA by denying employees overtime pay
for hours worked in excess of 40 hours a week and by
misclassifying workers as overtime exempt to avoid paying time
and a half for those additional hours. My office has uncovered
dozens of wage and hour complaints from Wells Fargo employees,
going back as far as 1999 and cutting across many of the
different business groups within Wells Fargo, including the
insurance, mortgage, and retail banking groups.\3\
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\3\ See, for example, Louie Torres, ``Former employee says bank
didn't pay overtime,'' Penn Record (August 22, 2016) (online at http://
pennrecord.com/stories/510999469-former-employee-says-bank-didn-t-pay-
proper-overtime); James Rufus Koren (with the Los Angeles Times),
``Wells Fargo still faces lawsuits from customers, ex-employees,''
Santa Cruz Sentinel (September 10, 2016) (online at http://
www.santacruzsentinel.com/article/NE/20160910/NEWS/160919974); Overtime
Pay Laws Resource Center, ``$2 Million Settles Wells Fargo Overtime
Lawsuit'' (May 12, 2015) (online at http://www.overtimepaylaws.org/2-
million-settles-wells-fargo-overtime-lawsuit/); E. Scott Reckard,
``Wells Fargo's pressure-cooker sales culture comes at a cost,'' Los
Angeles Times, (December 21, 2013) (online at http://www.latimes.com/
business/la-fi-wells-fargo-sale-pressure-20131222-story.html); Top
Class Actions, ``Wells Fargo Loan Officer Underpaid Overtime Class
Action Settlement'' (October 22, 2015) (online at https://
topclassactions.com/lawsuit-settlements/closed-settlements/210771-
wells-fargo-loan-officer-unpaid-overtime-class-action-settlement/);
Chicago Overtime Law Center, ``Wells Fargo Settles Overtime Class
Action for Mortgage Consultants'' (December 29, 2015) (online at http:/
/www.chicagoovertime
lawyerblog.com/2015/12/1514.html); Shannon Henson, ``Tech Workers File
FLSA Suit Against Wells Fargo,'' Law360 (May 30, 2008) (online at
http://www.law360.com/articles/57871/tech-workers-file-flsa-suit-
against-wells-fargo); and E. Scott Reckard, ``Wells Tellers File
Lawsuit Alleging Unpaid Wages,'' Los Angeles Times (November 8, 2003)
(online at http://articles.latimes.com/2003/nov/08/business/fi-wells8).
---------------------------------------------------------------------------
These and other allegations raise a number of questions
about Wells Fargo's treatment of its bank tellers and
associates.
Q.2.a. What are Wells Fargo's policies with regard to paying
overtime for bank tellers and associates who stayed late or
came in on weekends to meet their sales quotas?
A.2.a. Wells Fargo's policy is that nonexempt team members are
compensated for all [emphasis added] hours worked, including
all overtime hours. Wells Fargo's Team Member Handbook states:
If you're in a nonexempt position, you are entitled to pay for
all hours actually worked, even those exceeding your regular
schedule or those not authorized before working them.
Therefore, you must report all hours worked in Time Tracker.
Wells Fargo supports and enforces this policy and wage and hour
compliance.
Time Tracker is the online system that Wells Fargo
nonexempt team members use to enter daily work time. Team
members input, review, and approve the time reported each week.
Time Tracker uploads the recorded work time to the payroll
system and the team member is paid for all time worked,
including any overtime pay. Supervisor approval of timesheets
is not necessary for pay to be processed based upon the time
entered by the team member.
A team member may report any discrepancies or concerns
regarding accurate time reporting or pay, including overtime
pay, via an email address to the payroll team; by contacting
the EthicsLine; or by reaching out to Human Resources (HR). The
H.R. team investigates all such claims. If unreported time is
identified, the team member is provided a document to record
all previously unreported work time and pay is processed.
Nonexempt team members are directed to an online training
module that details how to properly record all work time in
Time Tracker. Wells Fargo managers are required to complete
FLSA training no less frequently than every other year. The
training explains Wells Fargo's commitment to proper pay
practices and emphasizes each manager's responsibilities for
ensuring that all work time is reported and proper pay is
received. Supplemental
resources, including Manager Tip sheets and H.R. professionals,
provide further support to managers to help fulfill Wells
Fargo's
responsibilities to comply with FLSA and fulfill all time
keeping
requirements.
Q.2.b. What portion of Wells Fargo team members, sales
associates, and bank tellers make less than the current FLSA
salary threshold of $455 per week ($23,660 per year)?
Q.2.c. For the group of employees that Wells Fargo paid above
this salary threshold, how many and what percentage were
classified as overtime exempt?
Q.2.d. For those employees who were classified as overtime
exempt, what percentage of their time was spent performing
duties that were managerial in nature, as defined by the FLSA?
Q.2.e. What was the median salary (or wage) earned by the 5,300
bank employees that were fired for their role in the fraudulent
activities at Wells Fargo?
Q.2.f. What percentage of fired employees were classified as
overtime exempt?
A.2.b.-f. Please see the response to Question 2, subpart (a)
above. Note that Wells Fargo has set its own minimum pay at
$12.00/hour effective March 2016, which is higher than the
Federal minimum wage of $7.25, and results in compensation
higher than $455 per week for a 40-hour week. In addition, all
salaried and hourly team members classified as regular or part-
time (i.e., those who are regularly scheduled to work 17.5
hours or more per week) are eligible for Wells Fargo-sponsored
benefits, including health insurance, life insurance, dental
and vision insurance, short- and long-term disability, 401(k)
plan, and paid parental leave.
At the time each new job is created, Wells Fargo completes
an analysis of job duties to determine FLSA classification. The
Wells Fargo Compensation Team also periodically reviews jobs or
adjusts job classification as necessary in accordance with
current regulations and court decisions.
The average base compensation for team members whose
employments were terminated ranged from approximately $26,000
for Tellers to over $170,000 for a Regional Banking Area
President. In general, Community Banking division team members
earn an average total compensation of more than $50,000
($62,000 inclusive of benefits).
Customer Restitution
Q.3.a. How will Wells Fargo be providing restitution to
customers affected by wrongdoing in these cases?
