[Senate Hearing 115-128]
[From the U.S. Government Publishing Office]
S. Hrg. 115-128
WELLS FARGO: ONE YEAR LATER
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING WELLS FARGO BANK'S CULTURE, ORGANIZATIONAL STRUCTURE, AND
MANAGEMENT'S MONITORING AND RESPONSIVENESS, AS WELL AS THE REFORMS
INSTITUTED BY THE COMPANY IN MAKING CUSTOMERS WHOLE AGAIN
__________
OCTOBER 3, 2017
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
BOB CORKER, Tennessee JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada JON TESTER, Montana
TIM SCOTT, South Carolina MARK R. WARNER, Virginia
BEN SASSE, Nebraska ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota JOE DONNELLY, Indiana
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
Gregg Richard, Staff Director
Mark Powden, Democratic Staff Director
Elad Roisman, Chief Counsel
Joe Carapiet, Senior Counsel
Brandon Beall, Professional Staff Member
Elisha Tuku, Democratic Chief Counsel
Laura Swanson, Democratic Deputy Staff Director
Corey Frayer, Democratic Professional Staff Member
Dawn Ratliff, Chief Clerk
Cameron Ricker, Deputy Clerk
James Guiliano, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
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TUESDAY, OCTOBER 3, 2017
Page
Opening statement of Chairman Crapo.............................. 1
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 2
WITNESS
Timothy J. Sloan, Chief Executive Officer and President, Wells
Fargo & Company................................................ 4
Prepared statement........................................... 40
Responses to written questions of the Senate Banking
Committee.................................................. 43
Additional Material Supplied for the Record
Letter submitted by Americans for Financial Reform and Public
Citizen........................................................ 124
Economic Policy Institute report................................. 128
Letter submitted by Economic Policy Institute Policy Center...... 130
Wells Fargo Financial Overview report............................ 133
(iii)
WELLS FARGO: ONE YEAR LATER
----------
TUESDAY, OCTOBER 3, 2017
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:01 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Mike Crapo, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. This hearing will come to order.
Before we begin today, let me acknowledge that our Nation
is still mourning and remembering the lives lost in Las Vegas.
Our condolences go out to the families affected by this heinous
crime, and our thanks go to the courageous first responders and
police and citizens who put their lives on the line to save
others.
Two Members of this Committee, both of the Senators of
Nevada, are absent today because they are in Nevada, and I know
that Senator Heller and Senator Cortez Masto are currently
doing all they can there. And we will remain united in prayer
and support with them during this difficult time.
Today we are going to hear testimony from Wells Fargo chief
executive officer and president Tim Sloan. Welcome, Mr. Sloan.
Mr. Sloan. Thank you.
Chairman Crapo. Just over a year ago, former Wells Fargo
chairman and chief executive officer John Stumpf testified in
front of this Committee on the bank's fake-account scandal and
his handling of its fallout.
Of the many issues emphasized by the Committee Members
during that hearing, one was the need to hold executives
accountable and to ensure that customers impacted would be made
whole.
Mr. Stumpf repeatedly committed that the bank would take
necessary actions to make it right and to restore the public's
and the investors' trust in the company.
Incidents like these remind us of how critically important
it is for companies to institute policies and procedures that
foster customer protection, promptly identify and address
problems, and treat customers fairly.
Since that hearing, Wells Fargo has made changes to its
corporate and managerial structure in an effort to address the
concerns raised by this incident. However, new developments and
disclosures at the bank during the last year merit new
scrutiny.
On August 31, 2017, Wells Fargo announced the results of an
expanded review of retail banking accounts, which included
accounts opened between January 2009 and September 2016. The
expanded review found the number of potentially unauthorized
accounts was 3.5 million instead of 2.1 million.
Separately, the company discovered problems with respect to
its auto Collateral Protection Insurance, or CPI, program and
self-reported these issues to its regulators.
In response to complaints, Wells Fargo reviewed policies
purchased on behalf of customers between 2012 and 2017 and
found that up to 800,000 customers may have been harmed by
Wells Fargo's CPI practices. The end result was that customers
were charged for car insurance that they did not need, and some
had their vehicles wrongfully repossessed. For families, having
your car repossessed or credit compromised is devastating.
These new developments raise a number of questions that
Wells Fargo must answer, including:
What has Wells Fargo done to ensure that customers affected
by any of these issues are or will be made whole?
In more complex cases where customers' credit scores were
negatively affected, how is Wells Fargo working with other
parties to restore those credit scores and return amounts in
those instances where customers experienced higher borrowing
costs?
What structural and cultural changes has Wells Fargo made
in the last year to address both past issues and new
revelations? And what evidence is there that new policies and
procedures are effective?
And, finally, as Members asked last year, what has been the
involvement of regulators since the initial incident and in
response to the new disclosures?
We welcome your comments on these matters, Mr. Sloan. And
before we get to the testimony, Senator Brown.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman. I would echo your
comments about the citizens of Las Vegas and those many
visitors that also lost their lives or were injured in that
terrible shooting. Our hearts go out to all of them and their
families. Special concern also to Senators Heller and Cortez
Masto on this Committee. After every tragedy we always say our
hearts and minds go out to those victims and their families. I
hope that the U.S. Senate will actually do something about this
for a change.
A year ago, then-Wells Fargo CEO John Stumpf sat in this
hearing room attempting to explain the inexplicable. The bank's
punitive sales goals had pressured its employees into opening
over 2 million fraudulent checking and credit card accounts.
In written follow-up questions for the record, Committee
Democrats asked Mr. Stumpf if he was confident that this type
of fraudulent activity existed in no other part of Wells Fargo.
We asked about a variety of products, including insurance.
On November 15, 2016, Wells Fargo responded, ``We believe
that the activity at issue here was limited to certain team
members within the Community Banking Division.''
We have learned over the past year that the problems at
Wells are much larger and more systemic than the bank
originally disclosed.
Before being forced to come clean by a multi-agency
investigation, Wells Fargo went to great lengths to bury--to
bury--this scandal. It subjected customers to forced
arbitration, preventing them from their day in court, further
concealing the fraud. Let me give examples. Employees who tried
to alert senior management to the treatment of Wells Fargo
customers were silenced or fired.
In 2013, a California customer sued, claiming Wells had
opened several unauthorized accounts in his name. Wells Fargo
forced--forced--that case out of the courts and into nonpublic
arbitration, claiming that the terms of a real account should
govern the fake ones.
Think about that. Using forced arbitration, Wells forced
that case out of the courts and into nonpublic arbitration
claiming that the terms of a real account should govern the
fake ones.
In 2015, another customer in California filed a class
action against Wells for the same practices, and the bank again
used its fine-print legalese to fight to keep the case under
seal--again, using forced arbitration.
Has the company changed? Just 2 months ago, Wells used its
forced arbitration clause again to argue that it should not
have to pay customers it cheated on overdraft fees.
In August of this year, Wells finally disclosed that the
number of fraudulent accounts was at least 3.5 million--70
percent higher than it originally reported. The bank also
revealed that it had stuck 800,000 customers with auto
insurance policies, as Chairman Crapo said, without telling
them or checking to see if they already had insurance.
The bank was aware of these problems in its auto loan
division in July 2016. Yet Wells' CEO told this Committee that
fraudulent sales practices were limited to the Community Bank.
Mind you, this was not a casual response to a question that
caught somebody off guard in a hearing. It was a written
response that was undoubtedly approved by lawyers and others at
the bank. Maybe even you, Mr. Sloan, were among those who saw
the response before it was sent to Congress.
A week after last year's hearing, the Board of Directors
initiated its independent review of the company's sales
practices. The report to the board, whose members, I might add,
are paid an average of $370,000 for a part-time job--$370,000
to prepare for and attend several meetings a year, found that
the fault lay elsewhere.
That is cold comfort to the thousands of employees--who
make perhaps one-tenth of what these board members make--who
were fired for failing to generate enough new accounts.
The board chose to limit the scope of the review to the
Community Bank, which is troubling. It should have known, or
should have wanted to know, that additional problems existed in
other divisions.
The changes that Mr. Sloan and his team have made are not
sufficient to reform a corporate culture that is willing to
abuse its customers and its employees in an effort to pad its
numbers and in an effort to increase executive compensation.
In light of the millions of Americans defrauded by Wells
Fargo, the recent Equifax breach that compromised 145 million--
the number seems to be growing--145 million Americans' personal
financial information, and the SEC breach that led to insider
trading, it is no wonder the public does not trust our
financial system.
We need strong rules to guard against abuses in forced
arbitration, in payday lending, in debt collection, in mortgage
servicing, and credit reporting accuracy.
Rather than working to roll back consumer protections, as
this Committee seems to want to do, we should be supporting the
Consumer Financial Protection Bureau. We should be supporting
other financial watchdogs that stand up for hardworking
Americans when big companies take advantage of them.
Thank you Mr. Chairman.
Chairman Crapo. Thank you, Senator Brown.
We will now proceed to testimony from Mr. Tim Sloan, the
chief executive officer and president of Wells Fargo & Company.
Mr. Sloan, your written statement will be made a part of the
record in its entirety, and you may proceed with your oral
remarks.
STATEMENT OF TIMOTHY J. SLOAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT, WELLS FARGO & COMPANY
Mr. Sloan. Chairman Crapo, Ranking Member Brown, and
Members of the Committee, my name is Tim Sloan, and I am the
CEO of Wells Fargo. I want to thank you for the invitation to
this hearing on ``Wells Fargo: One Year Later''.
This was a year of disappointment and transition at Wells
Fargo. When my predecessor testified here last year, we had not
fully grappled with the damage the sales practices scandal had
done to our customers, our team members, and their trust in our
bank. We recognized too late the full scope and seriousness of
the problems in our Community Bank. We did not come to Congress
with a good plan, and we deserved your criticism.
But I heard you, and I heard our customers and our team
members. I heard them loud and clear. You expect us to do
better, and so do we.
So let me be very clear: I am deeply sorry for letting down
our customers and our team members. I apologize for the damage
done to all the people who work and bank at this important
American institution. When the challenges at Wells Fargo
demanded decisive action, we acted too slowly and too
incrementally. That was unacceptable.
I also want to be clear about another thing: Wells Fargo is
a better bank today than it was a year ago. And next year,
Wells Fargo will be a better bank than it is today. That is
because we have spent the past year determined to earn back the
public's trust.
Since I became CEO 11 months ago, my team and I have been
focused on three tasks we are here to discuss today.
First, in response to the sales practices problems
announced in 2016, we are transforming our Community Bank. Our
retail bank has a strong new leader. Oversight, compliance, and
human resources are much more effective than a year ago and
have far greater visibility and accountability across the
entire company. We have revamped the incentives for our retail
team members by eliminating product sales goals. Today Wells
Fargo rewards teamwork and excellent customer service, not just
selling products. Our Community Bank is a fundamentally
different organization from the one that existed in 2016.
Second, we are reviewing operations and increasing
accountability across the entire company. Now when a concern
emerges, we identify it quickly, we escalate it promptly, we
disclose it appropriately, and we address it fully. We will
demand individual executive accountability. We have clawed back
$180 million in senior executive compensation, and we have
fired senior retail, mortgage, and auto lending executives for
not performing up to the standards our customers deserve.
Third, we are compensating every customer who has suffered
because Wells Fargo made mistakes. Last year, we reviewed 93
million accounts opened between 2011 and 2015. This year, we
went back and took an even closer look at 165 million accounts
opened between 2009 and 2016. Just as we expected, we found
more accounts that should not have been opened. This was not
new potential misconduct since last year. It all happened
before 2017. But it is a very serious issue all the same, and
we are completely committed to fixing it.
Of the 3.5 million potentially unauthorized accounts, about
190,000 incurred $6 million in fees and charges. Wells Fargo is
refunding every nickel, and we are paying $142 million to
compensate all affected customers, including for increased
borrowing costs from credit score impacts.
Apart from these formal reimbursement mechanisms, I want to
be very clear that Wells Fargo is committed to addressing any
concern that any of our customers may have about an unwanted
product or service, no matter where or when it may have
occurred. If there is a problem, we want to hear about it.
This past year has been humbling and challenging. My number
one job as CEO is to make sure that nothing like this happens
again at Wells Fargo. Fortunately, joining me in this big task
are 270,000 outstanding Wells Fargo team members. I am proud of
their hard work and want to thank them for their commitment to
making things right.
I see improvement every day, and so do our team members. I
think our customers have noticed the improvement, too. I pledge
to you that we will not stop until we restore our customers'
trust and make Wells Fargo the finest and most ethical company
it can be.
Thank you again for the opportunity to address the
Committee. I look forward to your questions.
Chairman Crapo. Thank you, Mr. Sloan.
In our hearing last year, Members of this Committee asked
many questions about how customers and consumers whose credit
scores were impacted would be made whole. In cases where
customers' credit scores were negatively affected, how is Wells
Fargo working with other parties to restore those credit scores
and, in cases where customers experienced higher borrowing
costs, reimbursing those costs?
Mr. Sloan. Chairman Crapo, we are doing that in a few ways.
First and foremost, we went to the credit bureaus and provided
the names of our customers whose accounts could have been
inappropriately opened. Unfortunately, because of regulation,
the credit bureaus could not provide us with the detail of
those customers back to us.
