[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
HOLDING MEGABANKS ACCOUNTABLE:
AN EXAMINATION OF WELLS FARGO'S
PATTERN OF CONSUMER ABUSES
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
MARCH 12, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-7
[GRAPHIC(S) NOT OMMITTED IN TIFF FORMAT]
________
U.S. GOVERNMENT PUBLISHING OFFICE
36-462 PDF WASHINGTON: 2019
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
March 12, 2019............................................... 1
Appendix:
March 12, 2019............................................... 79
WITNESSES
Tuesday, March 12, 2019
Sloan, Timothy J., President and Chief Executive Officer, Wells
Fargo & Company................................................ 5
APPENDIX
Prepared statements:
Sloan, Timothy J............................................. 80
Additional Material Submitted for the Record
Waters. Hon. Maxine:
``The Case for Holding Megabanks Accountable: An Examination
of Wells Fargo's Egregious Consumer Abuses,'' report
prepared by the Democratic Staff of the Financial Services
Committee, dated September 29, 2017........................ 190
Letter from the National Association of Consumer Advocates,
dated March 11, 2019....................................... 228
Article from The New York Times entitled, ``Wells Fargo Says
Its Culture Has Changed. Some Employees Disagree.'', dated
March 9, 2019.............................................. 230
Article from The Wall Street Journal entitled, ``Wells Fargo
Regulators Weigh Executive Shakeup as CEO Heads to
Washington,'' dated March 11, 2019......................... 236
Ocasio-Cortez, Hon. Alexandria:
Data Brief by Make the Road New York and the Center for
Popular Democracy entitled, ``Private Detention Industry
Expected to Swell from `Zero Tolerance' at the Border,''
dated June 2018............................................ 240
Tlaib, Hon. Rashida:
``Riding the Stagecoach to Hell: A Qualitative Analysis of
Racial Discrimination in Mortgage Lending''................ 246
Sloan, Timothy J.:
Written responses to questions for the record submitted by
Chairwoman Waters and Representatives Beatty, Garcia of
Illinois, Perlmutter, Porter, Pressley, and Tlaib.......... 265
HOLDING MEGABANKS ACCOUNTABLE:
AN EXAMINATION OF WELLS FARGO'S
PATTERN OF CONSUMER ABUSES
----------
Tuesday, March 12, 2019
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:08 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney,
Velazquez, Sherman, Meeks, Clay, Scott, Green, Cleaver,
Perlmutter, Himes, Foster, Beatty, Heck, Vargas, Gottheimer,
Gonzalez of Texas, Lawson, Tlaib, Porter, Axne, Casten,
Pressley, McAdams, Ocasio-Cortez, Wexton, Lynch, Adams,
Gabbard, Dean, Garcia of Illinois, Garcia of Texas; McHenry,
Wagner, Lucas, Posey, Luetkemeyer, Huizenga, Duffy, Barr,
Tipton, Williams, Hill, Zeldin, Loudermilk, Mooney, Davidson,
Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, Steil, Gooden
and Riggleman.
Chairwoman Waters. The Financial Services Committee will
come to order. Without objection, the Chair is authorized to
declare a recess of the committee at any time.
Today's hearing is entitled, ``Holding Megabanks
Accountable: An Examination of Wells Fargo's Pattern of
Consumer Abuses.''
I now recognize myself for 4 minutes to give an opening
statement.
Today, we examine Wells Fargo's egregious pattern of
consumer abuses. Our witness today is Mr. Timothy Sloan,
President and Chief Executive Officer of Wells Fargo & Company.
I would like to begin by recounting some of Wells Fargo's
recent harmful actions of which we are aware.
Between 2011 and 2016, Wells Fargo fraudulently opened
millions of unauthorized accounts, costing their customers
millions of dollars. In September 2016, the Consumer Financial
Protection Bureau (CFPB), the Office of the Comptroller of the
Currency (OCC), and the Los Angeles City Attorney imposed a
collective $185 million fine.
From 2006 to 2016, the bank charged servicemembers illegal
fees, failed to disclose their active-duty status in eviction
proceedings, and unlawfully repossessed their vehicles,
resulting in a $20 million fine and $10 million returned to
servicemembers.
From 2005 to 2016, the bank charged customers for
automobile insurance policies they did not need, resulting in
some customers going into default and losing their vehicles.
From 2013 to 2017, Wells Fargo inappropriately charged
prospective home loan borrowers fees for extending the period
for a mortgage interest rate lock. Together, these abuses led
to a collective fine of $1 billion by the CFPB and the OCC.
In 2017, the OCC and the SEC, respectively, found that
Wells Fargo or its subsidiary failed to comply with anti-money
laundering laws. The SEC also found that from 2009 to 2013,
Wells Fargo advisers unlawfully sold complex financial products
to retail investors, reducing their investment returns.
Recently, Wells Fargo self-reported that between 2010 and 2018,
the bank erroneously denied or failed to offer modifications to
customers, resulting in over 500 people losing their homes.
What this long but impartial list makes clear is that Wells
Fargo is a recidivist financial institution that creates
widespread harm with a broad range of offenses. What's more,
this misconduct appears to persist, with The New York Times
reporting Saturday that Wells Fargo's employees continue to see
internal rule-breaking to meet aggressive sales goals.
In 2018, the Federal Reserve Board imposed a cap on the
bank's growth, which remains in place today. But this
punishment and the fines imposed have not changed the bank's
behavior, and Wells Fargo continues to rake in huge profits.
Also concerning is that Wells Fargo's regulators seem
unwilling to take forceful actions against the bank, but
instead are weakening the Dodd-Frank Act safeguards which
protect consumers and the economy from large firms like Wells
Fargo. This includes diluting big bank capital liquidity,
leverage and stress-testing requirements, and the Volcker
Rule's ban on gambling with taxpayers' deposits.
This committee will scrutinize what is happening at
megabanks like Wells Fargo, and at the regulators who oversee
them. Wells Fargo's ongoing lawlessness and failure to right
the ship suggests the bank, with approximately $1.9 trillion in
assets and serving 1 in 3 U.S. households, is simply too-big-
to-manage.
Mr. Sloan, this committee is putting consumers first and
holding financial institutions accountable. We will expect you
to be forthcoming.
And now, the Chair recognizes the ranking member of the
committee, the gentleman from North Carolina, Mr. McHenry, for
4 minutes for an opening statement.
Mr. McHenry. I thank the gentlelady for yielding.
For several years now, we have been hearing about all sorts
of mismanagement and misconduct with Wells Fargo. In fact, just
yesterday we learned the Securities and Exchange Commission is
taking due action against your advisory business.
Each time a new scandal breaks, Wells Fargo promises to get
to the bottom of it. It promises to make sure it doesn't happen
again. But then a few months later, we hear about another case
of dishonest sales practices or gross mismanagement, another
case of a consumer who has been harmed by the bank's business
practices.
In fact, since 2016, the bank has entered into settlements
with every single one of its Federal regulators: the Consumer
Financial Protection Bureau; the Commodity Futures Trading
Commission; the Office of the Comptroller of the Currency; the
Federal Reserve; and the Securities and Exchange Commission.
The various settlements required the bank to develop plans
to identify and remediate customers who were harmed. The orders
also require the bank to address internal deficiencies. The
bank is still in the process of complying with the terms of
those settlements now, 2\1/2\ years since the unauthorized
account scandal first came to light.
And we know several of the consent orders are still active
because of the bank's inability to develop a sufficient
customer remediation plan. These are the facts.
In October of last year, Comptroller of the Currency Joseph
Otting testified before the Senate Banking Committee that the
OCC was ``not comfortable with Wells' remediation progress to
date.'' Meanwhile, you announced that the bank is expected to
remain under the Fed's unprecedented asset cap, at least until
the end of the year.
So obviously, the bank has a ways to go before the Federal
Reserve is satisfied. Furthermore, I am concerned that we don't
know with certainty how many consumers were affected, what
business lines were implicated, and the full extent of the
damage. We still don't have a full picture of how many
customers were harmed and whether they have been made whole.
Every single member of this committee has constituents in
their State who were impacted by Wells Fargo. The bank's
behavior has real-world consequences. Our constituents should
be able to trust their own bank. Some of them don't have access
to an alternative.
We know you have taken steps in the right direction, Mr.
Sloan. Some were mandated by regulators, actually, in fact,
most were mandated by the regulators, and others were imposed
by you in your 2\1/2\ years as Chief Executive.
For example, just 3 of the 10 members of the Wells Fargo
Operating Committee who were in place in February of 2016
remain there today. You hired a new Chief Risk Officer and a
new Chief Compliance Officer. That is progress, but obviously
it hasn't been enough to satisfy your regulators.
So I want to use this hearing today to get your commitment
as the leader of this corporation that you will do what is
necessary to make sure this does not happen again. I want to
know more about the internal controls you put in place to
address the history of gross mismanagement.
I want to know specifically how you are changing the
culture at Wells Fargo. These bad acts don't conform with the
strong legacy that I know of Wachovia and First Union in my
home State.
Be assured, though, this is not the end of the
conversation. This is an important hearing, and you will hear
bipartisan criticism of the actions you have taken and the
failures that you have overseen under your watch. I yield back.
Chairwoman Waters. The Chair now recognizes the Chair of
our Subcommittee on Oversight and Investigations, Mr. Green,
for one minute.
Mr. Green. Thank you, Madam Chairwoman. I thank the
witness, as well.
Mr. Sloan, you became the CEO of Wells on October 12, 2016.
We need to know what you know and when did you know it. Here is
why: On September 8, 2016, the Consumer Financial Protection
Bureau issued a consent order which found that from January 1,
2011, to September 8, 2016, thousands of Wells Fargo employees
opened deposit accounts for existing customers without their
consent, submitted credit card applications in the names of
customers without their consent, enrolled customers in online
banking services without their consent, and requested debit
cards for customers without their consent.
The question that we need to have answered is, is there a
culture of corruption at Wells? I yield back.
Chairwoman Waters. The Chair now recognizes the
subcommittee ranking member, Mr. Barr, for one minute.
Mr. Barr. Thank you, Madam Chairwoman.
Mr. Sloan, thank you for appearing today, and let me be
blunt: You are here today because Wells Fargo mistreated and
defrauded its customers. As a consequence, your bank is
operating under consent orders and a damaged reputation.
But Wells Fargo's reputation is not my chief concern. The
bank's actions have given a voice to those who want to unfairly
taint the reputation of the entire banking sector, including
the community bankers who serve the people of Central and
Eastern Kentucky with the highest of integrity.
Your bank's misconduct has fueled the kind of unfair,
hyperbolic, and anti-bank rhetoric that you will hear today,
which threatens access to capital, job creation, and economic
growth.
Today is your chance to convince this committee and our
constituents that you are going above and beyond to make things
right and bring your bank in line with industry standards to
restore not only Wells Fargo's reputation, but the reputations
of the vast majority of banks in America who serve their
customers with professionalism, integrity, and the highest
ethical standards.
While I recognize you have taken significant steps to
compensate customers who were harmed, the Fed's asset cap is
still in place and several consent orders are still active. So
clearly, there is more work to do. I look forward to your
testimony, and I yield back.
Chairwoman Waters. I want to welcome to the committee
Timothy J. Sloan, President and Chief Executive Officer of
Wells Fargo & Company. Mr. Sloan has been the Chief Executive
Officer of Wells Fargo & Company since October 12, 2016, and
its President since November 17, 2015. Mr. Sloan also served as
the Chief Operating Officer at Wells Fargo from November 17,
2015, to October 12, 2016, where he oversaw the community
banking division that we will be discussing today.
Prior to his appointment as President and Chief Executive
Officer, Mr. Sloan held a variety of positions at Wells Fargo
over his 31-year career at the company, including as Chief
Financial Officer, and leading the company's wholesale banking
businesses.
Without objection, your written statement will be made a
part of the record. Before we begin, I would like to swear the
witness in.
[witness sworn]
Chairwoman Waters. Thank you. Let the record show that the
witness answered in the affirmative.
Mr. Sloan, you will have 5 minutes to summarize your
testimony. When you have 1 minute remaining, a yellow light
will appear. At that time, I would ask you to wrap up your
testimony so that we can be respectful of the committee
members' time.
So, Mr. Sloan, you are now recognized to present your oral
testimony.
TESTIMONY OF TIMOTHY J. SLOAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, WELLS FARGO & COMPANY
Mr. Sloan. Thank you. Chairwoman Waters, Ranking Member
McHenry, and members of the committee, good morning, and thank
you for this opportunity to discuss the transformation at Wells
Fargo and the progress we are making to work to become the most
customer-focused and innovative Wells Fargo ever.