Q.3.b. What is the criteria for determining which customers do
or do not qualify for restitution?
A.3.a.-b. Wells Fargo is working very hard to remediate harm
that may have been caused to our customers. To that end,
pursuant to the Consumer Financial Protection Bureau (CFPB) and
Office of the Comptroller of the Currency (OCC) Consent Orders,
Wells Fargo will retain the services of an independent
consultant and
develop redress and reimbursement plans to identify the
population of consumers who may have been affected by improper
sales
practices. We fully expect that, once approved by our
regulators, the redress and reimbursement plans will encompass
various forms of harm, including harm related to credit bureau
inquiries, and that Wells Fargo will issue and track
reimbursement payments.
We asked PwC to analyze approximately 82 million deposit
accounts for instances of potential simulated funding and
approximately 11 million credit card accounts for instances of
lack of authorization. The accounts reviewed were opened
between 2011 and 2015. Of the accounts reviewed, PwC found that
approximately 623,000 consumer and business credit card
accounts could have been [emphasis added] unauthorized, and
approximately 1.5 million deposit accounts could have [emphasis
added] experienced simulated funding, that is, the unauthorized
deposit and withdrawal of funds intended to create the false
appearance that the account was being used by the customer. In
other words, PwC did not [emphasis added] conclude that these
accounts were unauthorized and/or experienced simulated
funding; it just could not rule out these possibilities because
its analysis of credit card authorization and potential
simulated funding in deposit accounts was intentionally
designed to be over-inclusive. For example, PwC flagged all
credit card accounts that were not used and were not ``fraud
activated'' by the customer calling an 800 number after
receiving the card, unless there were indications of customer
consent, even though there are many reasons why a customer may
not activate their card.
Of the approximately 2.1 million accounts identified, PwC
determined that approximately 115,000 accounts were charged a
fee, averaging less than $25 per account and totaling $2.66
million in revenue to Wells Fargo. That figure is far surpassed
by the costs associated with opening and closing the unused
accounts. Wells Fargo has already made direct deposits and
issued checks to refund these fees. We took this intentionally
expansive approach because we were willing to refund fees to
customers who, in fact, approved account openings, but
subsequently allowed the accounts to lapse, so that we did not
exclude customers who may have suffered harm.
We have found indications that the PwC number includes
accounts where the customer authorized its opening. For
example, Wells Fargo has worked to contact customers with open,
inactive credit card accounts identified by PwC (i.e., the
customers with accounts that could have been [emphasis added]
unauthorized) to determine whether they want these credit
cards. Approximately 25 percent have informed the bank that
they either did not apply, or did not recall whether or not
they applied, for their card. These results demonstrate that
PwC's findings as to credit card accounts were over-inclusive,
containing accounts where the customer authorized the opening
of the account.
For those customers who want the credit card, the account
will remain open. For any customer who does not want his or her
credit card, Wells Fargo is closing the account and correcting
credit bureau reporting. This means we are removing the account
from the customers' credit reports going forward and
suppressing the existence of the inquiry so that it is not
viewable to other lenders or requestors (the Fair Credit
Reporting Act prohibits us removing the inquiry altogether and
it will still be visible to customers pulling their own credit
reports).
Moreover, we are in the process of determining how many
customers obtained a credit product, with Wells Fargo or
another company, during the time period in which their credit
score may have been impacted by an unauthorized credit inquiry
or existence of the trade line. While it may be difficult to
calculate the precise impact for every customer, our intent is
to err on the side of the customer and make them whole for
negative repercussions that were tied to a drop in their credit
score. This could include impacts on pricing, line or loan
size, or credit decision. We have allocated significant
resources to this effort and are working with the credit
bureaus to develop a plan for submission to our regulators.
Going forward, Wells Fargo is voluntarily expanding its
review of accounts to include 2009 and 2010. Wells Fargo also
provides resources to help customers request free credit
reports and is offering a no-cost mediation option to impacted
customers to help identify and remediate any other forms of
harm.
Ultimately, if any customer has any questions or concerns
regarding his or her accounts--regardless of when those
accounts were opened--he or she is invited to contact us so
that Wells Fargo can address those questions or concerns.
Q.3.c. How many customers will be receiving restitution?
Q.3.d. What is the total amount of restitution that these
customers will receive?
A.3.c.-d. The number of customers receiving restitution, and
the amount of restitution, will continue to increase as our
expanded review and customer outreach efforts continue and as
Wells Fargo develops and implements a redress and reimbursement
plan with the independent consultant required by the CFPB and
OCC Consent Orders.
Disclosure and Board Discussion of Problems at Wells Fargo
Q.4. Prior to the settlement with CFPB, Wells Fargo fired over
5,000 employees for misconduct related to false accounts. Did
the Wells Fargo board discuss the reason for this many
employees being fired, and the problems that led to them being
fired? If so, please provide copies of relevant board committee
minutes relating to this issue, including minutes of the Risk
Committee and the Audit and Examination Committee, from October
2013 forward.
A.4. From at least 2011 forward, the board's Audit and
Examination Committee received periodic reports on the
activities of Wells Fargo's Internal Investigations group
(which investigates issues involving team members), as well as
information on EthicsLine and suspicious activity reporting.
Among other things, several of those reports discussed
increases in sales integrity issues or in notifications to law
enforcement in part relating to the uptick in sales
integrity issues. Some reporting discussed reasons for
increases in sales integrity investigations and reporting,
which included improved controls, tightening existing controls,
and enhancements to better facilitate referrals of potential
sales integrity violations to Internal Investigations.
Later, the Risk Committee began to receive reports from
management of noteworthy risk issues, which included, among
other risks, sales conduct and practice issues affecting
customers and management's efforts to address those risks. The
board's Human Resources Committee also received a report from
management that it was monitoring sales integrity in Community
Banking. Sales integrity issues also were discussed
periodically with the board.
We are not presently aware of any document or instance
prior to the settlement with the CFPB that informed the board
of the total number of employees who had been terminated for
misconduct related to improper sales practices. The number of
terminations and the reasons for them are subjects that the
Independent Directors are addressing in their investigation.