What we saw when we looked at that is about 40 percent of
those customers had no use of the trade lines within a year, so
their credit was not impacted. Of that remaining 60 percent,
about 25 percent had no impact on their credit scores. We found
that the median impact--or, excuse me, the mean impact was
about 4 points. But numbers are just numbers because certainly
more customers were impacted, and some could have been impacted
in credit scores by more than 4 points.
So then what we did is we reached out to 43.5 million small
businesses and consumers and said, ``If you have an issue, come
into Wells Fargo and see us, and we will make it right.''
Approximately 41,000 customers have come in. Based upon that,
about half had credit-related issues, and we have made it right
for those customers.
In addition, as part of the $142 million settlement that I
mentioned, the lion's share of those funds are going to go to
customers whose credit scores have been impacted. So we are
going to be working with the experts that the attorneys for the
class have provided. We are going to provide them with whatever
information they want. We are reaching out to those 43 million
customers again, as well as tens of millions of former
customers, to make sure that they know about the class action
settlement so that they can be made whole as part of that
settlement for any credit impacts.
Chairman Crapo. Thank you. And some of the actions required
by regulators as a part of your September 2016 settlements
include the establishment of a compliance committee carrying
out an enterprise-wide risk review of sales practice risk and
maintaining enterprise-wide sales practice risk management and
oversight.
What has been the involvement of regulators since the
initial incident, including in response to the new disclosures
about the increased amount of unauthorized accounts as well as
the CPI issues?
Mr. Sloan. Sure. We have an active dialogue with our
regulators--the Federal Reserve, the OCC, and the CFPB--when we
are talking about bank-related issues. So there is a tremendous
amount of dialogue. For example, as it relates to the
Collateral Protection, or CPI, issue, when that got escalated
in the third quarter, we reported it to our regulators on a
real-time basis, and we have been working with them not only to
keep them apprised of those issues, but also in particular with
the OCC, working with them to make sure that the remediation
plan we had for any customer that was impacted by CPI is
acceptable.
As it relates to the fundamental changes that I have made
since I became CEO to our compliance, we have done the
following things:
First and foremost, we have centralized all of our
enterprise risk control activities. That was one of the
failings that the report from the independent board of
directors found, and we agree with that. So those have been
centralized.
We are hiring a new compliance officer. We have completed
and devised a new compliance plan. We have created a Conduct
Office in the Centralized Risk Group that independently brings
up complaints, ethics line issues, any sort of team member
turnover, so that we can connect the dots better than we did a
year ago.
Chairman Crapo. Thank you very much.
Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
I do not think we have a good answer yet, Mr. Sloan, as to
how and why this activity went on for so long in your bank. The
company first blamed rogue employees who were trying to meet
unrealistic sales goals; then blamed Carrie Tolstedt, the
senior executive vice president for community banking, who
earned $9 million in 2015; then finally, John Stumpf, the
chairman and CEO, who earned $19 million that year.
You have been at Wells Fargo for a long time, 30 years. You
have been COO, CFO, chief administrative officer, head of the
Wholesale Bank, which includes overseeing insurance. Was there
no point, Mr. Sloan, prior to 2015 with the lawsuits and the
terminations and the whistleblowers, was there no point that
you saw a problem in the bank that required action?
Mr. Sloan. Senator, that is incorrect. In fact, I have been
very public and have made this statement on a number of
occasions, and also it was a finding of the board's report that
in 2013, when the sales practices issues were elevated to the
Operating Committee, I sat on that Operating Committee, you are
absolutely correct, in my role at that time as CFO, that it was
elevated to that group. We took action, but in hindsight,
Senator, we took action that was insufficient, as I said in my
opening statement. And I am angry about how we handled the
problems historically. I am disappointed in how we have done--
how we handled those. But the fundamental changes that I have
made since I have been CEO are addressing the failings that the
board report pointed out, our regulators pointed out, and the
mistakes that I saw in my prior roles.
Senator Brown. All right. That is an answer, but as the
CFO, as a long-time employee of that company, as having a
strong, I understand, close relationship with Mr. Stumpf, it
still perplexes me why your anger now or speaking out about it
4 years ago could not have had more impact, but let me turn to
another issue.
You have testified about how Wells has changed, but I think
actions speak louder than words. For years, your bank used
forced arbitration to hide cases where customers alleged fake
accounts had been opened in their names. I mentioned in my
opening statement the 2013 lawsuit, the 2015 lawsuit that Wells
was able to squelch because of the forced arbitration clause.
Not only did you use forced arbitration to keep the fraud
hidden--that is what it did--but your bank has also taken the
position that the fine print on a real account should apply to
a fraudulent one. Though you have settled with some customers
on that issue, your bank was still making that argument as
recently as last month against customers in Utah.
To top it off, in August you asked a court to toss out a
class action on a completely different scandal that also goes
back several years, again, based on the forced arbitration
clauses, the arbitration clause you force your customers to
sign.
Many of your competitors are starting to eliminate or have
eliminated the practice, have stopped the practice of forced
arbitration. Would you commit to the Committee today that Wells
Fargo will quit using forced arbitration?
Mr. Sloan. No, I will not, Senator. When I hear the word
``arbitration,'' what I hear is the word ``failing.'' And when
we have to resort and have to have a conversation with our
customers about arbitration, it means that we do not have the
right product; we have not provided it in the right way; we
have not responded to their complaint; and we have not made it
right to them. So let me describe what we have done to change
that.
First and foremost, we are doing a thorough review of all
of our products and services to make sure that they are the
right products and services for our customers. In some
situations we have stopped providing certain products because
we did not believe that we could provide them in the
appropriate way.
Second, we are improving how we train our people and our
team members to sell our products, to provide the right advice,
to provide the right service.
Third, when a customer comes in, we are trying to resolve
the complaint completely. One important change that we have
made in our Community Bank--and in my opening statement I
mentioned we have made fundamental changes in our Community
Bank--now when you come into one of our branches, one of our
bankers or tellers does not say, ``I cannot handle your
problem. Call this 800 number.'' We settle it right then and
there.
In addition to that, fourthly, as part of resolving the
sales practices issues, we have expanded to a nationwide
mediation. So we pay for a mediator to work with on behalf of
our customers--it is an independent mediator, to work on behalf
of our customers to resolve complaints. I am happy to say that
of the 43.5 million customers that we reached out to in the
fourth quarter, those ones that came back----
Senator Brown. I am going to cut you off. I apologize,
because I wanted to follow up on that, and I appreciate the
long, detailed answer, and I think it was made in good faith.
But I also think that forced arbitration clauses always give
the advantage to the employer, to the bank, as we know. We know
that. That is established fact. You are still going to use
those forced arbitration clauses to take advantage of your
customers the way you did with the suits in 2013 and 2015 and
the case against the customers in Utah.
Why should we believe you are committed to changing your
bank's practices and being fair to customers when you continue
to use that behind-closed-doors arbitration system that clearly
does not allow customers their day in court?
Mr. Sloan. Senator, the reason is because I think we have
made fundamental changes to the way that we do business so it
will limit the number of times that that ever becomes an issue.
Senator Brown. To limit the number of times is good. I
appreciate that. But give them their day in court, those that
you are not able to help or that you are not able to satisfy.
Mr. Sloan. Senator, I look at the CFPB's own study, and the
CFPB's own study said that arbitration is fast and efficient
for consumers. And the CFPB's own study said that consumers
have better returns, higher resolutions with institutions----
Senator Brown. That is a selective reading of the CFPB's
study, but keep in mind where the CFPB ultimately came out on
that question.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Kennedy.
Senator Kennedy. Thank you, Mr. Chairman. Good morning, Mr.
Sloan.
Mr. Sloan. Good morning, Senator.
Senator Kennedy. Thank you for being here.
Mr. Sloan. Thank you.
Senator Kennedy. Like you, I believe in the free enterprise
system. I think the free enterprise system has lifted more
people out of poverty than all the social programs put
together. I am certainly not anti-business. Quite the contrary.
We all on this panel talk about the importance of jobs. I do
not see how you can be for jobs if you are against business.
But what I am curious about is what in God's name were you
thinking? I am not against large. I am happy when businesses
are successful. I am not against big. With all due respect, I
am against dumb. I am against a business practice which has
Wells Fargo first and customers second. I think it ought to be
customer first and Wells Fargo second. I think it is better for
the customer and better long term for Wells Fargo.
When did this start?
Mr. Sloan. Senator, I completely agree with you. Wells
Fargo cannot be a successful American institution, we cannot
employ 270,000 of what I think are the best team members,
unless we put our customers first. And there is no question
that in our Community Bank we had an incentive plan that put
selling products first as opposed to customers first.
Senator Kennedy. Nothing wrong with that if it is good for
the customer. But when did it start? When did it all start? You
have investigated back to 2009, I believe?
Mr. Sloan. Senator, no, the board of directors, the
independent board of directors, members of the board looked
back as far as 2002, and that is where they found--and I agree
with them--that they saw instances of inappropriate sales
activity under that plan.
Senator, we should have ended that plan years ago. We made
a mistake. There is no question about that. We have ended that
plan. We have rolled out a new incentive plan, to your point,
in our Community Bank. That incentive plan rewards good
customer service. It rewards providing products in the right
way.
Senator Kennedy. Mr. Sloan, I appreciate that, and I am
really not trying to be rude. We just have a 5-minute limit,
and our Chairman enforces it pretty strictly, as he should.
Can you tell me this: what is the total number right now of
fake accounts you found?
Mr. Sloan. Senator, in our review going back nearly 8 years
to 2009, we found that--because we could not call 165 million
people. What we did is we used a very conservative set of data
metrics to look at, and it was done by an independent party,
not by----
Senator Kennedy. And what did you come up with in terms of
the number?
Mr. Sloan. There were up to potentially--3.5 million
potentially unauthorized accounts.
Senator Kennedy. And that is back to 2009?
Mr. Sloan. That is correct.
Senator Kennedy. Did you go back further than that?
Mr. Sloan. Senator, we could not go back much further than
that, and the reason we picked 2009, that is when Wells Fargo
and Wachovia came together. So as we went back further than
that, the data starts to deteriorate.
Senator Kennedy. How much money did you make off of those
3.5 million fake accounts?
Mr. Sloan. Well, again, Senator, they were potentially
unauthorized. There were some legitimate accounts in that
number. But let us assume that they were all inappropriate.
Senator Kennedy. Yes.
Mr. Sloan. We found 190,000 accounts that we charged fees,
and that was approximately $6 million in total, and we have
refunded that.
Senator Kennedy. OK. Was anybody's credit impacted?
Mr. Sloan. Not for those deposit accounts, but for the
potentially unauthorized credit card accounts, their credit
could have been impacted. And we are in the process of working
to correct that.
Senator Kennedy. And you said you talked to the credit
bureaus. Are they being cooperative?
Mr. Sloan. Yes, they are.
Senator Kennedy. You said they were not giving you certain
information?
Mr. Sloan. Well, when we provide them information about
customers, they cannot provide us the detailed credit history
without the customer's approval. So what they did is they gave
us data without the customer name so we could determine----
Senator Kennedy. I thought you could buy it from them?
Mr. Sloan. Pardon me?
Senator Kennedy. I thought you could buy----
Mr. Sloan. We cannot buy it from them, but we--and that is
why it is very important and an important part of the $142
million settlement that--and that is really the linchpin of
that entire settlement, is to make it right for their credit
histories. And so that is how they are going to be able to get
their credit histories fixed.
In addition, if they come in to see us, of course, we will
go ahead and do that.
Senator Kennedy. Sure. Thank you, Mr. Sloan.
Mr. Sloan. Thank you.
Senator Kennedy. Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Tester.
Senator Tester. Thank you, Mr. Chairman. And thank you for
being here today, Mr. Sloan.
Let me just go through what we have learned over the last
year. In September of 2016, we learned that 2.1 million Wells
Fargo accounts had been fraudulently set up, credit, checking,
debit, unauthorized setting up.
July of 2017, we learned that Wells Fargo set up 800,000
auto insurance policies who did not want or did not need them.
And then in August of 2017, we learned an additional 1.8
million--that is over and above the 2.1 million--1.4 million
accounts were set up for unknowing customers.
If you add all those up, that brings the accounts to 4.3
million people either fraudulent accounts or insurance
companies, if my math is correct.
Mr. Sloan. That is correct.
Senator Tester. 4.3 million people, by the way, is over 4
times the population of the State of Montana. It is a pretty
good-size chunk of folks.
The Chairman and Ranking Member of this Committee in their
opening statements basically asked you: What have you done that
you can tell us today that has changed this culture? This is
not one person. This is not tellers on the ground. This has
been a culture. So what can you tell me concisely that you have
done--and I know you have talked about, you know, transforming
your community banks. But what as CEO have you done, or the
board or whatever, to ensure to us that we are not going to be
back here next week or a month from now or a year from now
talking about something else?
Mr. Sloan. Senator, I cannot promise you perfection, but I
can promise you that we are working as hard as we can to get to
near perfection, and that is, we are reviewing processes and
procedures, turning over every stone.