The past few years have been a very difficult time in Wells
Fargo's storied history. When I became CEO more than 2 years
ago, our bank was facing unprecedented and well-deserved
scrutiny. I pledged to look back years to examine every
business at Wells Fargo to ensure that no similar problems
existed anywhere else in the company.
We discovered issues that we needed to address. Every one
of those was a disappointment to me, but when I stepped into
this role, I promised that accountability and transparency
would define our efforts, and they have.
Above all, Wells Fargo is committed to making things right
for our customers and to earning back the public's trust. We
are dedicated to compensating every customer who suffered harm
because of our mistakes. We continue to proactively identify
customers, contact them, and compensate them appropriately.
For the retail sales practices issue, for example, we
looked back more than 15 years, reviewed 165 million accounts,
contacted more than 40 million customers via 246 million
individual communications, and have provided tens of millions
of dollars in compensation to our customers to date. We are
taking responsibility for any fees customers should not have
been charged, and for related effects, such as impacts on
credit scores.
Our guiding principle has been to err on the side of
customers and we are taking an overly inclusive approach in
doing so. To be sure, getting this right for each customer
takes time, longer than I would like, frankly. We make every
effort to refund customers for mistakes as soon as we discover
them. But mistakes do not affect every customer in the same
way, so we developed processes for taking customers' individual
circumstances into account to ensure that we fully compensate
them.
Solving past problems is not enough; we must also prevent
new ones from developing. Our past problems were the product of
an old decentralized structure, so we have centralized
enterprise controls including risk, finance, and human
resources, and have hired impressive new leaders, many from
outside the company, to oversee them. We have also added more
than 3,000 new risk professionals. Changes like these enable us
to avoid errors, identify issues earlier, and address them
faster.
Our Board of Directors has undergone a similar
transformation. In the past 2\1/2\ years, we have refreshed the
board with seven new independent directors. Our new board
Chair, Betsy Duke, is a former Federal Reserve Governor and is
the first woman to Chair a major U.S. financial institution.
Our corporate culture has substantially improved. Team
members see this improvement in the elimination of product
sales goals that contributed to the unauthorized accounts
problem. They see it in a performance evaluation system that
prioritizes serving customers and managing risk.
They see it in enhanced leave and increased compensation,
including a new $15 per hour minimum wage. They see it in
restricted stock rights granted to approximately 250,000 team
members in 2018 to recognize their commitment to the company's
future success. And they see it in a corporate culture that
encourages team members to speak up without fear of retaliation
when they see a problem.
By the end of 2018, these and other changes helped us bring
our team member voluntary attrition down to its lowest level in
6 years. All of this enables us to serve the one-third of
American households who bank with Wells Fargo.
I am proud that our customer experience and customer
loyalty scores are now at their highest levels in the past 2\1/
2\ years. And I am especially proud that Wells Fargo is
deepening its commitment to underserved communities, including
$185 billion in commitments to support African-American and
Hispanic homeownership.
We are using the resources of a big bank to make a big
difference. The past few years have reinforced to us that our
company does well by doing right. And doing right does not stop
with simply repairing harm and rebuilding trust. We have more
work to do and that is an ongoing commitment by all of Wells
Fargo's 260,000 team members, starting with me, to put our
customers' needs first, to act with honesty and integrity and
accountability, and to strive to be the best bank in America.
Thank you again for this opportunity, and I look forward to
your questions.
[The prepared statement of Mr. Sloan can be found on page
80 of the appendix.]
Chairwoman Waters. Thank you very much.
Wells Fargo's 2018 10-K reports show that, in accordance
with the Consumer Bureau's and the OCC's April 2018 auto
insurance and mortgage rate lock consent orders, the bank
submitted to the regulators an enterprise-wide compliance plan,
a plan to enhance the bank's internal audit program, and plans
to remediate customers affected by these matters. According to
the consent orders, the required plans are subject to the
Consumer Bureau's and the OCC's review and determination of
non-objection.
Has the OCC indicated its non-objection to the bank's
compliance audit on customer remediation plans? Has the
Consumer Bureau indicated its non-objection?
Mr. Sloan. Madam Chairwoman, I can't respond specifically
to your question, because that would mean that I would be
disclosing confidential supervisory information that has been
shared with us by both the OCC and the CFPB. But I can assure
you that we are working very constructively with what we have
in place and we are executing that plan that reflects the
fundamental changes that I have made since I have become the
CEO.
Chairwoman Waters. Thank you very much.
For those who are listening, I am simply asking whether or
not the bank is in compliance, based on reviews that are done
by the OCC and the Consumer Bureau, and you heard that answer--
Mr. Sloan. We are in compliance with those plans. Excuse
me.
Chairwoman Waters. Thank you.
During an October 2, 2018, hearing before the Senate
Banking Committee, Comptroller of the Currency Joseph Otting
testified that the OCC was not comfortable with Wells Fargo's
remediation progress to date. Has the bank disclosed to
investors the status of the plans that it submitted to the OCC
and the Consumer Bureau, including whether the regulators have
raised any objections to the bank's submitted plans?
Mr. Sloan. Again, we cannot disclose confidential
supervisory information in terms of the give-and-take that we
have with either the OCC or the CFPB. But I can assure you that
we have plans in place and we--
Chairwoman Waters. Thank you very much.
On February 2, 2018, the Federal Reserve, in response to
recent and widespread consumer abuses and other compliance
breakdowns, issued an order restricting Wells Fargo's asset
growth until it sufficiently improves its governance and risk
management. In announcing the order, the Federal Reserve stated
that in recent years, Wells Fargo pursued a business strategy
that prioritized its overall growth without ensuring
appropriate management of all key risks.
The firm did not have an effective firm-wide risk-
management framework in place that covered all key risks. This
prevented the proper escalation of serious compliance
breakdowns to the Board of Directors. Mr. Sloan, are you aware
of the Federal Reserve restricting the asset growth of any
other large bank holding company under its supervision other
than Wells Fargo?
Mr. Sloan. No, I am not.
Chairwoman Waters. Okay. Given the unprecedented nature of
the Federal Reserve growth restriction which remains in place
today, is Wells Fargo simply too-big-to-manage?
Mr. Sloan. No, we are not. And I think that the changes
that I described in my opening statement in terms of
fundamentally reorganizing the company, centralizing our risk
and control functions--
Chairwoman Waters. Thank you very much.
Mr. Sloan. --changing leadership--
Chairwoman Waters. I only have a few minutes here.
In your October 4, 2017, testimony to the Senate Banking
Committee, you stated that you have the knowledge, ability, and
support to make changes at Wells Fargo; indeed, you testified
that you have been making changes at this company for 30 years,
including fundamental changes as CEO.
Since you gave that testimony, Federal regulators have
announced several enforcement actions relating to customer
abuses at Wells Fargo. The Federal Reserve, in February 2018,
imposed, again, an unprecedented asset freeze on the bank. On
and on and on, with all of this experience and the length of
time that you have been there, and the roles that you have
played, you have not been able to keep Wells Fargo out of
trouble. You keep getting fined. Why should Wells Fargo
continue to be the size that it is or should it be downsized?
Or what else could be done?
Mr. Sloan. Well, I believe that Wells Fargo serves our 70
million customers and one out of three U.S. households in a
very effective way today. And I think the way in which we serve
our customers is reflective of the changes that I have made
since I have become CEO, not only in terms of the fundamental
changes that I have mentioned in addressing past issues, but
also in terms of the new customer capability, customer focus--
Chairwoman Waters. Thank you very much, Mr. Sloan, I
appreciate that. All of the changes that you said that you have
made are not evident. And you do not have the kind of customer
satisfaction to which you are alluding. Again, is Wells Fargo
too-big-to-manage?
With that, I will yield to the gentleman on my right, Mr.
McHenry.
Mr. McHenry. Mr. Sloan, I mentioned in my opening statement
that you have been fined by every one of your Federal
regulators. You have entered into consent decrees with every
one of these Federal regulators. So how many consent decrees
total have you entered into?
Mr. Sloan. It is my count that we have approximately 14
that are open right now.
Mr. McHenry. Fourteen. How many customer accounts are we
talking about?
Mr. Sloan. Related to what?
Mr. McHenry. Well, you define it.
Mr. Sloan. It depends on the underlying issue. For the
retail sales practices issue, we engaged an outside third party
to look at over 165 million accounts, and what we concluded was
that there could have been, but not necessarily were, up to 3.5
million accounts that were opened inappropriately.
Mr. McHenry. Okay.
Mr. Sloan. We have reached out to those customers, and my
guess is that once we complete that remediation the number will
be smaller than that, but I do not know what the number is.
Mr. McHenry. So, when do you plan to complete that
remediation on those 3.5 million customers?
Mr. Sloan. I'm sorry?
Mr. McHenry. When do you plan to complete that remediation
for those 3.5 million customers?
Mr. Sloan. We have completed that remediation for those
customers. In addition, we have entered into the settlement of
a class action suit, and customers have an additional
opportunity to be part of that suit. And then once those
payments are made, we will have a better idea in terms of
numbers.
Mr. McHenry. So, 14 separate consent decrees with your
regulators. You talk about confidential supervisory
information, that means you have ongoing conversations with
your regulators that you can't disclose to us in a public
setting. We understand the law. We constructed that law, we
created these regulators, and so that means you have ongoing
conversations.
So let me just ask this broad question: You are the CEO of
a major American company, so does the buck stop with you?
Mr. Sloan. Absolutely.
Mr. McHenry. So what are you doing to change your culture?
In your 2\1/2\ year- reign, I can hold you accountable to the
public, and your shareholders and your Board of Directors
should hold you accountable, and are, for your actions as CEO.
What are you doing to change the culture?
Mr. Sloan. The first thing that I did when I took the
responsibility as CEO is to take responsibility for our past
actions.
Mr. McHenry. How are you changing that front-line culture,
those people that my constituents interact with in a branch
bank in North Carolina, how are you changing that culture?
Because those are the ones--not North Carolina interestingly,
but those broadly across your footprint, established Wells
footprint, those are the ones who took the action. How are you
changing that culture?
Mr. Sloan. In our retail banking business, this is what we
have done. We have changed the leadership. We ended the
incentive plan that drove inappropriate behavior, we increased
the amount of training that we give to our team members called
``Change for the Better.'' We have improved the products and
services that we have been encouraging them to work with their
customers over. And we have also delegated more responsibility
for them in terms of resolving customer issues. The feedback
that we get from--
Mr. McHenry. I understand the feedback, we have it in your
written statement. So can you give me your personal assurance
that this is the end of customer harm?
Mr. Sloan. I can't promise you perfection, but what I can
promise you is that the changes that we have implemented, the
substantive changes that we have implemented since I became CEO
are going to prevent them from occurring as best we can.
Centralizing our risk and control functions is a fundamental
change in our company. The way that we get information today is
different than we got information before.
Mr. McHenry. You have been fined $4 billion.
Mr. Sloan. I'm sorry?
Mr. McHenry. You have been fined by your Federal regulators
for $4 billion. Do you think that is sufficient or adequate?
Mr. Sloan. I think that the reputational damage that our
company has endured because of our mistakes has created
significant damage to the company and it is my job as CEO to
make sure things change, and they are changing.
Mr. McHenry. Okay. Your personal assurance?
Mr. Sloan. Yes.
Mr. McHenry. You have entered into 14 consent decrees by
what you just said publicly. Can you give this committee and
the public assurance that you will comply with all of those
consent decrees on a going-forward basis?
Mr. Sloan. I absolutely will.
Mr. McHenry. And you will give your personal attestation
that you will follow those consent decrees?
Mr. Sloan. Our team is working very hard to respond to
all--
Mr. McHenry. Will you give us that assurance that you will
follow the letter of the regulators' consent decrees entered
into with your bank?
Mr. Sloan. We will do our absolute best to comply with--
Mr. McHenry. And is this the end of scandal at Wells? Are
we going to see more headlines coming up? Are we going to have
another hearing about this?
Mr. Sloan. I can't control the media, but--
Mr. McHenry. Are your customers going to hear of more bad
actions taken by your company?
Mr. Sloan. There is nothing else that I am aware of that we
haven't disclosed, and we changed the standard of disclosure at
Wells Fargo after I became CEO. It is not materiality of level
of disclosure anymore; it is one of reputation.
Chairwoman Waters. The gentlewoman from New York, Mrs.
Maloney, Chair of our Subcommittee on Investor Protection,
Entrepreneurship and Capital Markets, is recognized for 5
minutes.
Mrs. Maloney. Good morning.
Mr. Sloan. Good morning.