Wells Fargo's Culture of ``Cross-Selling''
Q.5.a. In Wells Fargo's 2010 Annual Report, you described the
company's cross-selling success and wrote ``I'm often asked why
we set a cross-sell goal of eight. The answer is, it rhymed
with `great.' ''
Was the ``cross-sell goal'' at the time eight banking
products per household?
A.5.b. Was this goal set at eight because ``it rhymed with
`great'"?
A.5.a.-b. While over 25 percent of our customers have more than
eight products with Wells Fargo, this was an aspirational goal.
The average U.S. household has more than 14 financial products,
and we aspired to become our customers' primary financial
institution by providing them just over half the number of
products and services they need and use and by driving
increased customer value through consolidating multiple
financial products and services with one provider. We want to
offer our customers valuable products and services and, to that
end, we use our cross-sell metrics as a proxy for the depth of
the relationships that we are building with our customers. As
our annual reports make clear, Wells Fargo has always focused
on the quality of our relationships with customers, not
quantity. Providing services that the customer does not need or
want is not in our interest or the interest of our customers.
Clearly that happened in some cases.
High Rates of Wells Fargo Broker Misconduct
In April 2016, the Securities Litigation and Consulting
Group (SLCG) used data from the Financial Industry Regulatory
Authority's (FINRA) BrokerCheck database to assess rates of
broker misconduct throughout the brokerage industry.\4\
---------------------------------------------------------------------------
\4\ Craig McCann, Chuan Qin, and Mike Yan, ``How Widespread and
Predictable is Stock Broker Misconduct?'' Securities Litigation and
Consulting Group (April 2016) (online at http://www.slcg.com/pdf/
workingpapers/McCann%20Qin%20and%20Yan%20on%20BrokerCheck.pdf). McCann,
Qin, and Yan replicated the work of Quereshi and Sokobin, ``Do
Investors Have Valuable Information About Brokers?'' (August 20, 2015)
(online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2652535)
and Egan, Matvos, and Seru, ``The Market for Financial Adviser
Misconduct'' (February 2016) (online at https://www.chicagobooth.edu//
media/B76C81EFE
39B4EDB9A4B4D8B34D0B0F7.pdf) to reconcile competing estimates of
misconduct within the brokerage industry.
---------------------------------------------------------------------------
As part of its analysis, SLCG compiled a list of brokerage
firms that employ more than 400 brokers and ranked those firms
based on the percentage of their brokers associated with
``investor harm events'' (defined, in this case, as ``the
initial filing of a grievance [reported to FINRA] that
subsequently results in an arbitration award in favor of the
customer or in a settlement in excess of $10,000 prior to May
18, 2009, and in excess of $15,000
thereafter'').\5\ Wells Fargo Advisors was ranked 16th, solidly
within the Top 30 recidivist firms cited by SLCG.\6\ SLCG found
that nearly 9 percent of Wells Fargo's 1,993 brokers were
associated with a harm event; 30 Wells Fargo brokers,
meanwhile, had been previously fired from brokerage firms as a
result of misconduct.\7\
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\5\ Craig McCann, Chuan Qin, and Mike Yan, pg. 6.
\6\ Craig McCann, Chuan Qin, and Mike Yan, pg. 32.
\7\ Craig McCann, Chuan Qin, and Mike Yan, pg. 32.
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You recently stated that ``there is no incentive [for
employees] to do bad things'' within Wells Fargo, and that
Wells Fargo's recent misdeeds ``in no way reflect our
culture.''\8\ But the high rate of recidivism among Wells Fargo
brokers raises questions about these statements. To help me
better understand the culture of Wells Fargo Advisors, please
provide my office with the following information and answers:
---------------------------------------------------------------------------
\8\ Emily Glazer and Christina Rexrode, ``Wells Fargo CEO Defends
Bank Culture, Lays Blame with Bad Employees,'' Wall Street Journal
(September 13, 2016) (online at http://www.wsj.com/articles/wells-
fargo-ceo-defends-bank-culture-lays-blame-with-bad-employees-
1473784452).
Q.6.a. A description of the Wells Fargo Advisors broker hiring
process, including any policies that outline how Wells Fargo
assesses potential hires for the likelihood of broker
misconduct and a description of how Wells Fargo Advisors factor
a potential hires' past misconduct into its overall decision to
---------------------------------------------------------------------------
hire a candidate?
Q.6.b. Does Wells Fargo Advisors hire brokers with records of
misconduct, and if so, why?
A.6.a.-b. Wells Fargo Advisors, LLC (``WFA'') subjects
prospective financial advisors to a robust pre-hire due
diligence process. More specifically, the Compliance Department
performs a detailed review of the candidate's background,
utilizing a comprehensive questionnaire, as well as by
conducting a thorough review of the candidate's Central
Registration Depository (``CRD'') record at FINRA. The review
takes into consideration the candidate's complaint history,
regulatory history, reportable financial and criminal
incidents, past disciplinary or supervisory actions,
registration restrictions, terminations, outside business
activities, employment history, business mix and any other
incidents that may be reflected on the candidate's CRD record
or identified through independent validation. Additionally,
each candidate is fingerprinted and undergoes a criminal
background and financial fitness check. After a thorough and
qualitative review of any identified issues, the Compliance
Department will either ``object'' or ``not object'' to the
hiring of the prospective financial advisor. In the rare
circumstance where the line of business disagrees with the
Compliance Department's
recommendation, the hiring decision is escalated to senior
representatives from Legal, Compliance, and the line of
business for further review and a decision.
Q.6.c. A description of how Wells Fargo Advisors compensates
its brokers.
A.6.c. Please see response to question 6, subpart (f), below.
Q.6.d. How does Wells Fargo Advisors ensure that its brokers,
once hired, do not engage in misconduct? Please provide copies
of any training materials, policies, or procedures the company
uses.