First and foremost, what we had to do and what you
criticized us for last year--and you were absolutely right--is
we had to have an executive team that took full responsibility
for that. That was number one.
Number two, we needed to reinforce that with our team, so
we went out and we talked to our team, and we asked them what
they were concerned about. They were concerned about things
like pay. They were concerned about things like escalation of
issues. They were concerned about things like executive
accountability. They were concerned about things like revamping
our equity lines and things like that--our ethics lines, excuse
me.
The point is we have listened to our team, and as you are
listening to the team, that fundamentally changes the culture.
Senator Tester. OK.
Mr. Sloan. And, Senator, the proof of the pudding there is
that our turnover is now down to its lowest level in 4\1/2\
years; and, in particular, it is down to its lowest level in
our Community Bank where we had our biggest issues.
Senator Tester. OK. So just to let you know, I hope this
all works, because I think it is absolutely essential that it
works. If we are doing this again 6 months from now, it is not
going to be good.
You talked about the things you have done, reviewing the
customers and products, improving training, resolving problems.
You talked about a nationwide mediator. Who pays for the
nationwide mediator?
Mr. Sloan. We do.
Senator Tester. Who chooses them?
Mr. Sloan. The customer does. We just go to an independent
mediation service, and the customer can do----
Senator Tester. The customer is the one who makes the call
to the mediator?
Mr. Sloan. Yeah. I mean, we provide them with a list of
names. They can decide who they want to use, and we will pay
for it.
Senator Tester. OK. Let me talk a little bit about what the
Ranking Member talked about, and that is forced arbitration. Is
it true that you are using forced arbitration when it applies
to a real account on fake accounts?
Mr. Sloan. Senator, we have dealt with that issue with the
$142 million settlement. We did not waive our right to
arbitration there, but what we did is we agreed to that
settlement. And we said to our customers, ``Come in to see
us.'' We will make it right by them. ``And if you are not
happy, we will provide you with a mediator.''
Senator Tester. But that was not the question. The question
is: Were you using forced arbitration from a real account and
applying it to a fake account that was set up unauthorized?
Mr. Sloan. There were instances historically that we did
that. We are not doing that right----
Senator Tester. Is that happening today?
Mr. Sloan. We are not doing that today because we have
addressed----
Senator Tester. So will you commit to not use forced
arbitration on accounts that were set up without the
authorization of the customer?
Mr. Sloan. Senator, if there is a situation in which a
customer----
Senator Tester. ``Yes'' or ``no'' would work.
Mr. Sloan. Yes.
Senator Tester. You commit not to use that, forced
arbitration?
Mr. Sloan. If we have set up an account that was
inappropriately set up or fraudulently set up, without the
customer, we are going to make it right by them.
Senator Tester. And you are not going to use forced
arbitration?
Mr. Sloan. There is not going to be a reason even to have
the conversation because we are going to make it right by that
customer.
Senator Tester. But, Tim, let me point out that that was
being used 6 months ago. I think my staff whispered in my ear
that they were using arbitration on fake accounts that were set
up on real accounts.
Mr. Sloan. Senator Tester, I completely appreciate your
question, and we are not doing that because----
Senator Tester. OK. And you are not going to do that?
Mr. Sloan. If we have set up an account----
Senator Tester. OK, Tim, the only time I get in fights with
folks who are talking is when they do not give me a ``yes'' or
``no'' answer when I really ask it. And the question is this,
and you can answer it another way if you want. But will you
commit to not use forced arbitration on accounts that were not
authorized by the customer?
Mr. Sloan. The easy answer for that, Senator, is yes,
because we have not done that. We are not doing that.
Senator Tester. And you are not going to do it moving
forward?
Mr. Sloan. We are not doing that.
Senator Tester. OK. Thank you very much. I used more time
than I should have. Thank you, Mr. Chairman.
Chairman Crapo. Senator Scott.
Senator Scott. Thank you, Mr. Chairman. Mr. Sloan, thank
you for being here this morning.
Mr. Sloan. Thank you, Senator.
Senator Scott. Obviously, the entire Banking Committee is
at least irritated by what we have uncovered and what you guys
have discovered over time, and part of it is that from 2011 to
2015 you had 2.1 million fraudulent accounts. Then you went
back and did another search, and from 2009 to 2015, it is now a
70-percent increase. Were all those new accounts from 2009 to
2011, or did you miss some between 2011 and 2015?
Mr. Sloan. The majority of the increase was in 2009 and
2010, and then extending the period to September of 2016. But
because we used an even more conservative view for the original
timeframe of 2011 through 2015, we did pick up a few additional
accounts.
Senator Scott. So the vast majority of the 70-percent
increase was 2009 to 2011, and 2015----
Mr. Sloan. 2009----
Senator Scott. So it was not within that period----
Mr. Sloan. Correct.
Senator Scott. ----you did the first----
Mr. Sloan. So 2009, 2010, the first part of 2011, and then
through 2016.
Senator Scott. So half a million customers were enrolled in
online bank payment, bill pay, without consent; 800,000
customers were charged for auto insurance without their
knowledge. How about homeowners, flood insurance, property
insurance? Because having spent 15, 16 years in the insurance
business, I will say that auto insurance is probably the lower
tier of what banks actually engage in charging customers for
not having proper insurance. Homeowners, a significantly higher
percentage of folks typically find themselves being charged by
the bank temporarily, and flood insurance is another area where
you see that happen oftentimes.
So are the numbers in the homeowners and the flood space
just insignificant, or do you have a number for that?
Mr. Sloan. We have not found any issues there, Senator.
Senator Scott. And here is my thought: If you have to come
back in 6 months--which I think it might be good for you to
come back in 6 months to have another opportunity for us to
know what happened over the same time period more thoroughly.
But my question is: If you have not found any instances of
inconsistencies in other insurance-related services, that would
be surprising from my perspective, having dealt with banks
consistently for 20 years or so.
How do we know, how do you know--did you say you have 165
million customers?
Mr. Sloan. No. We said we looked at 165 million accounts
for that period.
Senator Scott. 165 million.
Mr. Sloan. We have over 70 million customers. We serve one
out of three U.S. households.
Senator Scott. We were talking about that. We did not think
it was one out of two. So out of those 70 million customers,
you are confident that 3.5 million is the final number?
Mr. Sloan. Of potentially unauthorized accounts?
Senator Scott. Yes.
Mr. Sloan. Yes, Senator, I am.
Senator Scott. Let me talk for a second about the corrosive
culture. That does not start at local retail locations. It does
not start with tellers. A corrosive culture starts at the top,
and then it seeps into the soil conditions. Then it germinates,
and then folks feed off of that.
How have you changed the corporate leadership and the
corporate culture that will find itself in the soil conditions
at retail locations?
Mr. Sloan. So, Senator, first we look at what caused the
problems in our retail bank. First and foremost, the issue
within our retail bank was that we had an incentive plan that
drove an inappropriate sales culture. That incentive plan has
been ended, and we have rolled out a new incentive plan. The
feedback that we have gotten from our team since we have rolled
back that plan--we have now had two full quarters; we will get
the results of the third quarter--is that they are
overwhelmingly very pleased with the plan. As we survey them,
they are telling us that they like the new conditions at Wells
Fargo. They are very happy. We have actually hired back--and we
have hired 17,000 new team members into our retail bank since
September, since we have made these changes. Of those, 10
percent, or about 1,700, 1,800, were team members that had
worked in the retail bank, that left because of the old culture
there, or were dismissed because they did not meet certain
sales quotas. And to me, those folks coming back and agreeing
to be part of the team reinforce that the changes that we are
making in the Community Bank are taking hold.
Senator Scott. That is good to hear that some folks want to
come back. My thought is this: Your sales culture is not driven
by the sales products. I think Senator Rounds can attest to the
fact as another insurance guy that ultimately it is not the
sales goals, it is not the product selection. It is the people.
And it is the people who are in management positions who put
more pressure for results than an average person can get. And
so if you have not changed the people, it is quite difficult to
change the culture.
Mr. Sloan. I completely agree with you. That is why I named
the new head of our Community Bank group who I mentioned, Mary
Mack, who is doing an excellent job. She has gone through each
one of the levels of management and had everyone literally
reapply for their jobs. We have reduced the number of managers
to change the span of control. We eliminated a layer.
But I agree with you. The issue is not just the incentive
plan. It was that we created a culture of managers that only
knew how to manage because of that plan. So getting rid of the
plan, going through and making sure we had the best managers,
and then now we are in the process of retraining everybody,
starting at the top, the senior levels, before we get down to
the folks in our branches. I completely agree with you.
Senator Scott. Thank you, sir.
Chairman Crapo. Thank you.
Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
Mr. Sloan, when you were named CEO after the fake account
scandal, you were asked why a career as a Wells Fargo insider
like you, why that made you the right person to fix the
fundamental problems at the bank, and you said, ``Because I
have been making change for 29-plus years at Wells Fargo.''
So I want to take a look at your time at Wells Fargo. From
2011 to 2014, the height of when Wells Fargo was cheating
customers by opening fake accounts, you served as the chief
financial officer. And as CFO, you spoke to potential Wells
Fargo investors a lot. On those calls you aggressively promoted
Wells Fargo's ability to open up new accounts, didn't you?
Mr. Sloan. No, I did not.
Senator Warren. No, you did not?
Mr. Sloan. No.
Senator Warren. Well, here are the transcripts from all of
the investor earnings calls that you participated in from 2011
to 2014. I have read through them, and on these calls no one,
not even John Stumpf, who was the CEO at the time, bragged more
about Wells Fargo's ability and commitment to open new accounts
for existing customers.
In the April 2011 call, for example--I think I have marked
that one--you said, ``I cannot wait to get a credit card in
every one of our creditworthy customers' wallets.'' Nothing
about whether your customers wanted or needed a Wells Fargo
credit card. All that mattered was opening new accounts.
So while you were bragging to investors about opening new
accounts on these calls from 2011 to 2014, you also personally
owned roughly 2 million shares of Wells Fargo stock. Is that
right?
Mr. Sloan. Senator, I do not recall how much stock I owned
in Wells Fargo. I am a very proud shareholder.
Senator Warren. Well, it is actually in your SEC filing.
Mr. Sloan. Sure. It is public.
Senator Warren. If that is accurate----
Mr. Sloan. It is all out there.
Senator Warren. ----then 2 million shares. So it looks like
you had a really good thing going. Talk up Wells Fargo's
ability to open new accounts, get investors excited, and, hey,
if the stock goes up by a dollar, you make a cool 2 million
bucks.
Then in December 2013, almost 3 years into your time as
CFO, the L.A. Times published a long article on the relentless
pressure Wells Fargo put on employees to open new accounts. The
article was based on a review of internal Wells Fargo
documents, court filings, interviews with more than 30 current
and former Wells Fargo employees. The article specifically said
that employees had opened fake accounts in response to this
pressure.
Now, you were interviewed for that piece, Mr. Sloan, and
you said, ``I am not aware of any overbearing sales culture.''
Hmm, that is really interesting phrasing: ``I am not aware of
any problem.''
So when the L.A. Times came to you and showed you concrete
evidence of a terrible problem with fake accounts at your bank,
did you launch an investigation into the issue before brushing
it off?
Mr. Sloan. Senator, first, as it relates to my comments in
2011, I am proud of the credit card products that we have at
Wells Fargo----
Senator Warren. That is not the question I am asking. I
just asked, you brushed it off, you said, ``I am not aware of
any problem.'' Did you open an investigation when someone laid
out evidence of fake accounts?
Mr. Sloan. Senator, in that interview, to the best of my
recollection, with the L.A. Times, they did not provide me with
any information. It was soon after that that, as I mentioned,
2013----
Senator Warren. So I take that as a no. So when you were
asked this question----
Mr. Sloan. That is correct, because by that----
Senator Warren. ----you did not open an interview--you did
not open an inquiry into it. Is that right?
Mr. Sloan. Senator, again, the L.A. Times did not provide
me with any documentation----
Senator Warren. So you had no clue----
Mr. Sloan. It was a phone call.
Senator Warren. All right----
Mr. Sloan. After that time----
Senator Warren. Did you read--did you read the article?
Mr. Sloan. I read the article, yes.
Senator Warren. And then you opened an investigation
immediately?
Mr. Sloan. At the same time the article was coming out,
that was the time when the Community Bank elevated this issue
to the senior leadership team----
Senator Warren. OK, so let us talk about----
Mr. Sloan. ----and that is the time that we began to take
action.
Senator Warren. Let us talk about that time. You did not
look into the fake accounts, but you went right back to pumping
up the stock price by bragging about Wells Fargo's record
number of new accounts on your very next investor call.
Now let us forward to 2016, 2 months before the fake
account scandal became public. You were then the chief
operating officer of Wells Fargo. An interviewer asked you
whether you thought the bank had pushed sales goals and cross-
selling too far, and your answer was, ``No. The fundamental
strategy that we have is not going to change.'' That is July of
2016, just before this breaks open.
According to Wells Fargo's own investigation, by July of
2016, you knew that thousands of employees had been fired for
opening fake accounts and other sales violations. You knew
aggressive cross-selling goals were to blame. And, still, you
publicly said the bank did not have a problem. Right?