Mrs. Maloney. And welcome.
Mr. Sloan, on page five of your testimony under the
heading, ``Corporate Citizenship,'' you share, ``Our commitment
to helping address some of the country's most pressing social
and economic issues is only growing.''
I would like to talk to you about corporate citizenship. I
went to your website and looked up your environmental, social,
and governance guide, and it is an impressive list of corporate
citizenship policies.
To take one example, Wells Fargo's human rights statement
says that your company is committed to respecting human rights
and that, ``This effort is done with the understanding that in
some circumstances, we may go above and beyond what the law and
industry standards require.'' Does that all sound accurate, yes
or no?
Mr. Sloan. It does.
Mrs. Maloney. Great. Now, I want to take you back to
February 14, 2018. That was the day a lone gunman opened fire
at a high school in Parkland, Florida, and killed 17 children
and staff members with an AR-15-style semi-automatic rifle.
After this horrific massacre, two of your biggest
competitors, Citibank and Bank of America, adopted new policies
to ensure responsible lending in their businesses with the gun
industry. Under the Citi policy, all of the bank's business
partners in the gun industry must require a background check
before they sell a firearm and they must prohibit the sale of
firearms to teenagers. These are commonsense policies that will
increase public safety, and they are also smart business
decisions.
Yet, when asked about your competitors' new policies, a
Wells Fargo spokesman said that progress on these issues had to
be made through the legislative process, that your company
would not go above and beyond what the law required.
But as we have already seen when I read your human rights
statement, in some cases your bank does go above and beyond
what the law requires. And to make it worse, last October,
Wells Fargo issued a new $40 million line of credit to the
manufacturer of the exact gun that was used to kill 17 people
in the Parkland shooting.
So, I have two questions for you. First, why does Wells
Fargo continue to put profits over people by financing
companies that are making weapons that are literally killing
our children and our neighbors?
And, second, why are you willing to go above and beyond
what the law requires on some issues like human rights, but not
go above and beyond the law when it comes to financing the gun
industry? How bad does the mass-shooting epidemic have to get
before you will adopt commonsense gun safety policies like
other banks have done?
Mr. Sloan. Congresswoman, we don't put profits over people.
We bank many industries across this country. We do our best to
ensure that all of our customers whom we bank follow the laws
and regulations that are in place on a local and a State and a
national level.
Mrs. Maloney. But--
Mr. Sloan. My view, our view, is that we don't think it
is--
Mrs. Maloney. Reclaiming my time, because my time is almost
up, but why are you willing to go above and beyond what the law
requires for human rights, but not for gun safety? Why is one
more important than the other?
Mr. Sloan. That isn't the case. We just don't believe that
it is a good idea to encourage banks to enforce legislation
that doesn't exist.
Mrs. Maloney. Well, you go--
Mr. Sloan. I view that as your responsibility and not mine.
Mrs. Maloney. --above and beyond the law in others.
Second, very quickly, as my time is almost up, as part of a
massive scandal uncovered in 2016 where Wells Fargo defrauded
millions of customers by opening more than 3.5 million fake
accounts, Wells Fargo attempted to force its customers, when
they sought justice, into arbitration. If investors deserve to
seek justice and accountability through the civil justice
system, why do you think that Wells Fargo customers don't
deserve the same treatment?
May he answer, Madam Chairwoman?
Mr. Sloan. I'm sorry, am I able to answer the question?
Chairwoman Waters. Please, take a minute to answer.
Mr. Sloan. Sure. Congresswoman Maloney, we took your advice
that you gave my predecessor in the last hearing. That is, you
asked us in the instance of retail sales practices to go beyond
just a couple of years. That is why we went back more than 15
years to make sure that we were able to capture all of the
potential customers who were harmed. We thought that was a very
good idea.
And as I mentioned in my opening statement, we have looked
at more than 165 million accounts, contacted more than 40
million customers through 264 million interactions, to make
sure that we have made things right for them, and I believe we
have.
Mrs. Maloney. Okay. Thank you.
Chairwoman Waters. The gentlewoman from Missouri, Mrs.
Wagner, the vice ranking member, is recognized for 5 minutes.
Mrs. Wagner. I thank the chairwoman for yielding.
Good morning, Mr. Sloan.
Mr. Sloan. Good morning.
Mrs. Wagner. I want to start by expressing my continued
anger and frustration that your company was taking advantage of
your customers and our constituents for years. You had a
responsibility to your customers. Placing one's money and
wealth in the custody of an organization like Wells Fargo is
one of the biggest displays of the public's trust.
And your company betrayed that trust and took advantage of
customers in order to meet sales performance goals and
fraudulently improve earnings and share prices. While you have
apologized, paid millions and billions of dollars in fines,
and, after reviewing your recently released business standards
report, made numerous changes to your corporate structure, I
think we can agree there is still more to be done.
Mr. Sloan, there were over 15,000 accounts in Missouri
affected by misconduct and scandal since 2012. These include
many of my constituents whom I represent. I care deeply about
these customers.
Have all of these customers been made whole, sir, and not
just for any fees charged, but also for related effects, such
as impact on credit scores and such?
Mr. Sloan. The answer is yes, by us. And the way that we
have done that is by the extensive outreach that I mentioned in
my opening statement and--
Mrs. Wagner. Outreach, meaning what?
Mr. Sloan. Meaning that we looked at 165 million accounts,
we had a third--
Mrs. Wagner. And they have been made whole and their credit
scores have not been impacted, you have made sure of that?
Mr. Sloan. We have corrected any improper information that
we provided to the credit bureaus. And in addition to
reimbursing customers for fees and expenses, we have asked them
to come in and see us to the extent that they felt like there
was additional harm.
Mrs. Wagner. What percentage came in to see you, sir?
Mr. Sloan. A very small percentage came in to see us,
notwithstanding our best efforts to contact everyone. And then
to the extent that they weren't satisfied with what our offer
was, we hired a mediator at our expense on their behalf, and we
have resolved all of those customers who have come in. In
addition, those customers have the ability to take part in the
class action settlement that we have entered into where we have
paid $142 million.
Mrs. Wagner. Thank you. I have limited time. After the
scandals that had been brought to light since 2016, Wells Fargo
decided to hire a new Chief Compliance Officer to ensure that
the bank is mitigating risk. I would like to know when that new
Chief Compliance Officer was in fact hired and has the new
Chief Compliance Officer been empowered to make changes
throughout the company?
Mr. Sloan. He has. Mike Roemer was hired and joined us in
January of 2018.
Mrs. Wagner. In January of 2018?
Mr. Sloan. That is correct.
Mrs. Wagner. What was going on between 2016 and then? That
is a lot of time before you hired a Chief Compliance Officer,
sir.
Mr. Sloan. That is correct. We had a compliance program
that was in place. It wasn't working as well as I would have
liked. We dismissed our--we asked our prior Chief Compliance
Officer to step aside and we went out and I think we have hired
the best Chief Compliance Officer in the industry, who has a
demonstrated capability of--
Mrs. Wagner. Did the regulators tell you to get rid of your
Chief Compliance Officer?
Mr. Sloan. No, I made that decision.
Mrs. Wagner. Yes. In your testimony you mentioned that
Wells Fargo has worked to address the root causes that allowed
these issues to occur in the first place. Mr. Sloan, in your
opinion, what are these root causes? Was there something in
your business model, something in your organizational structure
that led to this malfeasance?
Mr. Sloan. Well, I think there were a number of root
causes, Congresswoman. First, it was reflective in our
decentralized structure where our control functions were part
of our businesses as opposed to separate.
I have changed that since I have become CEO. I think it was
also reflective in our retail banking business in an incentive
plan that was much too focused on selling products as opposed
to providing good service and advice.
We have ended that incentive plan and we have a new plan in
place that is being received quite well by not only our team
members but also by our customers. That is reflective in the
improvement in customer service, customer loyalty, and customer
experience scores. The feedback that we get from our team is
that those fundamental changes like that are being very well
received.
Mrs. Wagner. My time is about to expire. I have more
questions about risk management and the board. I hope that some
of my other colleagues will get to that. I thank you for your
testimony, and I yield back, Madam Chairwoman.
Mr. Sloan. Thank you.
Chairwoman Waters. Thank you very much. The gentleman from
California, Mr. Sherman, is recognized for 5 minutes.
Mr. Sherman. Madam Chairwoman, I thank you for holding this
hearing. This hearing is at least a year, maybe 2 years late,
and I am glad to see that when 3.5 million consumers are
adversely affected, that the Financial Services Committee will
take that seriously.
Mr. Sloan, this is not a trick question, because I told you
in my office that I would ask it. You have hurt consumers, you
have talked about remediation, but now it is time for you to be
in the vanguard of consumer protection. One way you could do
that is to endorse Representative Carolyn Maloney's bill on
overdraft protection.
This bill will make sure that overdrafts are reasonable and
proportional, that you do not reorder transactions, and that no
other bank reorders transactions in order to increase the
amount of fees, that there are notifications at ATMs, et
cetera. I asked your senior staff to look at the bill, and to
advise you. Can you be on the right side of history and endorse
that bill now?
Mr. Sloan. I think we are already on the right side of
history, because when you look at the changes that--
Mr. Sherman. I am not asking what your practices are, Mr.
Sloan, because even your practices only affect your bank. You
have a powerful lobbying organization in this City. Will your
organization be on the right side of history?
Mr. Sloan. Again, I can tell you what we do--
Mr. Sherman. No, I am asking what your lobbyists will do,
not what your banking computers will do.
Mr. Sloan. We don't have lobbyists who are lobbying on
overdraft protection.
Mr. Sherman. Your lobbyists don't lobby on bills affecting
all of your customers and the bank's relationship with them?
Why do you pay them?
Mr. Sloan. Congressman, what I would like to do is describe
the industry leading changes that we--
Mr. Sherman. No. Because it is my time, and I asked you
whether you would support the bill, and you are trying to
filibuster it by talking about your practices. Somebody else
may ask you that question. Will your lobbying organization,
which you have here to lobby on bills relevant to your bank--
nothing could be more relevant--support this legislation?
Mr. Sloan. Congressman, I have not spoken to our industry
trade groups about that bill, but I will speak to them about
it.
Mr. Sherman. Oh, so you will talk about it behind closed
doors?
Mr. Sloan. I would like to talk to you--
Mr. Sherman. Okay. I have to go onto the next question.
Mr. Sloan. This hearing is about--
Mr. Sherman. Sir, I need to go on to the next question. You
told the gentlelady from Missouri that you have done full
remediation. It occurs to me that some people had a worse FICO
score and didn't get a house. They just didn't qualify.
Now, that house is worth several hundred thousand dollars
more than when they were denied credit. If somebody is in that
circumstance, sure, you will pay for a mediator, but will you
enforce the arbitration provision or will you let them go to
court if they want to go to court?
Mr. Sloan. They don't need to go to court.
Mr. Sherman. If they want to go to court. You know, the
courts were established by the U.S. Constitution, and these
other ways of dealing with disputes are fine for those people
who want them, but will you force those people into arbitration
if they decide that is not what they want?
Mr. Sloan. Congressman, in the situation of the retail
sales practices mistakes that we made, our customers don't need
to go to court because--
Mr. Sherman. So you are smart, they are dumb, you have
their interest at heart, they have lawyers, they want to go to
court, and you are telling them they are stupid for wanting to
go to court. Let's say they want to go to court. Will you force
them out of court by using the arbitration provisions?
Mr. Sloan. Congressman, I don't think our customers are
stupid, in fact, I think--
Mr. Sherman. Well, then, some of your customers want to go
to court. Are those customers stupid? Or are you going to use
your clever arbitration provisions, applicable to accounts they
never signed up for, in order to keep them out of court if that
is what they decide they want?
Mr. Sloan. Congressman, our remediation for customers who
were impacted by retail sales practices is extensive and
comprehensive--
Mr. Sherman. And you refuse to let people go to court, and
you use your arbitration provision for the account they did
sign up for to keep them out of court with regard to the
account they didn't sign up for, and then you come before
Congress and say, ``Oh, but that is wonderful for the consumer.
The consumer must be wrong if they want to go to court.''
Mr. Sloan. I didn't say that, Congressman. What I have been
trying to--
Mr. Sherman. Will you let them go to court if that is what
they want? Yes or no?
Mr. Sloan. We settled 140--
Mr. Sherman. I am asking for a yes or no, not a filibuster.
That is the Senate side, not here. Yes or no?
Mr. Sloan. Congressman, I have answered your question in
terms of--
Mr. Sherman. No, you haven't. I have asked you, yes or no,
and you haven't given me an answer.