A.6.d. WFA has established and maintains an extensive
supervisory and oversight program, which includes multiple,
complementary processes to review the conduct of its Financial
Advisors for potential and actual breaches of WFA's policies
and procedures and/or applicable rules, regulations, and
standards of practice. WFA utilizes this supervisory and
oversight control system to identify potential and/or actual
misconduct; of course, WFA also may learn of misconduct through
customer complaints and/or the Wells Fargo corporate
EthicsLine. Although not an exhaustive list, some of the more
pertinent controls, systems, processes, or functions within WFA
that may lead to the discovery of misconduct include:
LField Supervision: As an integral part of WFA's
``first line of defense,'' Branch Office Managers and
local, qualified supervisors perform direct supervision
of Financial Advisors and other branch team members by
enforcing WFA's policies and procedures.
LCentralized Supervision Units (CSUs): Like WFA's
field supervisors, the CSUs sit within the line of
business organizationally, and are delegated the
responsibility to review trade blotters, and daily and
monthly alerts generated by WFA's electronic
SuperVision system. SuperVision is a suitability-based
supervisory system that assists WFA's supervisory
personnel in identifying accounts and transactions that
may
warrant further attention, based on the triggering of
established risk-based thresholds. The CSUs also
coordinate the
review of electronic communications for assigned
branches,
review annuity transactions, perform targeted account,
product and Financial Advisor activity reviews, and
perform self-audits, among other risk-related
activities.
LRetail Surveillance & Oversight: The Retail
Surveillance & Oversight Group within the Compliance
Department consists of several distinct teams that
conduct retail brokerage transaction oversight through
both systematic and targeted monitoring. The group
monitors activities to mitigate risk using various
internal control tools, including the SuperVision,
Smartstation, and Compliance Reporting applications.
The group conducts oversight of the CSUs and other
Qualified Supervisors to assess supervisory practices
and to identify and address potential compliance and
sales practice issues. The Retail Control Group within
Compliance maintains WFA's
restricted lists and monitors retail trading for
compliance with trade restrictions. The Market Reviews
Group performs targeted reviews of existing products
and established supervisory programs within the
business channels to assess their
effectiveness.
LBranch Examinations: The WFA Branch Examinations
Team is responsible for conducting onsite announced and
unannounced compliance examinations of the retail
brokerage lines of business in order to test compliance
with Federal, State, and SRO regulations and Firm
policies and procedures. As with the other WFA
Compliance units, the primary purpose of Branch
Examinations is to provide oversight of branch-related
activities within WFA in order to identify and mitigate
potential risks. All WFA-registered branch sales
locations are visited within the calendar year. The
exam program is risk-based, with a strong focus on
brokerage sales practices, product suitability, and
supervision. The program is tailored for the specific
sales practices engaged in by each retail brokerage
unit. When applicable, current Securities and Exchange
Commission and FINRA regulatory priorities are
incorporated into the program. The exam program is
reviewed and updated annually for each business unit
with the advice and feedback of the Compliance
Department, Legal, and senior supervisory staff.
Summaries of frequent branch exam findings and trends
are continually shared and discussed with business unit
senior management throughout the exam cycle.
LSpecial Supervision and Review (SSR): The SSR Group
conducts investigations related to potential violations
of Firm policies and industry rules; recommends and
tracks discipline; reviews requests by registered
representatives to participate in certain Firm
programs, and manages the Firm's Heightened Supervision
Program. The SSR Group coordinates the application of
WFA's disciplinary review standards with members of
Internal Investigations, External Fraud, Human
Resources, Employee Relations, Legal, and line-of-
business management.
LTrading Review Group: The WFA Trading Review Group
is responsible for performing daily reviews of team
member and client trading activity with a view toward
identifying potential instances of insider trading. The
Team analyzes trade data, market data, news events, and
information provided by others including from various
business supervisors or other Compliance personnel. The
Trading Review Team serves as the primary escalation
point for potential insider trading occurrences, and
has the responsibility for determining whether
additional escalation is warranted. Business and
control function units that may refer matters to the
group include: Corporate AML, the field supervisors and
the CSUs described above, Legal, and other Compliance
team members. Matters involving team members, or
accounts within their control, are referred to the SSR
group (described above) for further investigation.
LComplaints Resolution Group: WFA's Complaints
Resolution Group within the Compliance Department
gathers,
reports, responds, tracks, and analyzes sales practice
and operational customer complaints, in keeping with
Finra's requirements and expectations. The group
routinely refers and
collaborates with business and control function units
regarding possible violations of Firm policy, standards
of care, and
industry rules and regulations.
LInternal Controls: The Internal Controls Group
within the Compliance Department is responsible for
monitoring WFA's overall control environment and for
implementing programs designed to improve the control
environment. The group works with managers across all
business units to review internal controls, help
mitigate regulatory and operational risk, and to
assist in maintaining high corporate governance
standards. The Internal Controls Group performs
independent testing throughout the year in support of
WFA's 3130 program.
LInternal Audit: Commonly referred to as the ``Third
Line of Defense,'' internal audit is another critically
important control function, which also reviews for
policy breaches and
misconduct.
LEthicsLine/Employee Escalation: All team members
have the ability to raise concerns 24-hours a day, 7-
days a week, anonymously via telephone or online
through the Company's EthicsLine.
Q.6.e. A description of the disciplinary process that Wells
Fargo Advisors initiates, should it find any of its brokers
guilty of
misconduct.
A.6.e. Depending on the nature and severity of the misconduct,
there are a number of ways in which misconduct can be addressed
by WFA. As a general matter, all compliance policy breaches may
be subject to WFA's established disciplinary review process,
which is designed to provide a swift and meaningful response
and to promote consistency in determining appropriate levels of
discipline across WFA (and its different sales channels). The
SSR Group investigates matters relating to violations of Firm
policies (including the Wells Fargo Code of Ethics and Business
Conduct) and industry rules, and typically coordinates with
management within the line of business, and, as needed, with
Internal Investigations, Legal, Risk, Human Resources, Employee
Relations, among other groups to ensure that all disciplinary
decisions and recommendations are thoroughly and fairly vetted.
WFA may impose internal discipline ranging in severity from a
Memorandum of Education all the way to involuntary termination.
Policy violations that are not compliance-oriented are
generally handled pursuant to corporate Human Resources
Corrective Action Guidelines. Such corrective
actions could include a Performance Improvement Plan, Informal
Warning, Formal Warning, or Final Notice.
Q.6.f. Are there compensation policies or other business
practices that Wells Fargo has changed because of concerns that
they could contribute to or encourage broker misconduct?