Mr. Sloan. Senator, that is incorrect. You----
Senator Warren. You did not say this, that your----
Mr. Sloan. Senator, could you read the entire quote? And
could we go through the entire presentation? Because I think in
that----
Senator Warren. Your answer----
Mr. Sloan. Senator, I think in that presentation----
Senator Warren. ----when asked about whether or not----
Mr. Sloan. ----you will see----
Senator Warren. ----you pushed employees too far, your
answer was, ``No. The fundamental strategy that we have is not
going to change.'' And that is a month----
Mr. Sloan. And I was referring to the vision----
Senator Warren. ----before this breaks publicly.
Mr. Sloan. I was referring to the vision of our company----
Senator Warren. The vision----
Mr. Sloan. Of our company.
Senator Warren. ----including the fake scandals you----
Mr. Sloan. No, Senator----
Senator Warren. ----were being asked about?
Mr. Sloan. Every time I give a presentation to our team
members, I start with our vision, which is to ground people in
the culture of our company, which is that our job is to satisfy
our customers' financial needs and to help them succeed
financially.
Senator Warren. Mr. Sloan, I am glad----
Mr. Sloan. That is the context that I made that statement.
Since I have become CEO, I have made fundamental changes to
address the issues that we are talking about today.
Senator Warren. Mr. Sloan, you were asked about pressure on
employees which caused the fake account scandal. We all know
that now. It is public. You knew there was a problem, and when
you were asked about it, you lied. This is about personal
responsibility. Wells Fargo cheated millions of people for
years. The Federal Reserve should remove all of the current
board members who served during the fake account scam. And, Mr.
Sloan, you say you have been making changes at Wells Fargo for
30 years, but you enabled this fake account scam. You got rich
off it, and then you tried to cover it up. At best, you were
incompetent. At worst, you were complicit. And either way you
should be fired.
Wells Fargo needs to start over, and that will not happen
until the bank rids itself of people like you who led it into
this crisis.
Thank you, Mr. Chairman.
Mr. Sloan. Mr. Chairman, could I respond to that?
Chairman Crapo. Yes, you may.
Mr. Sloan. OK.
Senator Warren. I want an equal amount of time.
Mr. Sloan. Senator, a couple things. First--and I will get
to your criticism of me in a moment, but first let us talk
about the board. I think the board has taken very important
steps in terms of a thorough, independent investigation that
has been made public. That is number one.
Number two, the board has taken very strong action in terms
of executive accountability that is unfortunately some of the
highest in corporate American history. Again, unfortunate. So I
do not believe that your criticisms of the board are accurate.
As it relates to me, again, I think the reason that I am
the right person to run this company today, notwithstanding
your criticism, is because I have been making change at this
company for 30 years. I have made mistakes. I certainly have
not been perfect. But I think having that knowledge of the
company, having the ability to make the change, the actions
that I have taken since I have become CEO 11 months ago have
made fundamental change at this company. So I am not afraid to
make hard decisions when it is needed, and I have the support
of 270,000 people. That is why I think I am the right person.
Senator Warren. Can I just make a short comment on this?
Chairman Crapo. Very brief.
Senator Warren. I know we are over. But you really want to
say, ``Are you kidding?'' You know, look, you have been there
for 30 years, and every one of my colleagues on both the
Republican side and the Democratic side who has spoken so far
have talked about a broken culture at Wells Fargo, have talked
about the fact that the problem starts with leadership. The
people who were there and leading Wells Fargo during the time
of a years-long scam and multiple scams, as our Chairman
pointed out, those people should not be left in charge of this
business. And when you promoted exactly what was wrong with
this bank over and over and over, you went to the stock market
and you bragged about it. You made money personally off it.
When you were asked about it, you did not tell the truth, and
you tried to cover it up.
Wells Fargo is not going to change with you in charge.
Chairman Crapo. Senator Rounds is next, and I do ask the
Senators to pay attention to the time limits.
Senator Rounds. Thank you, Mr. Chairman.
I know that we are not supposed to be in the middle of
this. We each normally get 5 minutes, and so I am just going to
go back because I know that in some cases you do not get the
opportunity to respond. But I think there was one area here
that I want to hear your full response to it, and that is, you
said that basically, as Senator Warren has indicated, you
wanted to see everybody with a credit card or at least all of
your folks with a credit card. Would you please go into what
you meant by that statement?
Mr. Sloan. Well, sure. I mean, we are in the banking
business, and one of the products that we provide to our
customers is a credit card. And any one of our customers that
comes in to see us that is interested in a credit card, we
would like to provide it to them. I am proud of the hard work
and effort of all of our team members that work in our credit
card group. We have seen growth in that group because customers
like using the product. I am not embarrassed about that.
Whatever adjective or adverbs are used to describe what I may
have said or did that are taken out of context is not
consistent with the fact that our job is to satisfy our
customers' financial needs. If that financial need means they
want a credit card and if we have the right product, I would
love for them to have it. That is what we do.
Senator Rounds. Would you agree that there was a broken
culture at Wells Fargo during this time?
Mr. Sloan. Senator, I would agree that in our Community
Bank we had fundamental problems that created serious cultural
issues. In terms of the rest of the company, there were other
issues, but I would not say that in the rest of the company it
was a broken culture.
Having said that, as CEO, and acknowledging that I have
been there for 30 years, there are some that do not think I
should be in this role. We have heard that today. And so what
did we do as it relates to culture?
We went out and we asked third parties to help us do new
culture surveys to make sure that we were not missing anything,
because even though I have been there for 30 years and I have
done things sometimes good and sometimes I have made mistakes,
I do not want to be in a position where it is just what I think
we should be doing. I want to make sure that we are listening
to outside experts, we are listening to all of our
stakeholders, and we are listening to our team members. So we
are making fundamental changes in the company to address any
sort of cultural weaknesses that we have.
Senator Rounds. One area that I think we have got concern
with in particular is Wells Fargo has--I want to make sure that
members of the military, that they really do have some special
legal protections under the Servicemembers Civil Relief Act,
such as the protections to the soldier's credit or property
when they are serving on active duty. And I want to go into
this, but can you please discuss some of the specific ways that
Wells Fargo has tried to improve its compliance with the
Servicemembers Civil Relief Act, particularly in light of the
firm's sales practice issues? Can you go into this a little bit
to give us some assurance that there have been changes made
with regard to how servicemembers are treated with regard to
their credit activities?
Mr. Sloan. Senator, we care about all of our customers, but
I do not think there is any one customer group that we care
more about than our service men and women. We created what we
call a ``Center of Excellence'' that looks across the entire
company to manage SCRA matters. That Center of Excellence is
staffed with experts that only look at the ways in which we can
provide the appropriate benefits to our service men and women.
We work very closely with the Defense Department to make sure
that we get on a daily basis updates from the Defense
Department in terms of which service men and women, which of
our customers are now on active duty. That puts them in a
completely different category, and we are very proud of the
fact that we have made significant improvements.
We have had historical issues, Senator. There is no
question about that. But we needed to make fundamental change
to create a Center of Excellence, to staff it appropriately,
and then to make sure that they are looking across the company.
In addition to that, I am very proud of the fact that we
have 8,500 team members who were veterans. I have made a
commitment as CEO that we want to hire another 20,000 by 2020.
In addition, we have provided financial education services to
hundreds of thousands of service men and women so that they can
manage their finances appropriately. And we have donated more
than 300 homes free of charge to wounded veterans so that they
can have a place to live.
Senator Rounds. You have used a third party to come back in
and to do the analysis on the accounts and so forth and to find
accounts and to identify problems. Are you going to continue to
use a third party to go back in and to double-check in terms of
whether or not the proposals that you have laid out and your
intents are actually being followed through on?
Mr. Sloan. Well, as it relates to the 165 million accounts
and going back the additional 8 years, that is effectively what
we did. We went back and double-checked the prior period that
we had disclosed and expanded that. We have put in additional
policies and procedures in place right now to be able to
address those issues, and those are independent of the business
line. That was one of the issues we had before, when there was
an issue historically.
Senator Rounds. My time has expired, but are you going to
continue to use a third party to review in terms of due
diligence to make sure that it is actually--that the changes
that are being made are actually being implemented?
Mr. Sloan. We are bringing in third parties to look at
various policies and procedures across the entire company, so
the answer is yes.
Senator Rounds. Thank you.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Schatz.
Senator Schatz. Thank you, Mr. Chairman.
Mr. Sloan, the OCC has the statutory authority to revoke a
national charter of a bank if the bank is found to violate the
National Bank Act. Why shouldn't the OCC consider revoking your
charter?
Mr. Sloan. Senator, because we provide products and
services to one out of three American households. We have
talked about many mistakes that we have made, but today, more
oftentimes than not, we do that appropriately. The company is
growing. The company provides jobs to 270,000 people----
Senator Schatz. So you are too big?
Mr. Sloan. No. No, we are not too big at all. I am just
reinforcing that every day we have 270,000 team members that go
out and satisfy the needs----
Senator Schatz. But that sounds like what you said, is that
the reason that your charter should not at least be considered
for revocation is--the first thing out of your mouth was your
size.
Mr. Sloan. No. The first thing out of my mouth was our
customers, that we serve one out of every three customers. We
take that responsibility very seriously. When you look at the
bank in totality today, we are doing many more things right
than we are wrong. But I appreciate that today we are talking
about Wells Fargo 1 year later and the changes that I have----
Senator Schatz. Sure. I am sorry. I am going to cut you
off.
Mr. Sloan. I understand.
Senator Schatz. I want to go 5 minutes only. That does
sound to me like too big. I guess we will allow the members of
the panel and the audience to make a judgment about whether
your answer sufficed.
You know, I am not an expert in banking, so I want you to
explain this to somebody back home. You made $21 billion in
profits last year. You made a nice salary. I do not want to
personalize this. Your board makes better than a nice amount of
money. You were COO when a lot of this went down, and now you
are CEO. So explain to the man on the street why this is fair.
Mr. Sloan. Senator, I am not 100 percent sure--I know what
you mean by ``this,'' but let me----
Senator Schatz. I mean, you get a promotion. I mean, all
the people in charge get lots and lots of money. And I mean,
all the--not all the consumers, but lots of consumers get
harmed. So just explain to me in plain English why this is
fair.
Mr. Sloan. Senator, I have taken responsibility for the
mistakes that have been made at the company. I am taking action
in my role as CEO to make Wells Fargo a better bank than it was
a year ago. It will be a better bank in the future. We are
taking concrete----
Senator Schatz. I guess I will just point out----
Mr. Sloan. ----action, and we are providing--I am proud of
the fact that our bank is the largest small business lender,
the largest home lender. We make a difference to Americans
every day. You deserve----
Senator Schatz. Back to your size.
Mr. Sloan. You deserve----
Senator Schatz. Hold on. I only have 2 more minutes. It
occurs to me that it is only in financial services, only in
this industry where people can make such massive errors and
there does not appear to be accountability, and only because of
your size do we not understand totally which statutory tools,
which regulatory tools, which consumer-based tools we have at
our disposal to find a remedy.
At a briefing for our staff, Wells Fargo representatives
explained that banks would make goodwill payments to customers
who had their cars repossessed and their credit trashed as a
result of auto insurance that you bought for them. As I
understand it, the bank will designate a third-party claim
administrator and ask customers to send in a form explaining
how they were harmed and how much money they need to be made
whole. According to your representatives, the claims are
basically going to be paid up to $2,000 sort of no questions
asked.
So then my question is: Why not just cut checks up to
$2,000 for all of those impacted? Because the only reason I can
think of putting the burden on consumers to ask for this
goodwill money that you have already approved is that you are
hoping many of them will not do it. So can I have your
commitment to go ahead and presumptively push out the money
rather than force people to figure out that they have this
right and that they are likely to be approved up to $2,000, but
they have got to go through the paperwork? Can I have your
commitment today?
Mr. Sloan. No. What you have my commitment is that we are
making the $500 goodwill payment to every one of those
customers, whether they were impacted or not. And you have my
commitment that we will make sure that we will make it right
for those customers to the extent they were impacted. If we
need to do more than $2,000 to make it right, we will do that.
Senator Schatz. Can you please provide the Committee with a
list of all legislation that Wells Fargo has lobbied for or
against since 2010?
Mr. Sloan. We will respond to whatever inquiry you would
like us to respond to.
Senator Schatz. That is my inquiry. If you could respond in
writing for the Committee.
Mr. Sloan. Sure.
Senator Schatz. Thank you.
Mr. Sloan. Thank you.
Chairman Crapo. Senator Tillis.
Senator Tillis. Thank you, Mr. Chair. Mr. Sloan, thank you
for being here.
I just want to go back and make sure I have got the numbers
right. I think the third party assessed 90 out of 93.5 million
accounts that were opened, in about a 4\1/2\ year lookback,
there were about 2.5 million that appeared to be unauthorized;
and an 8-year lookback was 165 million accounts opened, and I
think that was about 3.5 million unauthorized?
Mr. Sloan. Potentially unauthorized, Senator.