Mr. Sloan. Congressman, in certain circumstances, we
enforce our arbitration provisions of our customer agreements.
In the case--
Mr. Sherman. Even for the accounts they didn't sign up for?
Mr. Sloan. Congressman, in the case of sales practices, as
I have mentioned, we have had an extensive remediation effort.
Every customer who has come in to see us, we have resolved
their issue. They have been taken care of.
Chairwoman Waters. Mr. Sherman, obviously Mr. Sloan is not
going to answer your question. We are going to move on.
Mr. Posey, the gentleman from Florida, is recognized for 5
minutes.
Mr. Posey. Thank you, Madam Chairwoman.
Mr. Sloan, they have piqued my interest a little bit
talking about these overdraft fees. They don't want to have
overdraft fees. Does that mean that people who don't bounce
checks should share the expense of people who do bounce checks?
Am I understanding that right?
Mr. Sloan. I think that customers who overdraw their
accounts should be charged a reasonable fee for that. At Wells
Fargo, what we have done is tried to live up to our vision of
satisfying our customers' financial needs and helping them to
succeed financially by giving them all the information that we
have to be able to manage their financial situation the best.
So, for example, in May of 2017, we introduced a new
capability called real-time balance alert. It is very simple.
You tell us what balance you want to know about. When your
account hits that balance, we will push out that information to
you. That has saved our customers hundreds of millions of
dollars, in the last year and a half since we have introduced
that, of overdrafts. We push out 43 million real-time balance
alerts a month.
In addition, we introduced another capability in November
of 2017 called overdraft rewind. We find that more likely than
not, some of our customers will overdraw their accounts the day
before they get paid.
If you have a direct deposit into Wells Fargo on a Friday,
and we know that is happening, and you overdraw your account
the night before, we are not going to charge you that overdraft
the next day, because you are a customer, and we know you are
going to go ahead and get paid. That has saved 2.3 million
overdrafts since we introduced that, again, about a year and a
half ago.
We are very pro-consumer in terms of our overdraft policies
and I think that they are industry-leading. If we have
information about our customers that can help them manage their
finances better and avoid an overdraft, absolutely. But if a
customer decides to overdraw their account on their own, they
should have to pay a fee for that.
Mr. Posey. About how many employees does your bank employ?
Mr. Sloan. 260,000.
Mr. Posey. Okay. The topics before us today are somewhat
complex and I would like to ask you to simplify some matters
and tell the committee the most important lessons that our
constituents should draw from the events and violations that
brought you before the committee today.
Mr. Sloan. Well, I think, first and foremost, if you see a
problem, deal with it as aggressively and as quickly as you
can. And that is a lesson learned by us and it won't be
repeated.
I think that when you see a fundamental issue in terms of a
company's organization that needs to be dealt with, even if it
means making massive change in the company, you need to go
ahead and do that. And it also means that if you see leaders
who are not living up to the standards that you expect for your
company, you need to make changes.
Mr. Posey. You testified that the sales culture at Wells
Fargo and the incentives to sell accounts and credit cards
contributed to the violations. Was that a culture unique to
Wells Fargo? I mean, have you had experience with others during
the enforcement process?
Mr. Sloan. I can't speak for our competitors. I think many
of our competitors have incentive plans. I don't necessarily
know whether they were they were the same or different. I think
that our incentive plans, though, went off the rails because it
focused too much in our retail banking business on selling
products as opposed to providing the right advice and service.
In addition, we created a legacy of managers who weren't
managing anymore; they were enforcing incentive plans. We have
changed all that since I have become CEO. That should have
never happened and it won't happen again.
Mr. Posey. Okay. Looking forward, what are you doing now to
protect your customers from cyber theft?
Mr. Sloan. From cyber? Well, we are doing two things. One
is that we have hired a very impressive cyber team and we have
cyber threat fusion centers all around the world to monitor
cyber risks for the company. We have invested hundreds of
millions of dollars, by now billions of dollars in
cybersecurity, including having third parties come in and
provide us with ideas.
In addition, we are using artificial intelligence to
monitor our customers' accounts. So if we see some sort of a
transaction that looks odd for that customer, like maybe you
sending a million dollars to a bank account in a country that
you have never had a relationship with, then we would try to
surface that for the customer. There is more to do. I think the
biggest risk that American consumers face today is one of
imposter fraud.
Mr. Posey. Thank you.
Chairwoman Waters. The gentleman from New York, Mr. Meeks,
the Chair of our Subcommittee on Consumer Protection and
Financial Institutions, is recognized for 5 minutes.
Mr. Meeks. Thank you, Madam Chairwoman.
Hello, Mr. Sloan.
Mr. Sloan. Good morning.
Mr. Meeks. Do you realize how serious this scenario is with
Wells Fargo?
Mr. Sloan. Yes, I do, Congressman.
Mr. Meeks. Because your predecessor, when he was before us,
I took it that he wasn't really serious when we talked about
the grievous actions of Wells Fargo and how it affected Main
Street. Do you realize that if someone on Main Street caused
such hazardous results, whether it was stealing their money or
conning them, they would go to jail. That is what they do. They
go to jail.
And what you have done, your industry--or I shouldn't say
your industry, your bank that you have been a part of for 31
years--no one has paid a punishment at all. People have left.
Some still received a bonus. People have stayed, as you have,
and got promoted. So when the general public looks at this,
they do not see any justice at all, nothing.
You say that there have been changes. I am looking at a
news report now that just came out last week that says that
maybe the practices that were utilized on these accounts have
shifted to your debt collection procedures, where those who are
collecting debt, going after individuals, they have incentives.
They have to be there for 30 hours and collect X amount--I
think it is $45,000--or collect X amount of money, and one
person has been fired. Are you aware of that?
Mr. Sloan. Congressman, I am not necessarily familiar with
the news report that you are referring to.
Mr. Meeks. Well, the news report, and I will refer it to
you, is dated March 9th and it talked about as recently as
December, there was an employee out of your Iowa facility who
said that it is a joke that the climate has changed, and that
they have been fired as a result of this incentive package that
was placed on these employees. Are you aware of that?
Mr. Sloan. I am not aware of that specific circumstance.
But what I can--we can report to you, Congressman, is that is
not--that is inconsistent with the feedback that we get from
our team members who survey information, through the
interaction that I have with them in our town halls.
Mr. Meeks. But you do your own debt collections, right?
Mr. Sloan. I'm sorry?
Mr. Meeks. Wells Fargo does their own debt collection?
Mr. Sloan. In some circumstances, that is correct.
Mr. Meeks. And in that case, those that do their own debt
collections are exempt from the protections against harassment
that is in the Fair Debt Collection Practices Act.
Mr. Sloan. That is inconsistent. We follow the laws and
regulations of this country.
Mr. Meeks. But I understand that you, as your bank, since
you don't hire someone from the outside to collect your debt,
you are not subject to the Fair Debt Collection Practices Act,
you are not subject to them. And so, therefore, the harassment
of individuals to get the debt continues on a regular basis.
Mr. Sloan. Harassment has no place in Wells Fargo today.
Mr. Meeks. Well, I am going to refer you to this article on
March 9th. It is in The New York Times. I am running out of
time, so I want to go one other step with you.
You would agree, if you are serious, that the egregious
actions of Wells Fargo violated the Community Reinvestment Act
(CRA). Do you agree?
Mr. Sloan. We have not violated the Community--
Mr. Meeks. Well, you were downgraded by the OCC from
``satisfactory'' to ``unsatisfactory,'' basically. Correct?
Mr. Sloan. The ratings that we received under the lending
investment and service test were outstanding, ``outstanding''
to ``unsatisfactory''--
Mr. Meeks. You went from ``outstanding'' to ``needs
improvement.''
Mr. Sloan. And that was because--
Mr. Meeks. A double downgrade.
Mr. Sloan. That is correct.
Mr. Meeks. Wasn't that appropriate?
Mr. Sloan. Well, I don't believe it was appropriate.
Mr. Meeks. Well, then you don't get it.
Mr. Sloan. No, I--
Mr. Meeks. If you don't believe a double downgrade was
appropriate when you clearly have admitted all of the fines
that you have had, fraudulent account scandals, and you don't
think a double downgrade is appropriate with reference to CRA,
you don't get it then.
Chairwoman Waters. He doesn't get it.
Mr. Luetkemeyer, the gentleman from Missouri, is recognized
for 5 minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
Mr. Sloan, when your predecessor was here previously--and I
want to remind the committee a little bit about history here--
the initial problems that were disclosed and found by the
regulators were actually reported by the Los Angeles Times. And
as a result, the regulators dropped the ball on this whole
situation, and after the fact, ran into your bank and found
some of the stuff that is going on as a result of these news
reports.
The CPPB in particular, even after the other regulators
went in, went in even later than that and found out that there
was some stuff going on and then slapped you with a fine, which
I am not opposing. I think that was appropriate. But my comment
at the time, and I think it is still appropriate, is that the
CPPB, for their inadequate and lousy regulation, should have
been fined, as well.
Because, quite frankly, a lot of the problems that were
here, if it would have been regulated properly, would have been
found at an earlier time, would not have risen to this problem
that it is today and we wouldn't be here if they would have
done their job in trying to provide the right oversight. So it
is unfortunate that we have a mess on both sides here.
But I guess my question today is, I know in your book here
discussing the situation, ``Learning from the Past,
Transforming for the Future,'' you identify some root causes.
And number two is that you had a decentralized business model
that granted too much authority and autonomy to your community
bank, senior management teams, and deferred too much authority
to those individuals, apparently.
I guess that is part of the culture that needed to be
changed. And so I would like for you to describe what you have
done differently, how you have changed the culture? Have you
looked at other banks' business models and changed it according
to them or have you reinvented the wheel and have your own
unique business model at this time?
Mr. Sloan. Congressman, what I have done since I became CEO
is that we moved all of the enterprise control functions--so,
for example, the finance team, the risk team, the human
resources team, the compliance team and so on--that used to be
part of our business lines, we moved them out of the business
units.
S what we get today is a leadership team. What our board
sees is a better check and balance in terms of when there is an
issue that occurs in a business line, we also have a review
from one of the enterprise risk control functions to be able to
provide the right check and balance and to be able to provide
information in a much different way. That is a fundamental
change in our company.
When I look across the industry, many other firms in the
financial services industry have also done similar--have made
similar changes. Every financial institution is structured a
little bit differently. Most of our business is here in the
U.S., so that means we're going to be structured differently
than some of our competitors that might have more of an
international footprint.
But I think that fundamental change is really making a
difference in terms of how we are dealing with issues today and
moving Wells Fargo forward, and it gives me confidence that the
likelihood that there would ever be something like a retail
sales practices issue happening again at Wells Fargo is very
low, if not zero.
Mr. Luetkemeyer. One of the things that I discussed with
your predecessor when he was here was that he was telling us
that he changed the culture. Yet, he kept firing people every
year--about 1,000, 2,000 people every year. And I said at some
point, you are not changing the culture if you keep firing
people, with regards to the retail sales problem that you had.
So I guess, my question at this point is, in order to
change the culture, you have to change not only the management,
but you also have to change the way that employees act and
behave. Have you gone through any sort of educational process
with your lower level people who are delivering these services
and then the management people over them to understand the
relationship they need to have with their customers, how they
need to be selling these products, and what kind of oversight
you need to be putting over these people?
Mr. Sloan. We have. We have done that in a number of ways.
One is changing the incentive compensation plan that I had
mentioned earlier.
But since I became CEO, we have made a number of other
changes. One, we have set out uniform standards to all of our
260,000 team members in terms of how they should interact with
customers, what our expectations are not only in terms of how
they do their jobs every day but also leadership. We have done
the same thing--and it is on one sheet of paper--with all of
our managers.
We have changed the incentive plans across the entire
company and we have retrained hundreds of thousands of team
members in Wells Fargo. We started a new--or introduced a new
ethics training that actually was required by every one of our
team members to be taken by February of this year, and I am
pleased to say that 99.98 percent of our team members have
taken it.
Unfortunately, they have to sit through a 2 minute and 11
second video of me describing it, but they have taken it and I
think that is making a fundamental difference in the culture of
the company.
Mr. Luetkemeyer. Thank you. I yield back.
Chairwoman Waters. The gentleman from Missouri, Mr. Clay,
Chair of our Subcommittee on Housing, Community Development and
Insurance, is recognized for 5 minutes.
Mr. Clay. Thank you, Madam Chairwoman, and thank you, Mr.
Sloan, for being here. Are you aware of the Federal Reserve
restricting the asset growth of any other large bank holding
company under its supervision?