A.6.f. WFA's compensation plans are designed to be balanced,
fair, and appropriately controlled, with a focus on product-
neutral incentive design and deferral compensation. WFA has
also developed a comprehensive process for the periodic review
and approval of changes to such plans. WFA's CEO, the Head of
Wealth Management (for Wealth Brokerage Services, or ``WBS'')
and WFA's
Conflicts Committee all participate in the review of field-
facing compensation plans. WFA's Conflicts Committee is
comprised of senior leaders from the various control functions
and lines of business, including Compliance, Legal, Risk, Human
Resources,
Finance, Products & Advice, and the sales channels. The Chief
Compliance Officer, Chief Risk Officer, Head of HR, and the
senior-most WFA Legal representative each possess full ``veto''
authority on this Committee, which provides an opportunity for
important control function representatives to help shape the
design of any compensation plans.
Each compensation plan includes components to mitigate risk
and incent compliance with industry rules, regulations, and
standards of practice. For example, WFA incentive compensation
plans include the following characteristics:
LRequirements to comply with all industry laws,
rules, and regulations, and procedures applicable to
the Participant's assigned job responsibilities;
LPerformance-based deferrals, with specific goals,
such as best practices activities that move toward
long-term client-focused solutions; and
LFull discretionary authority for the Plan
Administrator to adjust or amend a Participant's
deferred compensation incentive award under the Plan,
subject to the approval of the Line of Business Head.
This component provides the Line of Business with the
authority to modify awards due to unknown or unforeseen
circumstances that may arise.
Generally, branch manager compensation plans include
several risk mitigation components, including:
LAll operational losses and settlements are charged
directly to the profit/loss (P&L) of the branch, with
the branch P&L being considered in bonus awards;
LAnnual branch inspections are performed on Markets
and Complexes by the Branch Examinations team in
Compliance (described above). Inspection failures
result in a direct reduction to the branch manager's
annual performance award;
LDiscretionary awards recognize and reward
leadership in numerous areas, including risk and
culture in the manager's branch; and
LBranch manager salary is designed to compensate
individuals for their role as manager, which includes
financial performance, supervision, compliance, risk
management, and other
factors.
As referenced above, WFA conducts regular reviews of
compensation plans for field-facing team members, with a view
toward incenting client-focused behaviors and outcomes.
Wells Fargo Campus Card Program
Q.7.a. According to a 2012 report by U.S. PIRG, Wells Fargo had
contracts with institutions of higher education serving over 2
million students to provide student identifications that can be
linked to a Wells Fargo checking account.\9\ In some cases,
these contracts provide Wells Fargo exclusive access to market
to students.
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\9\ U.S. PIRG, The Campus Debit Card Trap: Are Bank Partnerships
Fair to Students? (May 30, 2012) (online at http://www.uspirg.org/
reports/usp/campus-debit-card-trap).
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In 2009, Congress enacted the Credit CARD Act, which banned
aggressive marketing practices on college campuses. Banks are
now forbidden from providing gifts to lure students into
signing up for credit cards. They are also required to publicly
disclose contracts. However, these requirements do not apply to
student checking
accounts.
Q.7.a.i. Have any Wells Fargo staff or service providers
offered any gift of value to students as an inducement to
activate a Wells Fargo checking account?
A.7.a.i. The Wells Fargo Campus Card Program's policy has been
to offer gifts of only token value to students who open Wells
Fargo checking accounts. Such gifts typically have a value of
less than $5.
Q.7.a.ii. Has Wells Fargo established any sales targets to
employees regarding enrollment in student checking accounts?
A.7.a.ii. The Wells Fargo Campus Card Program did not establish
any student checking account sales targets.
Q.7.a.iii. How many accounts have been opened by students
enrolled in institutions with contracts with Wells Fargo, by
year from 2007 to the present?
A.7.a.iii. Wells Fargo does not have a means to track accounts
opened by students attending higher education institutions that
have Campus Card contracts with Wells Fargo.
LStudents may open accounts in any of our branches
from coast-to-coast, and may or may not notify a banker
of their status as a student or the school that they
attend.
LStudents may choose to open any of a number of
Wells Fargo accounts and services that best meet their
needs, further limiting Wells Fargo's opportunity to
draw any conclusions about accounts held by students
based solely on product type/name.
LStudents may open their accounts long before
enrolling in or attending a school with which Wells
Fargo has a Campus Card contract, and the students may
choose to participate in the Campus Card Program with
their pre-existing accounts.
LStudents may transfer into/out of institutions or
graduate from institutions without notifying Wells
Fargo.
LInstitutions' faculty and staff may participate in
Campus Card Programs, and may choose the same accounts
that many students choose.
Q.7.b. According to a study by the Consumer Financial
Protection Bureau, nearly 40 percent of individuals aged 18-25
incurred an overdraft, with 11 percent incurring more than 10
overdrafts on an annualized basis, making these young
consumers, often college students, a lucrative segment for big
banks.\10\ What is the total amount of overdraft fees incurred
by Wells Fargo student accounts, by year and by campus from
2007 to the present? By campus?
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\10\ Consumer Financial Protection Bureau, Data Point: Checking
Account Overdraft (July 2014) (online at http://
files.consumerfinance.gov/f/201407_cfpb_report_data-
point_overdrafts.pdf).
A.7.b. Wells Fargo does not have a means to track accounts
opened by students attending higher education institutions that
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have Campus Card contracts with Wells Fargo.
LStudents may open accounts in any of our branches
from coast-to-coast, and may or may not notify a banker
of their status as a student or the school that they
attend.
LStudents may choose to open any of a number of
Wells Fargo accounts and services that best meet their
needs, further
limiting Wells Fargo's opportunity to draw any
conclusions about accounts held by students based
solely on product type/name.
LStudents may open their accounts long before
enrolling in or attending a school with which Wells
Fargo has a Campus Card contract, and the students may
choose to participate in the Campus Card Program with
their pre-existing accounts.
LStudents may transfer into/out of institutions or
graduate from institutions without notifying Wells
Fargo.