Senator Tillis. I have got to go back, because I want to
talk more about how you focus on the customer and make this
very easy for them to recover from. I serve on the Veterans'
Affairs Committee, and I got a call from a veteran in North
Carolina who had--his wife was opening the mail, and she
mentioned to her veteran husband, ``Honey, I did not know you
were dead.'' The VA had sent a notice that he had somehow got
miscategorized and he was deemed dead. He thought it was a
simple problem. He had his military ID card, called up the VA,
and the VA said, ``Well, you have got reams of paperwork and
several phone calls that you will need to make to actually get
reinstated and get your veteran's benefits.''
Now, tell me how in making this right that I am not getting
on a phone listening to elevator music, getting transferred to
several different accounts--in other words, how are you
maximizing--minimizing the customer's time and getting this
right? And, similarly, how are any effects on underlying credit
reporting agencies being dealt with, too, as a part of getting
this right? In other words, is it my problem to deal with maybe
clearing up those accounts that I did not authorize to an
Equifax or through the credit agencies? Tell me a little bit
about that process.
Mr. Sloan. So in answer to your first question, Senator, in
the fourth quarter we reached out to 43.5 million customers via
their statements and also by email, and we said something very
simple: ``If there is anything about your accounts that you
think is not right, come in and see us, and we will make it
right by you.'' And about 41,000 have come in to see us. Most
of those situations have been resolved with the customer right
there. To the extent that they are not pleased with what we
have offered, we have offered them free mediation services.
Again, we pay for them, an independent mediator, and we address
their issues.
One of the other fundamental changes that we have made in
the company since I became CEO is the customer service element
within our branches. Historically, when a customer came in, we
had not delegated the ability for a banker in one of our
branches or a teller or a service manager to deal with it on
the spot. We said, ``Hey, great. You have got an issue. Call
our 1-800 number.'' And that was not a very good customer
experience, to your point.
So under the new leadership of our new head of Community
Bank, Mary Mack, what she has done is she has delegated that
authority down to the branches so that when a customer comes in
and they have an issue, we are trying to deal with as many of
those as we can.
In addition, we have increased staffing for our phone bank
or customer service as well as the customers that come in via
online or via mobile. So we are trying to do a better job.
I introduced six goals for our team in March, and the
number one goal is that we want to provide the best customer
service and advice in the industry. We have got work to do,
Senator. I would love to be able to tell you that we are number
one right now, but we are not. But I am going to make sure that
we have enough resources.
Senator Tillis. So we are trying to figure out, you know, I
used the 93 million and 2 million potentially unauthorized, or
165 million, 3.5 million potentially unauthorized. And then it
is a fraction of those that actually incurred fees or any
charges. Is that correct?
Mr. Sloan. That is correct.
Senator Tillis. OK. So for all the other ones, just as a
self-governing matter, I mean, I worked in the banking industry
before I went into politics. You do not like opening up
accounts that have no activity because there is an inherent
cost of operations that you are incurring. So, I mean, there is
a natural--I am trying to figure out how--where the circuit
breaker did not click and whether or not all those circuit
breakers, in your opinion, have been fired so that we are now
trying to get to the governance issues that I have confidence
that you would work on, Wells Fargo would work on. But tell me
just a little bit more about governance in my remaining 25
seconds.
Mr. Sloan. Well, as it relates to governance for the entire
company, the board engaged in an independent investigation.
That has been made public. The board made some changes based
upon that in terms of executive accountability, which totaled
$180 million of compensation that was clawed back or not
authorized. There is a new CEO. That is me. We have an
Operating Committee of which 5 of the 10 members now have new
roles. We have taken the responsibility and the criticism in
the board's independent report that said that management did
not provide information to the board as well as we could have.
I completely agree with that. We have revamped the way we have
done that. So there have been a lot of governance changes.
But most importantly, I think, within the company, it is
taking the enterprise risk control functions--human resources,
compliance, credit, you name it--and centralizing all those so
that we have a better check and balance between the business
lines and risk, and then creating a Conduct Office in the risk
function to be able to independently look at complaints and
ethics lines questions and all kinds of things that would
indicate that we have any issues in the company. I get those
reports now, and that was not happening a year ago.
Chairman Crapo. Senator Van Hollen.
Senator Van Hollen. Thank you, Mr. Chairman.
Mr. Sloan, I was listening to your responses to Senator
Tester about the issue of forced arbitration. A simple
question. Who knows best what is in a customer's interest,
Wells Fargo or your customer?
Mr. Sloan. I think that it frequently is the customer, and
that is why it is very important from my perspective to get it
right so that we do not get to the point----
Senator Van Hollen. But if your customer knows best, why do
you deny them the ability to go to court? Why do you require
your customers, if they know best, to go to mandatory
arbitration?
Mr. Sloan. Senator, we do not do that for all of our
products and services. We do that----
Senator Van Hollen. Yeah, but why do you do it for some of
them if your customer knows best?
Mr. Sloan. Well, again, I think many----
Senator Van Hollen. It is a simple question. If your
customer knows best, why do you deny them the opportunity to go
to court? Why do you require arbitration?
Mr. Sloan. Because, Senator, most of the independent
studies, including the ones that was done by the CFPB 2 years
ago, indicate----
Senator Van Hollen. But if a customer----
Mr. Sloan. ----that it is better--that it is better for the
customer----
Senator Van Hollen. Mr. Chairman, if the customer makes--a
customer brings the case, right? Right? So if a customer
decides it is in his or her best interest, forget about
studies. We also know what the Consumer Financial Protection
Bureau--what they recommended. They recommended that we get rid
of forced arbitration.
You said to Senator Tester that you were not applying
forced arbitration with respect to the fake accounts. Remember
that answer?
Mr. Sloan. Yes, I did.
Senator Van Hollen. There is an article here, Monday,
September 18, 2017, just a short time ago. In a case in Utah,
Wells Fargo lawyers have actually taken the position that the
forced arbitration does apply to those fake accounts. Are you
aware of that case?
Mr. Sloan. I am not familiar with that case, Senator. I
apologize.
Senator Van Hollen. Well, let me read to you from a Reuters
excerpt, and they reported this on September 18, 2017. It says:
``In a motion on Monday, lawyers for Wells Fargo said consumers
signed agreements to arbitrate disputes when they first opened
their accounts at the bank, and those agreements also cover
other accounts allegedly opened without their consent.'' That
directly contradicts your testimony to Senator Tester, doesn't
it?
Mr. Sloan. Senator, I will have--I will look into that
matter.
Senator Van Hollen. If that is true----
Mr. Sloan. Senator, I will look into that matter, and I
will respond.
Senator Van Hollen. If that is true, it directly
contradicts your testimony to this Committee, doesn't it?
Mr. Sloan. Senator, I will look into that matter----
Senator Van Hollen. I am not asking you to look into it. I
am asking you to say if that is true, doesn't that contradict
your testimony?
Mr. Sloan. Senator, I am not familiar with the facts of the
situation, so I cannot answer that question. But I would be
happy to look into it and respond to you.
Senator Van Hollen. Well, if it is true, it violates--it is
contradictory--I do not know if you were sworn in today or not,
but it violates your earlier testimony.
Let me ask you about your other overdraft fees scandal.
When it comes to the overdraft fees scandal, you are still
exercising your right to deny customers the right to go to
court. In other words, you are enforcing the arbitration
agreement. Is that----
Mr. Sloan. Senator, I am not familiar with the overdraft
scandal that you are referring to.
Senator Van Hollen. The overdraft fees where you were
charging--you were not--where you were charging customers fees
on overdrafts of fake accounts?
Mr. Sloan. Senator, we do not--we charge customers fees
when they overdraw their accounts, but I am not familiar with
an overdraft scandal. If it relates to any unauthorized
accounts that were potentially unauthorized accounts that could
have been part of that 3.5 million, to the extent that there
was any fees charged, we have already reimbursed those to the
customers. So they have been made whole.
Senator Van Hollen. Well, apparently in a case in the
Eleventh Circuit Court of Appeals, you are--we will follow up
with you, but it looks like also----
Mr. Sloan. Please.
Senator Van Hollen. How about the practice where you were
selling auto insurance to people who did not ask for it or did
not want it? That was a situation I think about 500 Marylanders
or more--actually, about 10,000 Marylanders were affected by
that; 500 had their cars repossessed. It was actually the
subject of an NPR radio story. Did you have a chance to hear
that radio story?
Mr. Sloan. I did not, Senator. I listen to NPR, but I did
not hear that.
Senator Van Hollen. I would encourage you to do that
because one of my constituents came out to go to work one
morning. His name was Michael Feifer. He was heading out in
February to his job in Maryland at a company that builds
guitars. He walked to the place where he parked his car. It was
not there. He called the police, said he was livid, said he
thought someone stole his car. It turns out it was not a car
thief at all. It was Wells Fargo's repossessors. He was
flabbergasted because his insurance was current. He went to
Wells Fargo. The folks at the local branch said, you know,
``This is nuts. You are covered.'' It took them, the employees
of Wells Fargo, over 2\1/2\ hours just to connect to folks in
another branch.
My question is very simple: If it takes the employees of
Wells Fargo 2\1/2\ hours to get in touch with others, if it
takes individuals having to fight the system by themselves,
don't you understand why it makes sense for people to be able
to band together to file their claims against a big company
like yours rather than have to fight you one by one?
Mr. Sloan. Senator, what I understand is that if we make a
mistake, we need to make it right, and we have got to improve
our processes. What I would like is, to the extent that Mr.
Feifer has not been made whole by us, I would like to speak
with him personally to make sure that we are handling the
situation to his satisfaction if we made a mistake.
Senator Van Hollen. Well, Mr. Chairman, I would just point
out that you said it yourself. You were informing your
customers to know about class action settlements so they can be
made whole. That is the way lots of people can be, you know,
made whole at once. Mr. Feifer is like one guy fighting Wells
Fargo. I find it amazing that you would say your customers come
first, and then you deny them the choice of how they seek their
compensation, how they seek justice.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Perdue.
Senator Perdue. Thank you, Mr. Chair. Mr. Sloan, thank you
for being here.
Mr. Sloan. Thank you, Senator.
Senator Perdue. In how many States does Wells operate
today?
Mr. Sloan. In all of them.
Senator Perdue. Are you regulated in every one of those
States?
Mr. Sloan. Yes.
Senator Perdue. How many Federal regulators do you have
today?
Mr. Sloan. Oh, gosh.
Senator Perdue. OCC, Federal Reserve, SEC, CFPB; is that
correct?
Mr. Sloan. And then, in addition, we have securities
regulators, too.
Senator Perdue. So were you supervised during this period
of time, 2011 to 2016, were you supervised by the Federal
Reserve?
Mr. Sloan. Yes.
Senator Perdue. Did they in their oversight--and I am sure
they were quite involved. Did they reveal any material issues
during that period of time?
Mr. Sloan. Oh, they have, but that is confidential
information that I cannot disclose. But we have an active
dialogue in----
Senator Perdue. Relative to this breach of----
Mr. Sloan. In terms of the retail account?
Senator Perdue. Yes.
Mr. Sloan. No, they did not.
Senator Perdue. Were you supervised by the OCC during this
period of time?
Mr. Sloan. Yes.
Senator Perdue. Did that oversight reveal any material
issues relating to this situation?
Mr. Sloan. Yes, it did, and the prior Comptroller of the
Currency, Mr. Curry, has testified to that.
Senator Perdue. Did the CFPB come up with anything, any
material issues, during this period of time?
Mr. Sloan. Not to my knowledge.
Senator Perdue. And in dealing with these regulators, are
there any outstanding issues today relative to this----
Mr. Sloan. Oh, sure, absolutely. You know, I have a long
to-do list.
Senator Perdue. And how is the company reacting to that
list of corrections?
Mr. Sloan. We are listening. I mean, I think that----
Senator Perdue. I am sure you are implementing, too, right?
The question I have is----
Mr. Sloan. Well, that is where I was going. We are
listening to their concerns, and we are making fundamental
changes not only because I think they make sense as CEO, but
because our regulators also believe that there are other
changes that we need to make. And we are being very responsive.
I am sure if they were here, they would say that we are not
moving as quickly as they would like, which I appreciate that.
But our commitment to fixing anything that is broken and making
Wells Fargo the best bank in this country is sacrosanct from my
perspective.
Senator Perdue. Well, I think you would agree, we in a
private conversation--there is no way to sugarcoat this as a
serious issue, and I appreciate your handling it the way that
you are.
I want to get to the governance issue, though. You have an
internal audit capability inside Wells Fargo today, right?
Mr. Sloan. That is correct.
Senator Perdue. And as CFO, that was your responsibility.
It is a sizable organization. Roughly how many people across
the country are involved in that internal audit effort?
Mr. Sloan. Oh, gosh. Well, first let me correct something.
Senator Perdue. Hundreds or----
Mr. Sloan. Senator, the audit group is actually a
separate--it reports separate from the financial organization
because they have to audit the financial organization. So our--
--
Senator Perdue. To whom do they report?
Mr. Sloan. The auditor, the chief auditor, David Julian,
reports to me, but then has a direct reporting line also to our
Audit and Examination Committee.
Senator Perdue. Right. Also, your board has an external
auditor as well.
Mr. Sloan. That is correct.
Senator Perdue. And to whom does that external auditor
report?