Mr. Sloan. I am not aware of any public consent order that
is similar to ours in which our balance sheet was capped as of
the end of 2017.
Mr. Clay. Okay. And during the October 12, 2018, third
quarter earnings call, you indicated that Wells was planning on
operating under the asset cap through the first part of next
year. Again, in a December 4, 2018, presentation at the Goldman
Sachs Financial Services Conference, you indicated that Wells
was still planning on operating under the asset cap for the
first part of next year.
However, the bank's most recent 10-K, issued on February
27, 2018, states that the company is planning to operate under
the asset cap through the end of 2019. Why did the bank's
assessment of when the Federal Reserve will lift the asset cap
change between December and February?
Mr. Sloan. Because we received some additional feedback
from the Federal Reserve as part of our normal give and take,
and based upon that they indicated, and I want to be very
careful because I don't want to disclose any confidential
supervisory information, but they wanted us to make a little
more progress in terms of our improvement, required
improvements under the order, and based upon that, we believe
it will take us a little bit longer.
We have the same goals and objective as the Federal Reserve
does in terms of improving board governance, which is paragraph
two of that order, and in improving compliance and operation
risk oversight, which is paragraph three. In fact, I want to go
beyond that. One of the goals that I have set for our team is
that we want to have the best risk management in every one of
our risks in the entire industry.
Mr. Clay. Let me ask you about that, the culture at Wells.
Here, in an article yesterday in The Wall Street Journal,
whistleblowers had alleged that financial advisers were pushing
clients into inappropriate products and were shifting client
assets around to generate greater revenue and bonuses. This was
reported yesterday. How do you respond to that? Is the culture
still the same? Have you all learned anything in the past 2\1/
2\ years?
Mr. Sloan. We have learned a lot in the past 2\1/2\ years,
and I think the changes that I have made since I became CEO are
clear in how our team is operating each and every day. The
report that you are referring to was one that our board
investigated by hiring an outside law firm, and in our 10-K
that we just filed, we indicated that that review did not find
any substantive issues in that group.
Mr. Clay. Okay, let me ask you this: Did the OCC previously
force out the bank's Chief Administrative Officer, Hope
Hardison?
Mr. Sloan. I can't comment on whether or not Ms. Hardison
had any sort of interaction with the OCC. It has been reported
that she received a 15-day letter from the OCC.
Mr. Clay. Okay, what about--did the OCC previously force
out the bank's Chief Auditor, David Julian?
Mr. Sloan. Again, I would give you the same answer. Both of
those individuals are on administrative leave.
Mr. Clay. Are you aware that the OCC is considering whether
to force out additional top executives or directors at Wells?
Mr. Sloan. I have had no conversations about that topic
with the OCC.
Mr. Clay. So you are not aware of it? Do you think they are
considering others?
Mr. Sloan. I have had no conversations with the OCC on that
topic.
Mr. Clay. Okay. In your written testimony you state that
fully satisfying the requirements set forth in your regulatory
consent orders is critically important. If this is true, then
why is the OCC considering the unprecedented step of removing
top executives or directors?
Mr. Sloan. Again, we have had no conversations with the OCC
on that topic.
Mr. Clay. You don't think it is coming?
Mr. Sloan. I have had no conversations with the OCC on that
topic.
Mr. Clay. Okay. Well, I yield back, Madam Chairwoman.
Chairwoman Waters. I now recognize Mr. Huizenga.
Mr. Huizenga. Yes, thank you, Madam Chairwoman.
Mr. Sloan, I am going to try and plow a little new ground
here, but I do need to emphasize publically what I said to you
privately, and I think you are hearing echoed here, about the
profound disappointment, anger, and frustration that so many of
us have.
I personally know people who were affected on both ends of
this, on the front end with the account scandal and the things
that were going on, but then also on the remediation side,
where the pendulum has swung back and they have had
difficulties potentially having bank deposit boxes being seized
and other things.
So, this is a management nightmare, but it is a nightmare
for the customers who have been affected by this at every
level. And I guess it would be remiss of me not to say, you
better check out the March 9th article from The New York Times.
It sounded like that was something that you were not familiar
with.
There are a number of very specific allegations, but the
broad allegation in this is that--I have a quote from a teller
in Miami who said that there was ``a disconnect between
corporate and branch officer workers with what is going on.''
And I think you are hearing a repeated theme on culture.
And before I head too far down, I do want to talk about
your bank board makeup a little bit. You had mentioned Betsy
Duke as your new Chair, but prior to that, you have been with
the bank for a number of decades. Were you uncomfortable with
bank actions at the time that these things were going on? Were
you uncomfortable with what the previous administration's
decision-making was?
Mr. Sloan. Congressman, when retail sales--the initial
retail sales practice is concerned, for example, the LA Times
article was brought to my attention, we had a conversation--I
had conversations with the then-head of our community bank and
we also discussed it at our operating committee. The then-head
of our community bank assured us that--
Mr. Huizenga. What were you telling them? Were you telling
them about your concern?
Mr. Sloan. We were asking whether or not the allegations
were correct and whether or not there was a significant
problem. I think the changes that I have made since I have
become CEO are going to prevent a situation like that from
developing again because the head of the community bank said,
``I have this under control,'' but we didn't have the risk and
control--
Mr. Huizenga. Clearly, that wasn't the case.
Mr. Sloan. --outside of the community bank at that time.
Mr. Huizenga. Okay. Because I think there is a legitimate
question here. What is the culpability of the entire C-suite in
this? And I understand that you are CEO now, and ultimately the
decision-making stops with you.
Also, it seems to me with a publicly traded company like
this, the culpability of the board, the previous board--I would
like you to address what has happened at the board level to
change this. Because we have a lot of concerns yet about
culture and whether the culture has really changed and whether
you are the right person to change that culture, but also your
job rises and falls on the decisions of the board.
I would like to know more about what that board makeup
looks like to make sure that this is not happening again.
Because clearly, Comptroller of the Currency Otting had said in
October of 2018, that he was not comfortable, I believe is the
quote, not comfortable with Wells Fargo's remediation progress
to date. The Federal Reserve, as was pointed out by my
colleague, in December of 2018 pointed that out, as well. And
you had said in your booklet that there is a clear set of
behavioral expectations and I want to know what those
behavioral expectations are.
Mr. Sloan. Sure, so let's start with the board if that is
okay. When I stepped into this role, we separated the role of
Chairman and the CEO. We have a new Chair of our Board, Betsy
Duke, who is a former Federal Reserve Governor. Since I have
become CEO, we have seven new board members and so more--
Mr. Huizenga. Out of how many?
Mr. Sloan. Pardon me? Out of 13.
Mr. Huizenga. Seven out of 15?
Mr. Sloan. No, no, 13.
Mr. Huizenga. 13?
Mr. Sloan. Yes, so 12 are from outside the company--
Mr. Huizenga. Thirteen.
Mr. Sloan. And I am the only inside board member.
Mr. Huizenga. Okay.
Mr. Sloan. So we have added an impressive new set of Board
members, and we have a very diverse Board: five members of our
Board are women; and four are diverse. They bring an incredible
set of experiences. We went out and looked for Board members
who had the experience in things like cybersecurity, risk,
reputational issues, and operational organizations that we
thought would add value to our Board. And they are doing a
terrific job. In terms of the--
Chairwoman Waters. The gentleman from Georgia, Mr. Scott,
is recognized for 5 minutes.
Mr. Scott. Thank you, Madam Chairwoman. Mr. Sloan, it is
very, very important that we get to the bottom of this. And I
want to ask you a series of questions. First of all, it is true
that Wells Fargo opened up 1,500,000 fake customer accounts,
correct?
Mr. Sloan. We don't know how many accounts were opened up
inappropriately. We believe it could be up to 3.5 million.
Mr. Scott. Well, Mr. Sloan, the fact that you answered that
you don't know gives us an idea of the size of the problem. But
in fact, it has been documented that it was 1.5 million false
accounts. Now, Mr. Sloan, Wells Fargo employees routinely
falsified customers' signatures, is that correct?
Mr. Sloan. No, I wouldn't describe it as routinely
falsified customers' signatures. In certain circumstances, they
did. They violated our code of ethics rules and were dismissed
from the company.
Mr. Scott. All right, Verisign. They did. Thank you. You
were accurate there. And your employees doctored paperwork that
was designed to help them meet anti-money laundering rules,
correct?
Mr. Sloan. In certain circumstances, Congressman.
Mr. Scott. All right. Now let me ask you this, which gets
to the heart of this matter, which is why I am asking this. All
of these grievances, these terrible things that were done, the
fake accounts, the signing of customers' signatures, were done
in the Wells Fargo wholesale banking division, correct? Yes.
And this is what is so important, Mr. Sloan. You were the head
of this department. The wholesale banking division was led at
that time by you, Mr. Sloan.
The whole point of my line of questioning is to say this:
You are the best person to help us solve this problem. So I
want to ask you--The New York Times did an article that I read
on Saturday, and here is what it said. It said in a survey of
more than 27,000 employees in the bank's information technology
department late last year--they did a survey and the top
concern in that survey was hearing from your employees that
they were concerned that they did not have the ability to raise
grievances with managers in whether Wells Fargo conducts its
business today with honesty and integrity.
So, Mr. Sloan, we have to get to the bottom of this. You
are the best person to do it because all of these abuses
happened under your watch as head of that department. Now, you
have done this survey. Let me ask you this: Have you are or any
member of Wells Fargo's Board of Directors reviewed the results
of this survey?
Mr. Sloan. Of the survey that was referred to in that
article?
Mr. Scott. Yes, the 27,000 input--
Mr. Sloan. I have actually reviewed surveys that are much
broader than that for each one of the businesses--
Mr. Scott. No, but in this survey--
Mr. Sloan. And I have looked at that survey, that is
correct.
Mr. Scott. Yes, and what was your determination as a result
of that survey?
Mr. Sloan. My response to that is that was great feedback
to receive from our team. We want to receive feedback like that
in--
Mr. Scott. All right, let me go quickly here before the
chairman--if Wells Fargo developed the culture of compliance as
you are saying, then why are your employees still concerned
about their ability to raise these grievances with managers?
And they are themselves doubtful of the bank's honesty and
integrity?
Mr. Sloan. I don't believe that--
Chairwoman Waters. The gentleman from Wisconsin, Mr. Duffy,
is recognized for 5 minutes.
Mr. Sloan. I don't believe--
Chairwoman Waters. Mr. Sloan?
Mr. Sloan. I'm sorry.
Chairwoman Waters. Your time is up. Mr. Duffy?
Mr. Duffy. Thank you, Madam Chairwoman. Welcome, Mr. Sloan.
You are not denying that Wells Fargo had some problems in the
past with regard to fake bank accounts, are you?
Mr. Sloan. No.
Mr. Duffy. No. And so since that has been exposed, has
Wells Fargo undertaken reforms to fix the problem?
Mr. Sloan. We have.
Mr. Duffy. Is the problem fixed?
Mr. Sloan. It is fixed.
Mr. Duffy. It is? Okay. I am surprised because as you come
in and talk to the Congress, I am shocked that you are not in
an orange suit in a little jail cell testifying today. It
surprises me, because we can look back and say, we had
problems. I was a customer.
When Mr. Stumpf was here, I lit him up, as a customer, that
it was absolutely inappropriate. You have a duty to treat your
customer well, not cheat them. But I am also not here to say
Wells Fargo should be dissolved, because you made some
mistakes. We should give you a chance to mediate, improve, and
move forward.
I am a little bit frustrated looking at the questions you
are getting today where you actually get questions that you
can't even answer. You don't even get to respond to the
questions that are thrown your way.
So, I guess I am a little bit frustrated. As I watch the
big screen, it is scandalous that Wells Fargo made a profit. It
seems like some people want you to give interest-free loans.
And when people don't pay those loans back, there should be no
consequence for it.
Frankly, I don't think they want Wells Fargo to lend. They
want some of our post offices actually to lend, socialized
banking, which I am absolutely opposed to. I want to just--I am
going to get in some questions for you.
But I want to thank you for saying you are going to follow
the law in regard to the Second Amendment. I know you have
people from New York and some from California who don't
appreciate the Second Amendment. But in places in the Midwest
where you do a lot of business, we actually appreciate the
Second Amendment, and the fact that you will lend consistent
with the law where we believe in our Constitutional right to
bear arms.
And so, unlike Citi and unlike Bank of America, I want to
thank you for serving the customers in my community who
actually appreciates the Second Amendment as opposed to I think
when the others come in and you will be here--I think this is
going to be in April. They will probably get some questions on
this side in regard to the Second Amendment.
Can you walk us through the changes that you have made, Mr.