LInstitutions' faculty and staff may participate in
Campus Card Programs, and may choose the same accounts
that many students choose.
Q.7.c. In 2013, the Consumer Financial Protection Bureau called
on financial institutions to publicly disclose their secret
contracts with colleges. Has Wells Fargo made these agreements
available to students and their families on an easily
accessible website? If so, where? If not, why not?
Q.7.c.i. Please provide all contracts with institutions of
higher education to market accounts to students from 2007 to
the present,
including those agreements no longer in existence.
Q.7.c.-c.i. Campus banking agreements are subject to Department
of Education rules requiring certain higher education
institutions to make these agreements available to students and
their families on easily accessible websites. Due to
confidentiality provisions contained in some contracts with
higher education institutions, Wells Fargo cannot release that
information; only the educational institutions can.
Alternatively, the Department of Education has published a
database of such contracts, as self-reported by higher
education institutions. That database is available at this
website: https://studentaid.ed.gov/sa/about/data-center/school/
cash-management-contracts.
Q.7.d. In the hearing, I raised concerns regarding cross-
selling practices at Wells Fargo. These concerns are comparable
to cross-selling issues that have been raised regarding the
Wells Fargo Campus Card Program.
Q.7.d.i. Please provide all documentation regarding what
policies and procedures are in place regarding cross-selling
other products to Wells Fargo private student loan borrowers.
Q.7.d.ii. How many private student loan customers have signed
up for other accounts at Wells Fargo since 2009?
Q.7.d.iii. For these accounts, what has been the total amount
of fees related to other accounts charged to students who had
Wells Fargo student loans?
Q.7.d.iv. What incentives were provided to Wells Fargo sales
and marketing staff to cross-sell student loan borrowers into
other Wells Fargo products? Please provide total amount of
additional compensation paid to employees for cross-selling
student loan
borrowers.
A.7.d.i.-iv. For the period from January 1, 2009, through
September 30, 2016, there were 570,510 customers that were
first-time recipients of private student loans. Before opening
their first student loan account, such customers had previously
opened on
average approximately 1.6 bank products with Wells Fargo. Such
private student loan customers as of September 30, 2016, had on
average approximately 1.8 active bank products with Wells
Fargo.
From January 2014 to September 2016, Loan Origination team
members for the Education Financial Services (``EFS'') line of
business would refer student loan customers (students and co-
signers) to a banker if the customer expressed an interest in
other banking products and services. EFS Loan Origination team
members were eligible for closed referral payouts for every
qualified closed referral--$5 per closed referral in January
2014 and $10 per closed referral from February 2014 through
September 2016--with a maximum monthly payout for all closed
referrals of $150 in January 2014 and $140 from February 2014
through September 2016.
The total amount of banker referrals paid to EFS Loan
Origination team members for closed/qualifying referrals from
January 2014 through September 2016 was $95,135.
Q.7.e. The Wells Fargo student loan program offers different
loan terms and interest rates for students at traditional
colleges and universities (Wells Fargo Collegiate) than it does
for students enrolled at career and community colleges, which
have much higher interest rates. Please provide a detailed
description of how the bank is pricing private student loans
for students, including an explanation for why the bank charges
career and community colleges higher interest rates.
Q.7.e.i. How many borrowers--by school--are in each of these
student loan programs?
Q.7.e.ii. Please provide the aggregate demographic information
of borrowers in each of these student loan programs, by school.
Q.7.e.iii. Please provide the average interest rate for
borrowers in each of these student loan programs by FICO band.
A.7.e.i.-e.iii. Wells Fargo is proud to partner with students
at thousands of institutions across the country. A customer
receives an interest rate that corresponds with a variety of
applicant-specific factors, institutional loss/delinquency rate
data, and competitive market considerations.
The table below includes balance and rate information for
Wells Fargo's active loan programs:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Wells Fargo Student Loan Business Segment
Q.8.a. On August 22, 2016, Wells Fargo's student loan
business--one of the biggest in the country--was fined by the
Consumer
Financial Protection Bureau for illegal student loan servicing
practices. According to the consent order, Wells Fargo
illegally hit
borrowers with multiple late fees and engaged in wrongful
conduct related to credit reporting.\11\ The Consumer Financial
Protection
Bureau warned about these practices in a detailed report in
October 2013, noting that ``too many borrowers have to run
through an
obstacle course to get their payments processed properly.''\12\
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\11\ Consumer Financial Protection Bureau, ``CFPB Takes Action
Against Wells Fargo for Illegal Student Loan Servicing'' (August 22,
2016) (online at http://www.consumerfinance.gov/about-us/newsroom/cfpb-
takes-action-against-wells-fargo-illegal-student-loan-servicing-
practices/).
\12\ Consumer Financial Protection Bureau, ``CFPB Report Highlights
Private Student Loan Payment Processing Pitfalls'' (October 16, 2013)
(online at http://www.consumerfinance.gov/about-us/newsroom/cfpb-
report-highlights-private-student-loan-payment-processing-pitfalls/).
Q.8.a.i. What was the total annual compensation for the
officers of Wells Fargo Education Services' top 5 executives,
including its head, John Rasmussen, from 2010 to the present?
Please specify compensation by component (base salary, cash
awards, equity awards, other deferred compensation, and other
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perquisites).
Q.8.a.ii. What remedial and corrective actions did the board of
directors take to executives and employees engaged in the
illegal student loan servicing conduct uncovered by the
Consumer Financial Protection Bureau? How many executives and
employees were sanctioned or terminated (please provide names
and sanctions)?
Q.8.a.iii. Were any executives required to return any bonuses
or cash awards? Please provide all meeting minutes of the board
of directors and the management team related to these
discussions.
A.8.a.i.-a.iii. The August 20, 2016, Consent Order issued by
the Consumer Financial Protection Bureau covered certain legacy
student loan servicing practices concerning (i) how payments
were
allocated across multiple loans (payment allocation), (ii) how
partial payments were aggregated, and (iii) a systems
programming error related to the assessment of late fees. The
Consent Order requires a total amount of $410,000 of customer
remediation for late fees assessed under the following
scenarios:
LPayment allocation: Wells Fargo allocated payments
sent in for less than the full amount due to pay a
group of loans in a single account and in a manner the
CFPB found as not for the greatest benefit of the
customer. Wells Fargo amended its allocation practices
in August 2012. Late fees will be
refunded to customers.