Mr. Sloan. Well, they report to our shareholders.
Senator Perdue. Right.
Mr. Sloan. And then they also provide independent reports
to our board on our financial condition and other matters.
Senator Perdue. So during this period of time, when these
indiscretions were occurring, did any report from either the
internal audit capability or the external audit capability
disclose any of these maladies?
Mr. Sloan. The internal auditors did, though I would say
that that was another area they could have done a better job.
And I think David Julian, our chief auditor, has made
fundamental changes there. But when it was reported to the
senior leadership team, we should have taken more aggressive
action.
Senator Perdue. Has any other breach of operation occurred
that has not been made public yet?
Mr. Sloan. Well, minor breaches, maybe, but that was one of
the reasons why we went above and beyond the normal standard of
materiality in our second quarter 10-Q to provide an update on
things like CPI, on GAP insurance, on hard holds, on OFAC, on
RMBS, a variety of different matters, because as I have
encouraged our team, we need to make sure that we are more
transparent to our stakeholders than we have ever been.
Senator Perdue. So going forward, has the scope of the
internal audit function and the external audit function been
expanded relative to this problem?
Mr. Sloan. It has expanded, and it has been reorganized to
reflect the reorganization that we have done within our
company. I do not know the answer as to the number of folks
from KPMG that cover us today, but my guess is there is more
than was a year ago and the year before.
Senator Perdue. Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Heitkamp.
Senator Heitkamp. Thank you, Mr. Chairman. One of the most
important things that we can accomplish here is to figure out
whether we actually see and have a sense that there is a
culture change at Wells, Mr. Sloan. And I have to tell you, I
have been listening to the line of questioning, and I think
anyone with an open mind would question whether we are actually
seeing a culture change. So let me kind of run through this.
Senator Warren asked you about the L.A. Times at the time
that this story broke, and we can all acknowledge that the L.A.
Times had a huge role in this. And you said, well, you did not
have evidence about that, so you did not really respond to it.
But then once it became a bigger scandal, then we are going to
fix it.
So then we find out when we talk about it, well, we are
going to fix it. We now realize that this is a problem, and
there has been mistakes made.
And then we find out, after the ``we will fix it,'' that
there was knowledge of this problem years before the L.A. Times
story, that upper management knew about this problem and
thought that they had managed it and fixed it. They did not fix
it.
OK. Then we fire employees who open fake accounts, saying
they are the problem. It is this Community Bank problem. That
is where the problem is.
But you also fired those who refused to play the game, and
we know that that happened because they have since participated
in public discussions about how they tried to whistleblow on
this. And then, again, when we raise these issues, you say,
``Trust us. We are fixing it.''
And they come before this hearing--it was not you, Mr.
Sloan, but come before this body and say, ``Wow, this is all
you need to know. We now have turned the corner, and it is all
going to be OK.'' Only then to have this insurance scandal
exposed. But now we hear, ``We are going to fix it.''
So, OK, I am, like, that is three times, you know? I know a
little bit about baseball. It seems like you strike out after
three times of promising something you do not see. But what I
want to say to you, because it goes back to your response to
Senator Warren about the L.A. Times. In the course of just
about 15 minutes here, you were told about an overdraft problem
in the Eleventh Circuit. Now, if I ran an organization, I would
know if I were in the Eleventh Circuit with a discussion on
overdraft protection. But you said you were not familiar. That
sounds familiar.
Then you were asked about a legal position taken in Utah
about arbitration, which was in the media. You said, ``I do not
know about that.'' I would know about that if I were you. I
would know about that if I were you, especially coming before
this body.
And then a national news story about Wells Fargo being
involved in a wrongful repossession of a car, a news story that
literally millions of people listened to, and you are not
familiar with it.
This is problematic for us, because we need to see that
there is actually a culture change, that there is a reaction to
these kinds of consumer failures. And we do not really hear it
here. What we hear a lot of is, ``Do not know. Look into it. We
really care about the customer.''
Now, I would assume that where we are right now is a lot of
soul searching at the highest ranks--soul searching at the
highest ranks of Wells Fargo. And correct me if I am wrong.
What I heard you keep saying is mistakes were made at the
Community Bank, driven by wrongful incentives that were
provided to the employees. Right?
I have not heard you say, other than taking responsibility
for the incentives, I have not heard you say mistakes were made
at the highest level of Wells Fargo. I mean, we can say, yes,
we have lost a CEO and, yes, there has been some punishment
and, yes, we are moving over. But at the bottom line, I do not
hear a level of culture change that satisfies me today. And I
think that that is something that is very problematic for Wells
Fargo going forward because ``I am not familiar'' is not an
answer we should be getting here. It should be, ``Yes, we are
aware of that. We are fixing it.'' And when we only hear ``I am
not familiar,'' we wonder what else we are not familiar. And I
would caution you, when you say this is everything, that is
what the last CEO told us. And then the insurance scandal
broke.
So, you know, it is up to your board to figure out what
they are going to do. But I hope you take these comments as
constructive because it is not helpful for you to say you are
not familiar.
Mr. Sloan. Senator, I appreciate your comments, and in my
opening statement I was very clear that we take responsibility
for the mistakes that we have made. And when I say ``we,'' I
mean me. I am the CEO of this company. The buck stops with me
every day. I apologize that I am not familiar with every
matter, but to the extent that I am not, we are going to follow
up on all of those.
As it relates to Senator Warren's comments, she asked me
not if I was familiar--about the L.A. Times, she talked
specifically about information that the L.A. Times provided and
if I took any action. The L.A. Times in that interview did not
provide me with any information, so I cannot take action if the
L.A. Times did not provide.
Having said that, we took action when that information got
to the senior leadership team. I have taken responsibility for
the fact that we did not take aggressive enough action. That is
why we are making the fundamental changes that we are making at
Wells Fargo to make things right for our customers and our team
members and all of our stakeholders.
But having said that, Senator Heitkamp, I completely
appreciate your frustration. I am angry about what happened at
this company, and I pledge to you that not only are we fixing
it, but we will fix it.
Senator Heitkamp. I just want to again point out that you
cannot segregate the top from the bottom, and it seems to me
that when you say ``we,'' we did not get any information from
the L.A. Times, you should not have had to have information
from the L.A. Times. You should have read the story and said,
``Is this true? Let us go find out.''
Mr. Sloan. And we did. And we did.
Senator Heitkamp. Well, you knew it was true because you
knew about this years before that.
Mr. Sloan. No, Senator Heitkamp, I did not. And the board
actually conducted an independent investigation where they
looked at millions of documents, they interviewed hundreds of
people, and their conclusion was consistent with what I have
said publicly here and elsewhere in the last year, and that is
that the issues within the Community Bank were elevated to the
leadership team, including me, in late 2013. We should have and
could have taken more aggressive action. I apologize for that.
We have taken that aggressive action right now to fix the
things that are broken.
Senator Heitkamp. And what year was the L.A. Times story?
Mr. Sloan. 2013.
Senator Heitkamp. I think that we had a document from the
last CEO going back to 2008, but I will have to hunt it up. I
do not have it in front of me.
Thank you, Mr. Chairman.
Chairman Crapo. Senator Cotton.
Senator Cotton. Thank you, Mr. Chairman. Mr. Sloan, welcome
to the Committee. Thank you for your appearance here today.
Mr. Sloan. Thank you.
Senator Cotton. I appreciated our visit in my office last
week as well. We talked about some of the challenges that Wells
Fargo has faced because of mistakes they made last year, not
just for the customers but for the tens of thousands of men and
women that work in your branches all around the country, to
include Arkansas, who are worried about the future of the
company and what it means for their ability to put food on
their kids' table and put a roof over their heads.
One of the quickest ways that businesses can see an impact
whenever they make a mistake like this or they display poor
judgment is simply through competition, that your customers can
go elsewhere, they can go to another bank. But one thing that
Jamie Dimon has spoken about is the regulatory moat around big
businesses, that as it becomes harder for smaller businesses to
deal with the regulations that Washington has imposed upon
them, it also gives big businesses less incentives to be
responsive and, therefore, less choice to consumers. One good
example of this is certain airlines that have mistreated their
customers on occasions, yet there is really very few choices
that you can go to if you want to fly from one city to the
next.
What kind of market reaction has Wells Fargo seen over the
last year in terms of losing customers or going elsewhere or at
least pressure from other of your big competitors?
Mr. Sloan. Well, Senator, I think the banking business in
the U.S.--and, again, I have been involved in the business for
30 years--is very, very competitive. Big banks, medium size
banks, small banks, nonbanks provide customers with lots of
opportunities for good products and services.
There is no question that since last September, after the
retail banking sales issues were announced, there was an impact
on our business. But since then, because of the changes,
fundamental changes that we have made in the company, we are
continuing to grow. We are not growing as fast as we were prior
to last September, but we are on a good trajectory. And, again,
I think that is because we have taken responsibility, we have
taken executive responsibility, we have made changes, we have
made changes in our products and services and our processes,
and our customers are seeing that and they are reacting
positively to that. We are not where we need to be, but we are
making progress.
Senator Cotton. OK. One of the things that has always
seemed peculiar to me about the controversy over the fake
accounts is how few of them produced any revenue, so it is not
just that they were fake, but Wells Fargo sales incentives
apparently were rewarding employees for accounts that did not
produce revenue and the client did not even know about. That
seems like some misaligned incentives.
Mr. Sloan. Oh, I think it was----
Senator Cotton. Not even effective at cheating the system.
Mr. Sloan. I think it was worse than misalignment. I think
it was stupid.
Senator Cotton. Yeah. What were the incentives? I mean, if
you are not even producing revenues from these accounts, why
were they created in that way?
Mr. Sloan. Our retail banking business was focused on
growing the number of accounts. They were too focused on
growing the number of accounts and incented people for just
doing that as opposed to good products and services, growing
relationships, doing it in the right way. In hindsight, it was
just stupid.
Senator Cotton. So you have been on board now for a good
bit of time to try to clean up everything. What do you think is
the risk of possible other misaligned incentives inside the
organization of which you are not yet aware?
Mr. Sloan. Well, Senator, I think it is relatively low.
Again, I cannot promise perfection, but I have told our team we
need to get as near to it as we can. And so what we have done
is, you know, as part of our agreements with our regulators,
they appropriately said, ``Hey, as part of these consent
orders, you need to look at the incentive compensation
structures across a number of your products.'' As CEO, I said,
``No, we are going to go beyond that.'' We are going to look at
the incentive compensation system throughout the entire
company, and we are not just going to do it ourselves. We are
going to bring in third parties to do it independently and give
reports not only to senior management but give those reports to
our regulators and give those reports to our board so that we
are very transparent about it. And I am pleased that they have
not found anything as serious as what we--but we cannot rest.
We can never let something like this happen again.
Senator Cotton. I would agree with that.
Finally, I just want to make a point. We have heard a lot
about forced arbitration this morning in this conversation.
This is in reference to the Consumer Financial Protection
Bureau's new arbitration rule. I would say if we allow that
rule to go into effect, we may not have forced arbitration but
we will have forced class action lawsuits, because without
arbitration as an option, then the arbitration system will
essentially cease to exist. And I do not think we should be
forcing consumers to fund the lawsuits of class action lawyers.
Chairman Crapo. Senator Donnelly.
Senator Donnelly. Thank you, Mr. Chairman.
Mr. Sloan, you just mentioned that the buck stops with you
and that you are going to make it right by American customers
and American employees. I am concerned by the outsourcing of
call center jobs, and I have learned that Wells Fargo has
eliminated several hundred jobs here in this country recently
and more in recent years. At the same time that you were
letting these people go, you were adding on positions in the
Philippines.
How is that making it right by your people here that work
for Wells Fargo?
Mr. Sloan. Senator, we employ 270,000 team members. About
more than 90 percent are here in the U.S., and the reason for
that is that that is where most of our business is done, in the
U.S. About 95 percent of our revenues, our customers, are here.
We hire anywhere between 40,000 and 50,000 people here in
the U.S., and currently we have 15,000 jobs that are open in
the U.S. For example, in our retail banking business, since
September of last year, since I became CEO, more or less, we
have hired about 17,000 people. They are all here in the U.S.
Senator Donnelly. Well, let me ask you this: Did you let
people go that were working in the call center areas and add
people in the Philippines to the same positions?
Mr. Sloan. Senator, we want to make sure that we are
providing our products and services----
Senator Donnelly. Well, that is an easy one. Did you let
people go here in the States and then add people in the
Philippines?
Mr. Sloan. Senator, we did, and generally our track record
is that we rehire somewhere between 70 and 80 percent of each
of those folks into another job in Wells Fargo. They generally
get a preferential treatment and review because we have--we
always have about 15,000 jobs that are open.
Senator Donnelly. What happened to the other 20 percent?
Mr. Sloan. Senator, I do not know exact----
Senator Donnelly. Would you make a commitment to figure out
how you can get them back on the team?
Mr. Sloan. Senator, I will make a commitment that we want
to hire as many qualified team members as we can, because we
have 15,000 jobs that are open right now.
Senator Donnelly. Every business wants to do that. What I
am asking you is for those 20 percent that you talked about
that may have been let go but not rehired, you know, if it is
not for various other reasons--I mean, if they were doing their
job right, would you commit to rehiring them in another
position?