Sloan, how you have improved the bank and how these issues have
been mitigated and remediated?
Mr. Sloan. First, we had to start at the top. We have made
changes at the Board level. We separated the role of the CEO
and the Chair. We have made changes in our leadership team.
If you look at the 10 senior leaders who report to me, the
operating committee of the bank, 5 are new to the company and
they come with incredible experience in their disciplines. Four
are from within the company but are new in their roles, and one
is in the same role.
In addition, we have fundamentally reorganized the company
to create a better set of checks and balances in terms of
creating independent enterprise risk control functions. We have
hired thousands of new risk professionals, and spent billions
of dollars in improving our risk, as well as investing in
technology.
We have also addressed and reinforced to our team, the
260,000 team members who serve our customers every day, we said
you are important. How do we measure that? We make sure that
everyone received at least a minimum of $15 an hour. We did
that, and then we looked at anyone near that same compensation
level, so we increased the wages of 86,000 people by over 10
percent.
We made every one of our team members shareholders to make
sure that their interests were aligned with our shareholders.
And the reason we did that is because when I was out talking in
our branches, in our call centers, in our offices, talking to
our team, I saw a disconnect.
We changed that. We changed incentive plans across the
company so no longer would they incent team members to just
sell a product. It is about providing the right customer
service and advice. That is the number one goal in the six
aspirational goals that I introduced to our team in March of
2017.
We want to be the best in customer service and advice. And
what we are seeing is a positive reaction. We are seeing our
team member voluntary attrition down to its lowest level in 6
years.
Mr. Duffy. Mr. Sloan, I have been a customer of your bank
for over 22 years.
Mr. Sloan. Thank you.
Mr. Duffy. And I would note that I have seen a dramatic
improvement with the service that the bank provides. I want to
thank you for that. I would just make one other note as some of
my--
Mr. Sloan. Would you send me the names of your bankers so I
could acknowledge how they are improving your service?
Mr. Duffy. Absolutely.
Mr. Sloan. I like doing that.
Mr. Duffy. And one other point I want to make is, when you
are getting questions about mediation in regard to letting
people litigate in court, I want to let you know that in regard
to one thing, this is about the trial bar, and I then want to
go to the other side of the aisle from the trial bar, they make
big profits for coming after banks like you. It is about
contributions, it is about a lobby, it is about the trial bar.
It is not about people. It is not about customers; it is about
money.
Chairwoman Waters. The gentleman from Texas, Mr. Green, the
Chair of our Subcommittee on Oversight and Investigations, is
recognized for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman. Thank you again,
Mr. Sloan.
Mr. Sloan, CNN reports that the bank admitted to cheating
up to 3.5 million people and that you created 3.5 million fake
accounts, forcing customers into unneeded auto insurance and
charging mortgage borrowers undue fees. Is it true that this
number may be as high as 3.5 million, Mr. Sloan?
Mr. Sloan. It may be as high as 3.5--
Mr. Green. Thank you. And is it also true that Wells Fargo
has a clawback provision? You understand what clawback is, you
are the CEO.
Mr. Sloan. In terms of executive compensation?
Mr. Green. Yes, long-term--
Mr. Sloan. Yes, that is correct.
Mr. Green. --performance compensation stock.
Mr. Sloan. That is correct. And our Board has enforced that
clawback--
Mr. Green. Is it true that the stock prices of Wells went
up in some part because of the 3.5 million fake accounts?
Mr. Sloan. I don't--
Mr. Green. Well, let's assume that it did. If it did, and
it is true also that 86 percent of your 2017 salary was in
stock, is this true? 86 percent?
Mr. Sloan. Yes, that is correct.
Mr. Green. 86 percent in stock. As a matter of fact, you
made 291 times what the median worker made in 2017, is that
correct?
Mr. Sloan. Yes.
Mr. Green. The median worker made a little bit more than
$60,000, so you made 291 times $60,000-plus dollars, correct?
Mr. Sloan. That is correct.
Mr. Green. Has any portion of your salary been clawed back?
Mr. Sloan. No portion of my salary--
Mr. Green. Excuse me, I must continue. No portion of your
salary has been clawed back. Is it true that you were over this
department where these atrocities manifested themselves?
Mr. Sloan. I am today a CEO, but I wasn't when--
Mr. Green. What were you doing when these atrocities were
taking place?
Mr. Sloan. Well, from 2011 to 2014, I was the Chief
Financial Officer, and then I became the Head of Wholesale
Banking, and then I became the Chief Operating Officer, so
there was a period of time before I become CEO that the
community bank reported to me, and that is the point in time
when I sat down with our head of the community bank and
suggested that she was not the right person to continue--
Mr. Green. She reported to you?
Mr. Sloan. She reported to me for approximately 7 months
and she stopped--
Mr. Green. And she was reporting to you because she was
over this department?
Mr. Sloan. That is correct.
Mr. Green. So, let me just ask you this, does the buck stop
with her, or does the buck stop with you?
Mr. Sloan. Well, the buck stopped with her, and she is no
longer with us--
Mr. Green. Oh, no, no, no. It stopped with her because you
eliminated her. But the question is, where were you? Were you
above her?
Mr. Sloan. So for 7 months--
Mr. Green. Were you above her?
Mr. Sloan. For a short period of time--
Mr. Green. All right, for a short period of time, and for
that short period of time, you took corrective action, is your
point?
Mr. Sloan. That is correct.
Mr. Green. Okay, now, again, you made 86 percent of your
salary in stock. That was in 2017. Prior to that, you made some
portion of your salary in stock, is this true?
Mr. Sloan. Most of my compensation, since I have become an
executive officer has--
Mr. Green. It has been in long-term performance stock,
agreed?
Mr. Sloan. That is correct.
Mr. Green. So before 2017--in 2016, 2015, 2014, how much
has been clawed back?
Mr. Sloan. About $7.5 million.
Mr. Green. How much of this $7.5 million was clawed back at
the time of this dastardly deed of some 3.5 million fake
accounts being opened, how much of it was clawed back at that
time?
Mr. Sloan. It was clawed back, the Board decided to cut the
equity vest that I received for 2016--in 2016 for these
matters.
Mr. Green. 2016?
Mr. Sloan. Yes, that was the way that the entire--
Mr. Green. When did this atrocity start?
Mr. Sloan. Well, in terms of the retail sales practice
issue--
Mr. Green. Yes.
Mr. Sloan. It started before then.
Mr. Green. All right. So you did not receive any clawback
in years other than the one that you called to my attention?
Mr. Sloan. I wasn't responsible for those groups--
Mr. Green. Well, you were a beneficiary. You see, there are
times when responsibility is not the gravamen of the
circumstance. Being the beneficiary brings with it some
liability, as well. You received benefits that you didn't earn
because you inflated the stock. Not you personally, stock
prices were inflated by virtue of 3.5 million accounts. People
invested because of the belief that there were 3.5 million
accounts.
Madam Chairwoman, thank you. I yield back.
Chairwoman Waters. The gentleman from Kentucky, Mr. Barr,
is recognized for 5 minutes.
Mr. Barr. Thank you, Madam Chairwoman. Mr. Sloan, you have
blamed the unauthorized account scandal in part on the
incentive plan that focused on product sales rather than
customer service, is that correct?
Mr. Sloan. That is correct.
Mr. Barr. And Wells Fargo has discontinued that incentive
program, is that correct?
Mr. Sloan. That is correct. When I stepped into the role as
CEO we ended the incentive plan and we introduced a new
incentive plan in January of 2017. The important point is that
incentive plan was not developed the way prior incentive plans
were done. It was done on a team basis among our business, our
legal, our risk, and our human resources group.
Mr. Barr. And that was a big part of the problem as you
diagnosed it?
Mr. Sloan. Oh, absolutely.
Mr. Barr. Let me focus, though, on another issue that you
have testified about, and that is the bank's decentralized
structure, your management structure and the remedial actions
you have taken to change that management structure. Can you
explain how risk and compliance reporting was previously in a
decentralized format?
Mr. Sloan. Yes, the majority of our risk and compliance
team were in each of the business lines. Since I have become
CEO, what we have done is we have centralized the risk and
compliance team, creating a much larger corporate risk and
enterprise group that has I think now almost 10,000 people in
it. And so, that has created a much better check and balance--
Mr. Barr. So is it fair to say that now, after these
changes have been put into place, all of the compliance, all of
the enterprise controls are now reporting directly to the CEO?
Mr. Sloan. They are reporting to the Chief Risk Officer who
reports to me administratively, and then under our structure,
the Chief Risk Officer also reports to the Chair of our risk
committee.
Mr. Barr. Whereas previously during the account scandal,
these compliance officers were reporting independently in
different business lines, is that--
Mr. Sloan. Well, it was actually more complicated than that
and confusing, and that created some of the issues in that the
centralized corporate risk team was very small and most of the
risk professionals were in the lines of business.
Mr. Barr. You have now centralized these enterprise
controls, and on March 1st, it was reported that you hired a
Chief Enterprise Risk Officer to supervise for risk across all
business lines.
Mr. Sloan. That is correct, Mandy Norton.
Mr. Barr. And what is this person's role?
Mr. Sloan. Mandy is responsible for managing all of our
enterprise risk and control function, including compliance.
Mr. Barr. And whom does she report to?
Mr. Sloan. She reports to me.
Mr. Barr. And is this the industry standard?
Mr. Sloan. It is.
Mr. Barr. Okay. But you did not have that structure in
place during the account scandal?
Mr. Sloan. That is correct.
Mr. Barr. So now you have made the reforms to live up to
the industry standard on this new management structure, is that
fair to say?
Mr. Sloan. I would describe this as very consistent with
the industry.
Mr. Barr. Okay. And why did it take more than a year under
the Fed's consent order to permanently fill this new Chief
Enterprise Risk Officer position?
Mr. Sloan. Well, we looked to find the best Chief Risk
Officer that we could, and Mandy agreed to join us. She had a
garden leave with her predecessor and that took some additional
months, but she joined us in the summer of last year. She is
doing a great job, by the way.
Mr. Barr. Obviously, there is more work to be done, because
you are still operating under these consent orders. But you
have obviously discontinued the incentive plan, you have
changed the management structure, and so compliance reporting
is now centralized, now consistent with the industry standard.
It appears to me that none of these issues that contributed to
the account scandal have anything to do with your institution's
size. It has to do with your management structure, your
culture, and obviously this incentive program. Do you agree
with that?
Mr. Sloan. Yes.
Mr. Barr. Okay. So the issue in the institution was not a
matter of size, it was a matter of culture, it was a matter of
having an incentive program that prioritized product sales
rather than customer service, and it had to do with a deficient
management structure, is that fair to say?
Mr. Sloan. That is a fair summary.
Mr. Barr. Okay, thank you. I yield back the balance of my
time.
Chairwoman Waters. The gentleman from Missouri, Mr.
Cleaver, Chair of our Subcommittee on National Security,
International Development and Monetary Policy, is recognized
for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman.
Thank you, Mr. Sloan, for being here. Missouri, the State
from which I come, has an average income of slightly less than
$40,000 a year. And we have, according to the Missouri
Department of Higher Education, about 250,000 students in 2-
year and 4-year universities or schools.
And so my concern is, if Wells Fargo holds one-quarter of
all the student checking accounts, and it ends up that about
half of all fees assessed to children come from Wells Fargo,
what do you think the cause of it is?
I have been here for a long time. I was here when we were
doing the Dodd-Frank Act and the aftermath, and dealing with
the credit card companies and colleges that gave kids a
sandwich and a credit card at enrollment. I think that was
dumb. My son was in college, and anybody who gave him a credit
card was dumb. And my philosophy is, you give them a credit
card, it is the two of you, you had it.
However, I am concerned about what seems to be a disparity
in the number of students who receive, for various reasons,
some kind of an assessment where fees are assessed for a
variety of things, I am sure.
Is there an explanation to that or is that out there in
the--
Mr. Sloan. Congressman, are you referring to our campus
card program?
Mr. Cleaver. No, no, forget that, I should have left my son
out of it. But I am still upset about it, and it is hard for me
to get it out, so I took advantage of this. However, my point
was that Wells Fargo holds one-quarter of all student checking
accounts.
Mr. Sloan. Right.
Mr. Cleaver. But then half of all of the assessments come
from Wells Fargo.
Mr. Sloan. We provide a free student checking account to
students today, and there are some students who, because of the
broad set of products and services that we provide to students
that are generally broader than many of our competitors, some
of those capabilities, some of those choices have a cost to
them. Those are disclosed and students have the option to use
those services or not. And I will promise to leave our my sons
and my daughter out of my answer, too.