LPayment aggregation: Wells Fargo did not aggregate
some partial payments or overpayments paid within the
same month or over multiple months when they
collectively added up to a monthly payment. Wells Fargo
automated the aggregation process in 2011 and
eliminated the issue. Late fees will be
refunded to customers. Additionally, we will make the
appropriate credit bureau reporting adjustments.
LLate fees on payments made during the grace period:
Wells Fargo identified a system coding error that
resulted in a failure to waive late fees for some
payments made on the last day of the payment grace
period (i.e., payments that constituted a full monthly
payment). The system coding error was corrected in May
2013, and self-identified to the CFPB. Late fees will
be refunded to customers.
The matters covered by the Consent Order were operational
issues and a systems coding error. As the issues came to our
attention, we took action to resolve them, in each case well
before the CFPB issued its Consent Order. The Consent Order
does not require any changes to Wells Fargo's current student
loan servicing methodologies related to payment allocation and
payment aggregation, or its approach to processing payments
made during the grace period. Wells Fargo is enhancing billing
statements, repayment schedules and borrower--facing Web pages
to provide customers additional detail concerning its payment
application and allocation methodologies, including with
respect to partial payments.
Q.8.b. In 2012, the Consumer Financial Protection Bureau
released a report detailing the deeply troubling practices by
the private student loan industry, including aggressive direct
marketing and subprime-style lending to students, many of whom
took out high-cost loans before accessing Federal student aid.
Many of these loans were not certified by the student's
institutions of higher
education.
Q.8.b.i. How many loans did Wells Fargo (or its acquired
subsidiaries) make to private student loan borrowers that were
not
certified by the student's institution of higher education?
A.8.b.i. Wells Fargo is proud to partner with hundreds of
thousands of students across the country and offer them
valuable products they need, including educational loans. Since
May of 2012, 100 percent of Wells Fargo's core undergraduate
and graduate loans have required the school's certification as
a condition of loan
approval and funding. Wells Fargo continues to provide access
to needed credit for student customers seeking to refinance/
consolidate existing private student loans, to pay for bar exam
study, to cover medical residency, or for similar purposes
where a school certification is not applicable (e.g., for
customers that have graduated from school and are seeking to
refinance existing private loans, the student is no longer
enrolled). These specialty loan programs constitute less than
25 percent of Wells Fargo's annual private student loan
business and less than 3 percent when excluding consolidation/
refinancing of existing student loan debt.
Q.8.b.ii. What referral fees or bonuses did Wells Fargo pay to
lenders and marketers who steered business to--or sold private
student loans to--the bank?
A.8.b.ii. The sole private loan lead-referral arrangement with
another organization is terminating at the end of November
2016. The terms of this contract are protected against
disclosure by confidentiality provisions.
Q.8.b.iii. What incentives were provided to Wells Fargo sales
and marketing staff to drive student loan volume? Please
provide documentation on these incentive agreements from 2003-
2015.
A.8.b.iii. For Wells Fargo's education loan division, overall
compensation for team members is based on a blend of salary and
variable compensation plans. Variable compensation plans are
based on a balance of product acquisition goals, customer
satisfaction goals, and compliance and quality goals.
Q.8.c. The Consumer Financial Protection Bureau has called on
the private student loan industry to aggressively offer
borrowers loan modifications to reduce their principal and help
struggling borrowers get back on track.
Q.8.c.i. How many private student loans has Wells Fargo
provided principal reduction?
Q.8.c.ii. What is the total amount of principal forgiveness
that has been provided?
Q.8.c.iii. What are the detailed criteria for loan
modifications with principal reduction?
A.8.c.i.-iii. Wells Fargo's reliance on prudent underwriting
requirements, designed to ensure that credit extensions are
only made when supported by an ability to repay, facilitates
access to credit within safety and soundness expectations of
our prudential regulators. Our long-standing commitment to
responsible underwriting has for many years translated into
uninterrupted access to credit in support of access to higher
education with very strong repayment performance within our
overall private education loan
portfolio.
Today, over 97 percent of our private education loan
accounts that are in repayment are current, and our private
education loan portfolio has reflected comparable delinquency
management results for a number of years. Our servicing program
also provides important tools and features to assist the very
small percentage of
customers who experience repayment difficulty, such as an
extensive loan modification program, a long-standing loan
refinancing option, and loan forgiveness in the event of the
death or permanent/total disability of the student loan
beneficiary.
Long-Term Repayment Options: Loan Modifications
For the small number of Wells Fargo private student loan
customers experiencing serious financial hardship and who need
assistance beyond short-term payment assistance options, Wells
Fargo developed and introduced its Private Student Loan
Modification Program in November 2014. The Wells Fargo student
loan modification program provides financially distressed
customers a modified, affordable monthly payment by reducing
the private
student loan interest rate to as low as 1 percent, and, only if
``affordability'' is not reached through interest rate
reductions, by extending the loan term up to an additional 5
years. The reduced interest rate approach means that more of
each payment that is made is applied toward the principal of
the loan, more quickly reducing the debt load of the customer
while providing a payment he or she can afford given her or his
current situation. Loan modifications can cover from 1 to 5
years, depending on the individual circumstances of each
customer. In accordance with safety and soundness guidance,
Wells Fargo's student loan modification program does not
include principal forgiveness as part of the solution for the
customer because principal forgiveness for unsecured debts
constitutes a settlement and therefore requires an accelerated
payback of the remaining balance within a short term, negating
the benefit of any initial payment reduction.
Details:
LAffordability is defined as reaching a prescribed
payment-to-
income (PTI) ratio based upon the total of our Wells
Fargo private student loan payments as a percentage of
the borrower's and/or cosigner's gross income. All
liable parties on the loan(s) must be demonstrating a
hardship for the loan to qualify for a modification.
Liable parties must provide income documentation to
verify their level of income prior to approval.
LInitial temporary modification periods cover 12 to
60 months depending upon the borrower's circumstances.