Mr. Sloan. If we have jobs that are open that they are
qualified for, of course, I will commit to that.
Senator Donnelly. Well, why would you in the first place
send these jobs to the Philippines if they were being done
here?
Mr. Sloan. Because frequently, when we look at how to best
serve our customers, it makes sense to have folks around the
world so that we can continue to be working through a 24-hour
day and not run a night shift, for example, somewhere. We think
that that is an effective way to do----
Senator Donnelly. Do you think Americans are not capable of
working a night shift?
Mr. Sloan. No.
Senator Donnelly. I can show you a whole bunch of folks in
my State who work night shifts.
Mr. Sloan. Senator, I do not mean to be critical of anybody
that works a night shift at all. But I am just saying that in
terms of how to efficiently and effectively run our business,
we want to make sure our people are in the right place.
Again, Senator, we have over 250,000 team members that
are----
Senator Donnelly. I got that. I guess----
Mr. Sloan. ----here in the U.S. We love doing business in
this country.
Senator Donnelly. I guess what I would say to you is if the
buck stops with you, I may be patriotic, I may be a flag waver,
and I stand guilty of both of those. But I would put your folks
who are working in those jobs up against anybody anywhere else
in the world.
Now I just want to ask you about something else. In 2013,
you said that you sat on the Operating Committee, and you saw
problems and you were concerned. And it was around 2015 Mr.
Stumpf came to my office and was extolling the culture of the
company. And I do not want to hold it to an exact date because
it is 2015, 2016. If you were concerned in 2013, why didn't you
stop it?
Mr. Sloan. Senator, we did take efforts to address the
issues, but in hindsight----
Senator Donnelly. Did you know there were fake accounts in
2013?
Mr. Sloan. No, I did not. Not in 2013. And we should have
and could have taken more aggressive action. For example, I
think in hindsight, what we should have done is not ended that
incentive compensation plan in our retail bank in the third
quarter of last year. We should have ended it years earlier. We
tried to deal with the issue, but we dealt with the issue
incrementally. We did not deal with the issue comprehensively.
And for that we take responsibility.
Senator Donnelly. When you saw that in 2013, and you said,
``We have got problems here, this is not working,'' did you
mention that to the board? Did you tell them that, ``We have
got problems,'' that things are not the way they--the things
that you see are not the way they really are?
Mr. Sloan. Senator, my recollection, which is consistent
with the report of the independent investigation that the board
did, is that those were escalated to the board in 2014 and
2015. I think that is another area where management should have
escalated that more quickly.
Senator Donnelly. Did you escalate that to the board at
that time, saying, ``Hey, look, this is way out of control''?
Mr. Sloan. It was escalated by a number of senior leaders.
Senator Donnelly. And the board chose not to take action?
Mr. Sloan. The board was overseeing the actions that we
were taking. We represented that we thought that they would
address the issues. Again, Senator, in hindsight, we were
wrong. And it lessened the issue so that the number of
accounts, the number of team members impacted was declining.
But that is not how we should have dealt with the issue. The
way we should have dealt with the issue is to end it
permanently, and we did not deal with that in our Community
Bank until we ended the incentive compensation plan and changed
management last year. That was a mistake on our part, and it
will not happen again.
Senator Donnelly. Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Two Senators have asked for a second round, and so we will
do that. We do have a few minutes left. Senator Brown and
Senator Warren have asked for a second round. I may choose to
do one myself. But let us go to you, Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
In my opening, Mr. Sloan, I talked about Mr. Stumpf's
testimony last year that this activity was limited to the
Community Banking Division. The company, pure and simple, lied
to this Committee and lied to the public. The company recently
disclosed it knew in July 2016 that customers had auto
insurance policies added to their auto loans without their
consent--about 800,000 customers, roughly the size of the State
that Senator Rounds represents.
Every day since you have become the head of Wells Fargo for
the last 11 months, every day you have made a decision to not
disclose this information to the public. Your company knew
about the auto insurance policy when former CEO Mr. Stumpf
testified. When did you first become aware of the force-placed
auto insurance policy problem? And why did you think it was OK
to continue covering it up?
Mr. Sloan. Well, I do not think it was OK to cover it up,
Senator Brown. In fact, when the issue was escalated to me in
2016, in late August, early September, I talked to our team
about it, and we decided at that point in time to end and tell
our vendor to quit providing that insurance to our customers.
And that was effective at the end of September.
We then created an internal group made up of business line
experts, legal experts, our auditing function to look at the
matter. We brought in an independent law firm and an
independent consulting firm to help us do a comprehensive and
third-party review of the remediation. We got the results of
their report in the first quarter of last year. We began to put
together the remediation plan, and we disclosed that
remediation plan in August. And we highlighted that--we
disclosed the issue in August. We have described what our
remediation plan is as it relates to those 570,000 customers.
Those checks have begun to go out, and we reported that in our
second quarter 10-Q. So we have not been covering it up.
Senator Brown. Well, you did not cover it up----
Mr. Sloan. I am sorry, Senator. Could I make one other
point? We disclosed that to our regulators in the third quarter
of last year also.
Senator Brown. But that it took you, you the company--you
personally 8 months, you the company 13 months to disclose such
a violation of the public trust just makes me incredulous.
Let me move to something else. You have said several times
that arbitration is better for consumers. How have consumers
fared in arbitration with Wells on the average?
Mr. Sloan. I do not have the answer to that, Senator.
Senator Brown. Well, I do, and I am surprised you do not.
On average, the CFPB found consumers paid $7,700 in arbitration
overall, in arbitration cases. Other data says that Wells
customers paid $11,000 on the average. So they brought you to
arbitration--or you brought them to arbitration. On the average
consumers do not do very well in arbitration, suggesting that
there is something wrong, and also suggesting that arbitration
seems to work out well for Wells Fargo, not so well for your
customers. So it is pretty troubling that you continue to dig
in and say arbitration is better for customers because it
clearly is not.
Let me ask one----
Mr. Sloan. Senator, could I give you an example of how we
are changing the company to address those----
Senator Brown. In 20 seconds, because I want to respect the
Chairman's 5-minute----
Mr. Sloan. Absolutely. Senator, one of the issues that we
disclosed in the 10-Q was rate lock, rate lock extension fees
for our customers. We are not waiting for our customers to want
to arbitrate. What we are doing is we have said that--and I
want to make this very clear because this is going to come out
in the next couple of days, so I might as well mention it in
front of you all, and that is, we are going to our customers,
and we are saying the following: ``If you have a complaint
about a rate lock extension fee that you paid at Wells Fargo,
we will remediate it.''
Senator Brown. Good, and----
Mr. Sloan. We are going to contact 108,000 customers, and
we are going to say the following----
Senator Brown. There are some good things you are doing. I
am not saying you are not. But I am saying that on fundamental
issues like continuing--Senator Cotton talked about for
whatever, but he said optional. We are saying it is forced
arbitration. It is not optional for so many of your customers.
Last point, right before the scandal broke, CEO
compensation at Wells Fargo increased from $19 to $21 million.
You recently announced you will be increasing the minimum pay
for tellers from $12 to $13.50 an hour.
Mr. Sloan. $13.50 to $17.10 an hour, depending upon where
they are located. That is a 12-percent increase, and it is 80
percent above the Federal minimum wage.
Senator Brown. Well, the Federal minimum wage is poverty
wages plus. So the CEO was overseeing a mass fraud. He gets a
compensation increase from $19 to $21 million a year, and
tellers get a raise, making those tellers still eligible for
taxpayer subsidies to subsidize your employees, subsidies of
Medicaid and food stamps and Section 8 housing, perhaps in the
EITC. I mean, you fight class action from employees that you
did not pay overtime. It just strikes us as hypocritical to be
boasting about this minor increase. It matters to them. It does
matter to them.
Mr. Sloan. It does matter to them, Senator, and I think
that is one of the reasons why----
Senator Brown. But you defend--you defend wage theft--your
company is defending wage theft in court by fighting these
overtime claims by your employees.
Mr. Sloan. Senator, I am very proud of the fact that we
raised the base pay for our lowest-paid team members. I think
that is one of the reasons why our attrition has gone down,
because what they are saying is that we are paying them fairly.
In addition to the base pay, we provide a benefits package
to those team members that averages between $6,000 and $8,000.
We provide other benefits to them. What we are seeing is a team
member base, particularly at the lower levels, that is very
happy to work at Wells Fargo. And you have my commitment to
continuing to make sure that those team members are paid in an
appropriate way.
Chairman Crapo. Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
Mr. Sloan, since becoming CEO, you have said that your
priority is rebuilding trust with your employees. At a company-
wide meeting this past March, you told your employees, and I
want to quote you: ``Wells Fargo's mission has never been just
about improving our bottom line.'' And then you went on to
assure them that Wells Fargo's employees were the most
important and valuable resource. Is that right?
Mr. Sloan. Yes. I say that often, Senator.
Senator Warren. Good. So 2 months after making those
comments to your employees, you held an investor day where you
and your team made your pitch to Wall Street investors, and you
rolled out a new financial plan, and I would like to submit a
copy of that plan for the record, if I may, Mr. Chairman.
Chairman Crapo. Without objection.
Senator Warren. Thank you.
Now, I am sure you are familiar with this presentation, Mr.
Sloan. I have also given you a copy of it, too. On pages 26 and
27 of this presentation, you say that Wells Fargo will cut $4
billion in expenses--$2 billion by the end of 2018, another $2
billion by the end of 2019. That is a huge cut, an 8-percent
reduction in non-interest expenses over just a 2-year period.
Now, here are some of the ways you describe how you are
going to achieve those cuts----
Mr. Sloan. I am sorry, Senator. Could I just correct one
thing you said?
Senator Warren. Yes.
Mr. Sloan. So it is not over a 2-year period. It is over
about a 4-year period. That is number one.
Number two, what we have said is that the first $2 billion
that we are going to be reducing, we are going to reinvest back
into the business, so it is not going to the bottom line for
our shareholders. As it relates----
Senator Warren. Actually, let me just quote what you said
to the investors.
Mr. Sloan. Sure.
Senator Warren. You said you were going to consolidate--
consolidating similar operations activities to provide better
economies of scale----
Mr. Sloan. So that Center of Excellence----
Senator Warren. ----improving--can I just read this,
please?
Mr. Sloan. Sure. I am sorry.
Senator Warren. Improving processes, including digital
technology to automate manual processes, and outsourcing of
certain non-differentiated capabilities.
Now, that is a lot of corporate buzz words, but
consolidating, automating, and outsourcing sounds an awful lot
like firing people. So, Mr. Sloan, given your statements about
how much you value your employees, can you tell us today that
you will not be firing any employees as part of this $4 billion
cut?
Mr. Sloan. I cannot.
Senator Warren. OK.
Mr. Sloan. And the reason for that is, Senator, we have an
obligation to run Wells Fargo----
Senator Warren. That is all I need--that is all I need to
know, because when I look at the numbers, it looks like to me
you are going to end up firing tens of thousands of employees
to be able to make these numbers. Compensation----
Mr. Sloan. Senator, Senator----
Senator Warren. ----and benefits for employees by far are
Wells Fargo's biggest expense.
Mr. Sloan. That is about 60 percent of our total expenses,
and we are proud of that, by the way, because----
Senator Warren. And if we assume an 8-percent cut in those
expenses, that means that you would fire more than 20,000
employees in the next few years. And here is the kicker for me,
Mr. Sloan. After telling your employees in March that they were
your most valuable resource and that Wells Fargo has ``never
been just about improving our bottom line,'' I want to read you
what Wells Fargo told Wall Street investors 2 months later, in
May: ``We expect an additional $2 billion in annual expense
reductions by the end of 2019. These savings are projected to
go to the bottom line.''
Mr. Sloan. That is correct. That is what I just said.
Senator Warren. So you are literally telling Wall Street
you are going to fire thousands of employees----
Mr. Sloan. No, we did not say that.
Senator Warren. ----off the bottom line.
Mr. Sloan. Senator, Senator, you are using math to then----
Senator Warren. Yeah, I do use math.
Mr. Sloan. Yeah, but you are using math inappropriately,
Senator. That is not----
Senator Warren. Inappropriately, by adding numbers?
Mr. Sloan. No; you multiplied two different numbers----
Senator Warren. I realize----
Mr. Sloan. ----and you applied it to people.
Senator Warren. ----different way that that kind of thing--
--
Mr. Sloan. No. Senator, you----
Senator Warren. ----works at Wells Fargo.
Mr. Sloan. You applied it to people.
Senator Warren. I asked you, can you say you are not going
to make these cuts by firing people? And you were very direct.
You said no, you cannot make that promise.
Mr. Sloan. I have a responsibility to the 270,000 team
members to make sure that the company is in existence and
successful----
Senator Warren. So let us talk about----
Mr. Sloan. ----year after year after year.
Senator Warren. ----that then. I have got one more thing I
would like to read from you, and that is, it is clear that you
are going to knock out a lot of employees here, and it gets
worse. At the same time you are planning to fire employees, you
are promising to spend $11.5 billion in the next year buying
back Wells Fargo stock. You have made this public announcement.