Mr. Cleaver. Thank you. I do think we have made some
repairs on that. But I have a little different take on culture
than many people of my background.
I think people corrupt culture. I think we create a picture
of it that culture is something that comes and grabs people but
people create culture and culture is what is developed by
people. So I am wondering what the bank is doing in terms of
bringing in people who possess the skills, the character, the
morality to work in an institution like this? Has the human
resources process been reshaped at the executive hiring level?
What has changed there?
Mr. Sloan. Sure. When we centralized our human resources
group, meaning taking it out of all of our business lines or
enterprise functions, we created a much--and we hired a new
head of human resources from outside the company, David
Galloreese, who also is doing a terrific job.
What he has done is revamped his leadership team and
created a much more standard set of processes in terms of
expectations for team members, which I mentioned earlier,
leadership expectations, management expectations. We have
changed our training in terms of including our code of ethics
training that I mentioned earlier.
So there are significant changes that are going on in our
human resources group to make sure that we hire the right folks
not only at an entry-level, where we hire a very diverse set of
team members, but also at a senior leadership level.
Mr. Cleaver. Thank you.
Chairwoman Waters. The gentleman from Colorado, Mr. Tipton,
is recognized for 5 minutes.
Mr. Tipton. Thank you, Madam Chairwoman.
Mr. Sloan, you just commented to my colleague, Mr. Barr,
that you have changed how the incentive plan works. Obviously,
it was a perverse incentive plan that was driving your
employees to sign up people for programs that they did not want
to have.
The New York Times article, which has been referenced
several times, noted that some of your employees have said you
simply changed the incentive plan. How do we come to a
conclusion on that discrepancy? Have things really changed in
terms of how incentives to be able to drive businesses are not
going to be impacting employees' decisions maybe in terms of
opening new accounts, moving funds for the customers that Wells
Fargo has?
Mr. Sloan. Now that I appreciate that the reference was
from The New York Times article, we disagree with almost every
statement that was made in that New York Times article. That is
patently not true.
The new head of our consumer banking group, Mary Mack, has
fundamentally changed how folks are incented in a retail
banking business. We have a new plan in place. That plan is
overseen not only by the business but by a risk team. It
incents our team to provide customer service and advice, there
is risk oversight, the focus is about growing relationships
over time and it is about working better as a team.
When we survey our team, and we do that every quarter in
terms of getting their feedback as to how--which we hadn't done
historically--they appreciate and like that new incentive plan,
they love it. And they not only say that, that is how they act
in terms of how they think about Wells Fargo because the team
member turnover, which was a significant issue in our retail
bank before the changes that I have made since I have become
CEO have been made, was very high.
Now, it is down to its lowest level that we can remember.
It has gone from the low 30s to the low 20s, which I think is
leading in the industry. Mary and her team have done incredible
work. The statements in The New York Times are just wrong.
Mr. Tipton. I appreciate your comments. You know,
Comptroller of the Currency Joseph Otting had suggested before
Congress that he is uncomfortable with the management of the
bank at Wells Fargo. I know from my experience in small
business that typically it is from the top down is going to
achieve some of the outcomes or some of the impacts that any
business will have.
What education efforts are you making at Wells Fargo for
your managers who oversee the sales and other departments to be
able to implement the changes that you see the bank needing to
make?
Mr. Sloan. We have an extensive team member training
program that applies to everybody in the company, not just
entry-level team members. Generally, even senior leaders
including myself, are required to take anywhere from 10 to 15
different training classes a year.
In addition to that, we have changed the number of layers
that we have by reducing them so that we have our senior
leaders closer to our customers and to our customer-facing team
members. I encourage our team to be out with our customers,
with our customer-facing team members. I love doing that. That
is how I get a lot of the information that I use to manage the
company, by talking to our team, by taking their feedback.
Mr. Tipton. And just to clarify, do you believe that you
have a fiduciary responsibility to your customers, to your
small business clients as well as a bank? Do you have that
fiduciary responsibility?
Mr. Sloan. I have a responsibility to serve our customers
according to the rules and regulations of this country and to
provide them with the best service and advice that we can. And
I take responsibility for that as CEO.
Mr. Tipton. In terms of some of the remediation that you
are trying to do, you have said that you pledge to contact all
110,000 customers who were incorrectly charged with the rate
lock extension fee for a mortgage. How many have you actually
contacted, and how many of them have been made whole?
Mr. Sloan. All of them, and all of them. And when we
contacted them, we gave them two choices. If they felt based on
their experience that they were inappropriately charged for a
rate lock, they would check a box and we would send them a
check. If they felt on their--and it is their own decision--
that they were improperly charged for the rate lock, they would
check the other box. All of those customers have been
remediated.
Mr. Tipton. And how about the 450 servicemembers who were
affected by the illegal car repossessions? How many of them
have been remediated and contacted?
Mr. Sloan. That should have never happened to our
servicemen and women, I feel horrible about that. We have
remediated all of the servicemen and women and we fundamentally
changed our SCRA oversight. We have created an SCRA Center of
Excellence. And the consent order that was introduced by the
OCC has now been lifted on that matter.
Mr. Tipton. Okay. Thank you.
Chairwoman Waters. The gentleman from Colorado, Mr.
Perlmutter, is recognized for 5 minutes.
Mr. Perlmutter. Mr. Sloan, good morning.
Mr. Sloan. Good morning.
Mr. Perlmutter. Thank you for your testimony today. And I
can say, I have been a customer of the bank for 40 years. And
in--
Mr. Sloan. Thank you.
Mr. Perlmutter. --Applewood, Colorado, the people at that
branch have just really been excellent, so I am happy about
that.
I am not happy about the 14 consent decrees or the $14
billion or so of settlements that you have that the bank has
entered into. And I want to ask about a specific area where I
think there is a lot that can be done to continue to remediate
your reputation and your customers' harms, and that is on
guaranteed auto protection, guaranteed asset protection. And
that is the insurance, the add-on insurance that people had to
get to cover the difference between whatever the loan amount
was and a collision or something like that, to cover the bank.
You say you are dedicated to compensating every customer
who suffered harm because of your mistakes. That is your
testimony today.
Mr. Sloan. That is correct.
Mr. Perlmutter. I looked at the settlement that you entered
into with the attorneys general--
Mr. Sloan. Yes.
Mr. Perlmutter. --and in paragraph 22, it says, ``Wells
Fargo has agreed to provide refunds of the unearned portion of
the cost of GAP, guaranteed auto insurance, to auto finance
customers in certain states whose laws impose refund-related
obligations through statutory provisions.'' That is only 11
States.
Mr. Sloan. That is correct.
Mr. Perlmutter. Okay. So for the other 39 States, and the
District of Columbia, and the Territories, what are you doing?
Mr. Sloan. We are not going to be refunding those customers
because that transaction was actually a transaction between the
customer and the auto dealer. We were not involved in the
customer's decision to buy that insurance. In those, it was
originally 9 States and now 11 States, there was a requirement.
And we should have had better operational oversight to ensure
that when the auto loan was paid off, that the GAP refunds were
received by the customer. And those are the customers that we
will be remediating.
Mr. Perlmutter. So if there is a GAP, if there is a refund
due, you are paying it?
Mr. Sloan. That is correct.
Mr. Perlmutter. Okay. And you paid at least that in 11
States to these attorneys general?
Mr. Sloan. No, we are paying it directly to the customer.
Mr. Perlmutter. Paying it directly to the customer. But you
are saying in the other 39 States, that wasn't the case?
Mr. Sloan. That is correct.
Mr. Perlmutter. I understand there is litigation as to this
particular issue in California. And you know, just listening to
your testimony today, I do want to believe that the bank is
looking to correct the wrongs of the past and move forward in a
positive way with its customers in the future.
But as I understand it, in that litigation in California,
which is a class action, you have demanded arbitration so that
each individual person has to bring a claim for $100 or $200
against Wells Fargo. Now, how do you square that with, you are
dedicated to compensating every customer who suffered harm
because of your mistakes?
Mr. Sloan. Congressman, again, the transaction that you are
describing, which is when an auto customer in dealing with a
dealer buys that GAP insurance, is a transaction between the
auto customer and the dealer. In 11 States, our responsibility
was not to impact that decision; our responsibility was to make
sure that when the auto loan was paid off, the dealer paid the
customer back.
Mr. Perlmutter. So you are saying the transaction was
different in those 11 States than in the other 39 States?
Mr. Sloan. No. The transaction was the same. Our
responsibility in those States was different. Had our
responsibility been similar--
Mr. Perlmutter. Okay. Now, we are getting to the real
point. You really, in a kind of magnanimous gesture, have said
you were going to take care of anybody who was harmed.
And here, you say, okay, in 11 States, you have a certain
law, and we are going to treat you differently than the other
39 States and the District of Columbia because we are going to
force you into arbitration. I hope that is not your testimony
today.
Mr. Sloan. What we are doing is my testimony, and,
Congressman, again--
Mr. Perlmutter. So, you are demanding the arbitration?
Mr. Sloan. In California, we are.
Mr. Perlmutter. And what about the other 38 States?
Mr. Sloan. I don't believe we are responsible.
Mr. Perlmutter. You have really been taking some positive
steps, but now you are backing up and saying, you know what, if
you want that $100, sue me individually or demand arbitration.
I yield back.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Williams, is recognized for 5 minutes.
Mr. Williams. Thank you, Madam Chairwoman.
When your predecessor testified before this committee in
2016, I was very concerned. Companies must be held accountable
when they are caught scamming hardworking Americans. It seemed
as if the only answer that he had to the questions from the
members of this committee was, ``I don't know.''
Well, this is unacceptable for the head of one of the
largest financial institutions in the world to have such little
knowledge of how his bank was functioning. And I know that
Wells Fargo is still dealing with regulations, as we talked
about, to try to make up for this massive mistake, and in this
process of fixing, other issues have been found during this
process. And we heard you say today that you have begun to err
on the side of the consumer, well, that is not a new concept,
but I am glad that you are beginning to do that.
With that being said, my colleagues have addressed some of
the issues I was interested in hearing from you about, and I am
glad that you have better answers for us today than simply, ``I
don't know,'' because that is not acceptable from a person in
your position, or his either.
So, let me start off with the first question that I ask
everybody when they come before this committee and the question
is this, are you a capitalist or a socialist?
Mr. Sloan. I would put myself in the capitalist camp.
Mr. Williams. Okay. Thank you for that answer. I would like
to read you a quote from former President Obama, when he was
questioned about breaking up the big banks in a New York Times
interview.
One of the things that he says is, ``I have consistently
tried to remind myself during the course of my presidency that
the economy is not an obstruction. It is not something that you
can just redesign and break up and put back together again
without consequences.'' So, my question to you, sir, is, do you
agree with the sentiment from former President Obama, that
breaking up the biggest banks is unrealistic?
Mr. Sloan. I don't think it makes sense to break up the big
banks, but I also believe that no bank is too-big-to-fail if
they don't operate in an appropriate way.
Mr. Williams. Okay. Wells Fargo and some of your
competitors have been criticized for being too big by members
of this committee. Some individuals across the aisle think that
institutions of your size should be broken up into smaller
entities. If your bank were to be broken up into a government-
mandated size, what would the effect be on innovation,
efficiency, and access to capital for everyday Americans?
Mr. Sloan. I think overall, it would deteriorate. I think
there is a place in this country, and we see that today, for
community banks, for medium-sized banks, and for large banks.
I think the value that larger banks can bring today is that
because of our economies of scale, we can invest billion of
dollars in technology and innovation and services that
sometimes our medium-sized and smaller competitors can't.
A good example of that would be real-time balance alert or
overdraft rewind or control tower. There are a number of
products and services that we have been able to introduce
because of our economies of scale and the $10 billion that we
can spend on technology and innovation each year.
Mr. Williams. Okay. I came to Congress as a small-business
owner, a Main Street guy. I am a car dealer, and I know
firsthand how access to capital works.
Mr. Sloan. I hope you didn't take offense to my comments
about GAP insurance.
Mr. Williams. I know about raising capital, I know about
taking risks and reaping the rewards, and that is crucial for
growing the economy. When some of my colleagues consider making
this drastic intervention in such a large portion of the
economy, it sounds like a step towards socialism to me. And we
don't need to look any further than Venezuela to see how that
would work out.
But also, some of my colleagues on the other side of the
aisle think bank profits are bad, as we have heard today. I
completely disagree, I think profits are great, and I want you
to be profitable, and you are and that is a good thing. With
that being said, I want profits to be invested back in the
community. I want to see Wells Fargo increasing small-business
lending.