After this initial period, the interest rate will begin
to increase in steps every 6 months until a pre-
determined final market-level interest rate is reached.
LA permanent modification, where the interest rate
and payment will never increase, may be offered in
cases where there is no expectation for increased
future income.
LLoans may be current or delinquent to be eligible;
however, if they are less than 60 days past due, the
parties will need to meet the ``Imminent Default''
criteria to qualify. Examples of Imminent Default
criteria are: 10 percent or greater reduction in income
since time of origination, unexpected ongoing increases
in household expenses >10 percent of income (not
including debt payments), temporary disability, etc.
See the answer to Question 8, subpart (c)(iv) below for more
detail.
Q.8.c.iv. Are loan modifications available to borrowers who are
not yet in distress? If so, please provide the criteria for
providing loan modifications.
A.8.c.iv. Customers seeking relief through our student loan
modification program do not need to be delinquent to obtain
payment relief. The borrowers and any cosigners present on the
loan(s) in question, however, do need to be showing some level
of distress. To be considered for a loan modification, the
hardship the customer is experiencing must be 6 months or
greater in duration. If it is less than that we have other
short-term options to help them stay current on their loans.
The criteria for determining a hardship are as follows:
LLoan(s) 60 days past due or greater qualify as
being in a hardship.
LFor loans less than 60 days past due, a hardship
must meet one of the following Imminent Default
criteria:
LThe combination of the change in income and
change in Education Financial Services (``EFS'')
private student loan
payment must exceed a specified percentage of current
income.
LPayment change would not include a private
student loan account(s) coming out of a deferment.
LIf origination income for the liable parties is
not available, then we will use the income from the
prior 2 years to
determine if any changes have occurred.
LFor student borrowers who are in their first 2
years of
repayment, prior income is not considered in the
Imminent Default calculation as their income was not
used for purposes of obtaining the loan.
LA documented, involuntary, unplanned increase in
monthly living expense (this does not include debt
obligation).
LCapacity to repay the current loan terms must be
in question based on one or both of the following:
LExceeding a debt-to-income ratio threshold.
LGross residual income is less than the
threshold.
LDeath of immediate family member, documented
by:
LDeath certificate, or
LObituary or newspaper article reporting the
death; and
LIncome documentation prior to the event
compared to income documentation of the remaining
borrower after the event.
LLong-term or permanent disability or illness of
the borrower or cosigner or dependent family member (in
accordance with the IRS's definition of dependent),
documented by:
LMedical bills, or
LProof of monthly insurance benefits or
government assistance (if applicable), or
LTax return showing medical deductions above the
minimum for itemized deductions.
LNote: If the ``disability'' is a total and permanent
disability of the borrower that qualifies the loan for
forgiveness under EFS's Death and Disability
Forgiveness Policy, the loan will be processed in
accordance with such Policy rather than considered
under this Policy for a loan modification. Since 2010,
Wells Fargo has forgiven over $47 million in private
student loans due to the death or permanent/total
disability of the student borrower/beneficiary. This
loan forgiveness feature is part of the consumer credit
agreement that we enter into with our customers,
affording our customers a contractual right to this
benefit. We also provide information about the
availability of such loan forgiveness on our public
website (for example, please see https://
www.wellsfargo.com/student/repay/).
LLegally documented divorce or separation,
documented by:
LDivorce decree signed by the court, or
LCurrent credit report evidencing recorded
divorce decree, or
LSeparation agreement signed by the court if
separation is legally documented by the court, or
LCurrent credit report evidencing recorded
separation agreement; and
LIncome or expense documentation prior to the
event compared to the income or expense documentation
of the
remaining borrower after the event.
LOnce a hardship is established either through the
delinquency level or the Imminent Default criteria, we
attempt to reach affordability for our customers by
targeting payment-to-income ratio thresholds as a
percentage of gross income dependent upon the level of
income.
Q.8.d. Until it sold much of its portfolio to Navient, another
student loan giant, Wells Fargo owned billions of dollars in
Government-guaranteed student loans and was one of the largest
participants in the Federal Family Education Loan Program
(FFELP).
Borrowers with FFELP loans are eligible for income-driven
repayment loan modification plans to help them lower their
monthly payments if they are struggling to repay their loans.
Wells Fargo, in its role as a student loan servicer, was
responsible for enrolling borrowers in these programs so they
could avoid default.
Q.8.d.i. How many borrowers on Wells Fargo's FFELP portfolio
have enrolled in income-driven repayment plans since 2009?
Please specify enrollment by number of borrowers, number of
loans, and total dollar amount by year, from 2009.
Q.8.d.ii. How many borrowers have defaulted on Wells Fargo's
FFELP portfolio? Please specify defaults by number of
borrowers, number of loans, and total dollar amount by year,
from 2009?
Q.8.d.iii. Were any Wells Fargo executives or board provided
executive performance bonuses conditioned on meeting certain
income-driven repayment loan modification plan targets? If so,
what?
A.8.d.i.-iii. After the sale of substantially all of its legacy
Federal loan portfolios in 2014 and 2015, Wells Fargo has a
very small remaining FFELP loan portfolio, which materially
impacts the loan-default figures and enrollment figures in
2015/2016 compared to the figures for 2012, 2013, and 2014.
The table below contains information about Federal loan
customers enrolled in income-based or income-sensitive
repayment plans for calendar years 2012 through 2015. The data
has two limitations: (1) a customer is only counted once even
if she enrolled in income-based or income-sensitive repayment
plans more than once in any particular year, and (2) a customer
can be counted in more than 1 year if she was enrolled in
income-based or income-sensitive repayment plans in multiple
years.
Enrollment in income-based or income-sensitive repayment plans
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The table below contains Federal loan default data for
calendar years 2012 through 2015. The data has two limitations.
First, the data captures the number and amount of loan(s) paid-
off through the guaranty agency claim payment process, as of
the date of claim payment, where the claim submission was based
on ``default'' of the borrower. Second, the data does not
include loans that may have defaulted but were not eligible for
a claim payment because the loan lost the Federal guaranty due
to an origination or servicing defect.
Federal loan-default data
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The nonmanagement members of the board of directors do not
receive bonuses.
Additional Material Supplied for the Record
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