You have that much extra money.
So, look, if you stick to your current plan, it is clear
that Wells Fargo employees making $30,000 or $40,000 a year are
going to get screwed, just like they got screwed in the fake
accounts scandal before. It was executives who demanded new
accounts be produced at all costs. But it was 5,300 front-line
employees who paid for that with their jobs. And now that the
fake account scandal has tanked Wells Fargo's reputation, your
way of pumping up the bottom line and keeping Wall Street
investors happy is to slash costs by firing low-level
employees.
You know, what happens in these cases, Mr. Chairman, is in
these corporate scandals it is almost always the front-line
workers who pay the price, not the executives. And the only way
we are ever going to stop these scandals is to hold executives
personally accountable, to fire the people who are responsible,
and when they break the law, to march some of them out in
handcuffs. And until we do that, these scandals are going to
continue and working people are going to continue to take the
brunt of it.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you, Senator Warren.
Mr. Sloan. Senator, could I respond to that?
Chairman Crapo. Yes. As a matter of fact, I am going to
take my last word as the last questioning period here. I am
interested in what your answer would be to Senator Warren's
statements and the assertions that she makes.
Mr. Sloan. Yeah, well, I could not disagree more with
almost everything that Senator Warren said. I think it is
inappropriate to take various statements out of context and
multiply numbers and then apply them to people, because then
what you are saying, you are scaring people, and that is
inappropriate.
When you look at Wells Fargo, I have said first and
foremost my commitment is to our 270,000 team members, to make
sure that they have got a safe place to do business in, to
serve their customers, that they are paid fairly, and what
those team members are saying to us, even in the midst of the
fact that we have said that we need to become a more efficient
organization, is they like working at the company, because our
attrition is down. It is down to its lowest levels in years,
and that is because they appreciate the fundamental changes
that we have made, many of which but not all of which we have
talked about.
We care about our team members. That is why I spend a lot
of my time going out and seeing them and talking to them and
understanding how they are feeling about the company. And we
are making changes based upon what they tell us. Every other
month I hold a town hall with one, two, three thousand team
members and ask them, unscripted, to give us suggestions. We
have implemented lots of their suggestions. We care about them.
But at the same time, I have an obligation as the CEO of
this company to make sure that we keep other stakeholders
happy, and that includes our shareholders, who are not just
Wall Street investors, but they are shareholders that are
pension funds that support many retirees all across this
company. 401(k) plans own our stock. We have got an obligation
to them.
So my job as CEO is to try to balance those appropriately,
and I am working as hard as I can to accomplish that.
Chairman Crapo. All right. Well, thank you. And I want to
just let our Senators know that if they have additional
questions, they are due by next Tuesday. And then, Mr. Sloan,
we generally ask that the witnesses respond to those questions
as quickly as they can. Not knowing how extensive those
questions will be, we cannot give a specific timeline to that.
But we would like----
Mr. Sloan. Senator, if you want to set a deadline for us
right now, we would be happy to live up to whatever deadline
you would like to set.
Chairman Crapo. We generally ask that the questions be
responded to in 1 week from when they are received.
Mr. Sloan. We will respond in 1 week.
Chairman Crapo. All right. Without anything further then,
this hearing is adjourned.
Mr. Sloan. Thank you.
[Whereupon, at 11:58 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF TIMOTHY J. SLOAN
Chief Executive Officer and President, Wells Fargo & Company
October 3, 2017
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
thank you for your invitation to today's hearing, ``Wells Fargo: One
Year Later''. I appreciate the opportunity to discuss the progress
Wells Fargo has made.
The past year has been a time of great disappointment and
transition at Wells Fargo because we recognized too late the full scope
and seriousness of the problems in our Community Bank. When my
predecessor testified here last year, we had not fully grappled with
the damage the sales practices scandal had done to our customers, our
team members, and their trust in the bank. We came to Congress without
a good plan and all of you were right to criticize us. But I heard
you--and I heard our customers and our team members--loud and clear.
You expect us to do better, and so do we.
So let me be very clear about this: I am deeply sorry for letting
down our customers and team members. I apologize for the damage done to
all the people who work and bank at this important American
institution. When the challenges at Wells Fargo demanded decisive
action, the bank's leaders acted too slowly and too incrementally. That
was unacceptable.
I also want to be clear about another thing: Wells Fargo is a
better bank today than it was a year ago. And next year, Wells Fargo
will be a better bank than it is today. That is because we have spent
the past year determined to earn back the public's trust. Since I
became CEO 11 months ago, my team and I have been focused on the three
tasks you have invited me to discuss today.
First, in response to the sales practices problems announced in
2016, we are transforming our Community Bank. Our retail bank has
strong new leadership, more effective organization, and incentives that
reward our team members for doing what is right for the customer. This
is a fundamentally different organization from the one that existed in
2016.
Second, we are looking beyond our Community Bank to review our
operations across the entire company, including in our indirect auto
lending business. That review is still in progress, but it has already
identified several ways in which we can improve. I am committed to
confronting these problems head-on, and fixing them.
Third, we are working diligently to make things right for every
customer who was harmed by any of our practices and, to that end, we
will compensate every customer who suffered because Wells Fargo made
mistakes. I am pleased to report that these remediation efforts are
well underway.
Transforming Our Community Bank
No part of our company better reflects the difference between Wells
Fargo in 2016 and Wells Fargo in 2017 than our Community Bank. We have
dramatically overhauled its leadership, its organization, and its
incentives. At every level of the bank, our efforts focus squarely on
the needs of our customers, not on achieving product sales goals.
I appointed a new leader, Mary Mack, to transform the Community
Bank. Mary has worked tirelessly to improve our approach to meeting
customer and team-member needs.
Together, we have eliminated product sales goals for retail
bankers. Those goals contributed to a high-pressure sales environment
that failed our customers. In some cases, these goals even resulted in
customers receiving products they never requested or realized they had.
In addition, we have made dramatic changes in the way our team
members interact with our customers by adopting a new customer-service
approach across our Community Bank. We have simplified complicated
processes, replaced required questions with relevant tips, and enabled
bankers and tellers to better meet their customers' needs by offering
them the right products, services, or referral. Managers have also been
empowered to immediately resolve some customer issues, like fees, at
the branch rather than through a call center. These changes have led to
a more personalized experience for our customers and more fulfilling
jobs for our team members.
We are equally committed to the former Wells Fargo team members who
were affected by the Community Bank's old ways of doing things. I am
proud to report that since last September we have hired back more than
1,780 team members who left the bank during those years.
I have also now made clear that, when team members have concerns, I
want to know. I have traveled the country, visiting more than 100
offices, to meet personally with thousands of team members. Our senior
leadership team has done the same. We have also improved our ethics
protections to ensure that every team member feels empowered to speak
up without any fear of retaliation when he or she sees a problem.
Accountability
I know that responsibility for Wells Fargo's shortcomings reaches
well beyond our bank branches. That is why our review and our changes
have not stopped there. We started by holding executives accountable.
Over the past year, Wells Fargo eliminated a record $180 million in
senior-executive compensation:
No member of the Operating Committee who served before
September 8, 2016, including me, received a bonus for 2016.
Every member of the Operating Committee who served before
September 8, 2016, had his or her long-term incentive awards
for past performance reduced by up to 50 percent.
Neither former CEO John Stumpf nor former head of the
Community Bank, Carrie Tolstedt, received a bonus for 2016.
Mr. Stumpf forfeited $69 million in compensation and
equity.
Ms. Tolstedt forfeited $67 million in compensation and
equity.
And, finally, we terminated four senior leaders of the Community
Bank, which cost them their 2016 bonuses, their unvested equity awards,
and their vested outstanding stock options.
Looking forward, we have made oversight and compliance much more
effective than a year ago. These are fundamental changes to the way the
company runs. We have reviewed and adjusted the roles of tens of
thousands of our team members. We have moved away from a decentralized
``Run It Like You Own It'' structure, where business leaders had the
discretion to run their operations independently. Now we follow a more
centralized model in which risk, compliance, and human resources
leaders have far greater visibility into, and accountability for,
issues across the individual business lines. In addition, I established
a Conduct Management Office with company-wide responsibility for
investigations and complaints. This new team assesses complaints across
the company, reports every month to our executive team--including me--
and helps leaders ``connect the dots'' in ways we never could before.
Now when a problem emerges, we can identify it quickly, escalate it
promptly, and address it fully.
These changes are consistent with, and designed to address, the
findings of our Board's independent investigation into the root causes
of our retail sales practices issues. That investigation found, and I
agree, that our previous structure contributed to a failure to see the
threat that high-pressure sales goals posed to our Community Bank and
our customers. This structure also contributed to our slow and
insufficient response to that threat. My job as CEO is to ensure that
never happens again.
One important way I have exercised that responsibility is by
calling for a comprehensive review of sales practices and other
customer-facing operations across the bank. We decided to go beyond the
requirements of our regulators and conduct a company-wide review,
leaving no stone unturned.
That review has consumed a big portion of the past year and
continues today. This has been, and continues to be, a massive
undertaking. It has involved our own team members, as well as
regulators, independent directors, lawyers, and independent
consultants. The mandate is to identify any failures or practices that
could harm our customers.
We expected to find more shortcomings through this effort, and we
did. You have undoubtedly heard about some of these problems in the
news. Last fall, were viewed 93 million accounts opened between 2011
and 2015. That review raised concerns regarding whether approximately 2
million accounts had been properly opened. We told you and others that
we would look at even more accounts, and we did. We searched across
2009, 2010, and 2016--nearly doubling the time frame to eight years. We
also looked at other types of accounts or services, such as online bill
pay, that may have been initiated improperly.
In August, we announced the result of this broader look at 165
million accounts opened between 2009 and 2016. Our estimate of
potentially unauthorized accounts grew by about 1.5 million. This is a
substantial number, but it is important to note that these are not
``new'' instances of possible misconduct since last fall; they are
newly revealed instances of possible misconduct based upon our own
expanded investigation of the years before 2017. Of the total of 3.5
million accounts, approximately 190,000 incurred fees and charges.
Wells Fargo will provide a total of $2.8 million in additional refunds
and credits on top of the $3.3 million previously refunded as a result
of the original account review. Our commitment is to refund all fees
and all charges imposed with respect to any accounts and services that
proved to be unauthorized.
During the past year, we also confronted problems in our auto-loan
business. We explained in August that some of our auto loans involved
insurance that had been placed by a vendor when the customer was
already insured. This issue is quite different from the previous sales-
practices issues in our Community Bank, because this insurance was not
a product that Wells Fargo team members were given an incentive to
sell. Also, this is an issue we found and addressed ourselves. The
improper insurance charges occurred because of flaws in our process for
verifying the customer's insurance status and disclosing the premiums
added. It was a significant mistake that harmed a lot of people, and we
are making it right. Last month, we began issuing checks to affected
auto-loan customers, all of whom we expect to reimburse by the middle
of 2018.
Making Things Right With Our Customers
The entire Wells Fargo team, all 270,000 of us, is committed to
making things right for customers the bank let down. This is a big job,
and we will get it right.
To ensure our changes to the Community Bank are working for our
customers, we dramatically enhanced our monitoring and compliance. As
an example, we are closely monitoring the opening of new accounts.
Every new account now generates an email within an hour, or a letter
within a day, to confirm the account holder's authorization. In our
branches, we are on pace to conduct 16,000 visits by ``mystery
shoppers'' this year, so that these anonymous reviewers can test and
examine the practices and service that our customers experience. These
visits will help ensure we are proactively identifying any improper
sales practices and delivering customer service that is consistent with
our mission.
We also are reaching out to customers all across America to
determine if they were affected by the bank's practices and, if so, how
we can fix it. During the fourth quarter of 2016, we contacted more
than 43 million individual and small business customers. We are issuing
refunds to every affected customer who has responded or has been
identified by our third-party review. Wells Fargo has already paid
millions in refunds and credits to Community Bank customers we spoke
with between September 2016 and July 2017. In addition, customers
harmed by our discontinued sales practices will receive a total of $142
million in compensation (after deducting plaintiffs' attorneys' fees
and administration costs) under our class-action settlement. This will
compensate customers for claims dating back to 2002, including claims
by customers for increased borrowing costs resulting from credit-score
impact.
Beyond these formal reimbursement mechanisms, I want to be clear
that Wells Fargo is committed to addressing every concern any customer
may have about an unwanted product or service--no matter where or when
it may have occurred.
The past year has been humbling and challenging. We are resolving
past problems even as we make changes to ensure nothing like this
happens again at Wells Fargo. We are doing this by strengthening our
culture, holding leaders accountable, and improving our business
practices and risk management. I want to thank all our team members for
their hard work in this transformation.
Together, we will do whatever is necessary to put our customers
first. I see the improvement every day, and so do the team members I
visit in our bank branches. I think our customers have noticed the
improvement, too. I pledge to you that we will not stop until we
restore our reputation and our customers' trust, and make Wells Fargo
the finest and most ethical company it can be.
Thank you again for the opportunity to address this Committee. I
look forward to your questions.
RESPONSES TO WRITTEN QUESTIONS OF THE
SENATE BANKING COMMITTEE FROM TIMOTHY J. SLOAN
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]