I want to see Wells Fargo charitable giving going to
nonprofits and little league teams and putting money back into
the communities they serve. I do not want to see this money
going to attorney's fees and fines that are issued by the
regulators because of your actions. So, my final question is,
can you elaborate on how you are investing your profits back
into the communities all across this country?
Mr. Sloan. Well, first, I am pro-little leagues, I used to
be a little league coach, and we are very focused in Wells
Fargo in reinvesting back in our communities. The way that we
talk about it is, we don't believe we can be successful as a
company unless the communities that we do business in are
successful.
That is why I have set a goal for our company to be the
most generous company in the industry, and if you look at the
results from 2017, we were the second most philanthropic
company in this country. In addition, I have set a new goal for
our team, and that is 2 percent of our after-tax profits are
going to be reinvested through our foundation.
Chairwoman Waters. The gentleman from Illinois, Mr. Foster,
is recognized for 5 minutes.
Mr. Williams. Thank you for your testimony.
Chairwoman Waters. Mr. Williams, if you want to describe
what the other side of the aisle is saying, you need to get it
right. Mr. Foster, you are recognized for 5 minutes.
Mr. Foster. Thank you, Madam Chairwoman.
In your very nice brochure that you provided us with, I
have to say that there are very high production values. You
have a section on promoting diversity and inclusion that
includes a little box indicating that 44 percent of the U.S.
workforce is ethnically and racially diverse, 57 percent is
women and so on, military veterans.
And I was wondering, can you provide either approximately
right now or in detail for the record, what that breakdown
would look like as a function of job classification and salary?
Mr. Sloan. I don't have the details in the front of me in
terms of job classification at the company, but I can tell
you--or I can provide you with an indication of what it looks
like in our leadership team. So, in our current senior
leadership team, over 40 percent are women and over 20 percent
are diverse.
Mr. Foster. Yes, but I would be interested in the range of
job ranks. Because if the bulk of the employees are in sort of
intermediate levels, it would be interesting to see how the
diversity plays out. And do you normally report that sort of
information to any of your regulators?
Mr. Sloan. We do.
Mr. Foster. You do? Okay, so that the regulators at least
have a uniform view of that?
Mr. Sloan. Yes, we report it internally, we report it to
our Board, and we report it to our regulators.
Mr. Foster. All right. So I would be very interested in
seeing--if you can just give us a copy of what you report so
that we can actually understand it, I would appreciate that.
Similarly, you have been talking a lot about how you
changed the compensation of things to hopefully avoid the sort
of problems you have been facing. And can you give us rough
numbers of what fraction of the compensation today is purely
hourly and salary-based? What is based on both sales and
indirect sales, for example, if your unit sold a lot, then
everyone in the unit gets a bonus, what fraction is based on
customer experience or customer satisfaction and what that
metric might be?
Mr. Sloan. Sure. We have a number of different incentive
plans across the company but maybe what I could do is focus on
our retail banking business, which has been the topic of a lot
of the conversation today. So if you look at the changes that
we made in our retail banking business, and you look at that
entire group, which is about 100,000 people--that would also
include phone bankers and phone centers and the like--about 92
percent of their compensation is in the form of salary and the
remainder is in the form of bonuses. About half of that bonus
would be related to risk, and then the other half would be a
mix of customer service and advice--loyalty, customer
experience, things like that.
And then another portion would be related to growing
relationships over time, not selling products.
Mr. Foster. And by risk, you mean risk in the sense of
having your capital position blow up or risk in the--
Mr. Sloan. Oh no, I'm sorry, no--
Mr. Foster. --form of getting caught doing something else?
Mr. Sloan. No, that is where my oversight comes in or that
affects me. In terms of folks in business, it is a risk that
they control. So for example, it would be making sure that they
disclose products and services--
Mr. Foster. So it is the risk of getting--
Mr. Sloan. --that they are responsible for, that is
correct.
Mr. Foster. At the retail banking level. Okay. Well, I
guess that was my main questions here. I yield back the balance
of my time.
Chairwoman Waters. Thank you. The gentleman from Arizona,
Mr. Hill, is recognized for 5 minutes.
Mr. Hill. Arkansas, Madam Chairwoman. Thank you, Madam
Chairwoman. Thank you, Mr. Sloan, for appearing before the
committee today.
I want to start out by just commenting that when your
predecessor was here in 2016, as somebody who has spent my
career on and off for 35 years in the community banking
business, I just want to express to you the same thing I
expressed to your predecessor, which is just severe
disappointment in the disconnect that Mr. Stumpf appeared to
have at the committee. I really agree with my friend, Mr.
Williams, who is a former business guy as well, that that lack
of engagement that he demonstrated was severely disappointing.
And that comes from the fact that in the 1990s, when it
came to Dick Kovacevich and Norwest, that was a company that
all of us in community banking benchmarked against, including
standards of customer service and success. And so, it was
personally disappointing, and then professionally, as well.
When he was here, it was said that 900 Arkansas accounts
were affected. We don't have a big retail presence by Wells
Fargo in Arkansas, but in the materials you sent out before the
committee hearing, it is 60 percent higher, 1,445 accounts. So
it is surprising that it is up that much, and I hope that all
these issues are resolved and that people are treated fairly in
all of these settlements.
I was looking at some comments made by your largest
shareholder, Warren Buffett, and he made a comment about Wells
Fargo. Talking about the long-run earning power of Wells Fargo,
Mr. Buffett said, ``You can't take Wells Fargo's customer base,
it grows quarter by quarter and you make money off of its
customers, and you make money on customers by having a hell of
a spread on assets and not doing anything really dumb. And that
is what Wells Fargo does.''
But when asked as a follow-up, he said a couple of years
later, ``They made one mistake, incentives work, and they came
up with improper incentives that rewarded bad behavior.''
So what I want to talk about is that. You say you have
changed your incentive system which is at the heart of this
issue, whether we are talking about the mortgage bank or the
wealth management group or the consumer bank. What is your use
of independent secret shoppers at all your locations
nationwide? How much money do you spend on it? You have an
independent third party doing that, I presume in addition to
any internal audit things you--tell me about that.
Mr. Sloan. Yes, we do two things in our retail bank to
check how our team is responding to customer needs and desires.
One is we have independently collected customer service and
customer loyalty scores and we do that on a weekly basis--
Mr. Hill. I don't mean to interrupt you but I want to--
Mr. Sloan. We have a mystery shopper--
Mr. Hill. Yes. I want to know about the mystery shopper
program. How often are they in your branches monthly? How big
is that? How much money do you spend on that?
Mr. Sloan. Well, we do have tens of thousands of mystery
shopper visits on an annual basis. I do not know how much we
spend on it, but I know that we have--
Mr. Hill. Is that a big change from prior management?
Mr. Sloan. It is.
Mr. Hill. Like on an order of magnitude of 100 percent
better or 10 percent better--
Mr. Sloan. It didn't exist before, and now it exists.
Mr. Hill. It didn't exist. So you didn't use mystery
shopping as a standard banking practice?
Mr. Sloan. We may have used it from time to time.
Mr. Hill. Periodically.
Mr. Sloan. But not on a consistent basis, and not to the
extent that we do today.
Mr. Hill. Well, that is a major change. I know Mr. Green
has mentioned that before in this committee, and really, I
don't know a bank of any size that doesn't mystery shop its
consumers. And I also was pleased you said that--
Mr. Sloan. By the way, I personally mystery shop at our
branches, too. When I visit one of our branches, I don't let
them know I am coming. And sometimes, I don't dress like this;
I dress like a normal customer. Sometimes they recognize me and
sometimes they don't. It is better when they don't because I
really get an understanding of how our team is interacting with
our customers. I call our phone centers and don't announce--
Mr. Hill. Would you please follow up with me and give me
more description of the scope of your mystery shopping program?
And I will just conclude, Madam Chairwoman, with Mr. Buffett's
testimony before the Congress in 1991, ``If you lose money for
the firm by bad decisions, I will be very understanding. If you
lose reputation for the firm, I will be ruthless.'' I urge you
to be ruthless, Mr. Sloan.
I yield back.
Mr. Sloan. I have had that conversation with Mr. Buffett.
Chairwoman Waters. Thank you, Mr. Hill, and I apologize for
assigning you to the wrong State.
Mr. Hill. I have no interest in Arizona, Madam Chairwoman.
Chairwoman Waters. Thank you. The gentleman from
Washington, Mr. Heck, is recognized for 5 minutes.
Mr. Heck. Thank you, Madam Chairwoman.
Mr. Sloan, thank you for being here today. Others have
already pointed out the most recent CRA exam, the result of
which was, frankly--there's no other way to put it--terrible.
And by my count, there were at least 10 separate consumer
protection violations called out. I would like to mention them.
Violations of the Fair Housing Act and the Equal Credit
Opportunity Act in mortgage lending, violations of the FTC Act
in mortgage lending, violation of the Consumer Financial
Protection Act in the retail banking division, violations of
the Servicemembers Civil Relief Act in the mortgage servicing
division, violations of the Servicemembers Civil Relief Act in
auto lending, violations of the FTC Act in credit cards,
violations of the Consumer Financial Protection Act in student
loans, violations of the Real Estate Settlement Procedures Act
in mortgage lending, violations of the Fair Housing Act in
mortgage lending, violations of the National Housing Act in
mortgage servicing.
In addition, there were two other long-running abuses that
Wells has entered into a consent order for since the report
citing these violations was completed. And those include
violations of the Consumer Financial Protection Act in mortgage
lending, and violations of the Consumer Financial Protection
Act in auto lending.
That constitutes a major consumer protection violation of a
major consumer protection law in nearly every consumer-facing
division of the company.
And in explaining the failing grade that you got on the CRA
exam, the OCC called this, ``an extensive and pervasive pattern
and practice of violations across multiple lines of business
within the bank.'' Some of your large competitors were also
downgraded, sir, on their CRA exams for consumer protection
violations.
But I couldn't find one, not one, with more than three
compared to your twelve. So, if I am understanding correctly
what you have attempted to do to remediate this, was to start
at the top, reorganize by making changes. You mentioned changes
in the Board, changes in the 10 direct reports.
You have created incentive systems, might I just affirm
that what you incentivize, you get more of. And you have
created more of a centralized reporting structure so that
senior management could have eyes on these potential abuses. It
seems to me, however, sir, that you are essentially trained to
have it both ways.
What I mean by that is the very argument that centralizing
this reporting does imply that all those changes at the top may
in and of themselves have been good, but these weren't the
people responsible, because they didn't have eyes on this
activity. So we have to change the reporting system.
And at the end of the day, given the pervasiveness of this,
it seems to me that a couple of things are obvious. Either
there was unbelievable corruption, or unbelievable
incompetence, or both. It is corrupt if people saw it and
didn't do anything about it. It is incompetent if they didn't
know it was going on.
And yet what you have offered today is that the changes
that have been made mostly affected the people who didn't have
eyes on it. So, perhaps that was a structural systemic practice
that needed to be changed now and brought more into line with
industry practices, so good on you for that.
But the fact of the matter is that at a lower level among
your approximately 60 community banking--regional banking
people, for example, not all of whom have been changed by a
long shot, they either knew it and didn't speak up, or didn't
know it and it was their job to know it.
At the end of the day, as well, I guess I would suggest to
you frankly that these structural changes and this evolution of
Wells Fargo isn't what needs to occur. You don't need to
evolve. You need to be reborn. And that rebirth, I respectfully
suggest to you, has to reach into the ranks of those who either
didn't know it and should have, or knew it and were corrupt.
And in either case, a deeper pattern of change among the
people that my esteemed colleague, Mr. Cleaver, suggested to
you, are the ones who bring values and integrity and character
to your culture. I guess I am out of time.
I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you. The gentleman from New York,
Mr. Zeldin, is recognized for 5 minutes.
Mr. Zeldin. Thank you, Madam Chairwoman. Mr. Sloan, I want
to follow up on an exchange you had with Mr. Tipton with
regards to The New York Times story. Is it your position that
nothing in that story is accurate?
Mr. Sloan. Oh, it may be that some of the individual team
members said those things. And I can't say that every one of
our 260,000 team members--
Mr. Zeldin. Thank you.
Mr. Sloan. But I think in terms--
Mr. Zeldin. Okay, I--
Mr. Sloan. We disagree with every one of those.
Mr. Zeldin. Okay. So, let's follow them up in more
specifics. Melissa Canard, she worked for Wells Fargo and she
quit in January.
Mr. Sloan. She may have. I am not familiar with that former
team member.
Mr. Zeldin. The story states--and it has been reported that
Wells Fargo would steer clients toward investments that would
generate recurring fees for the bank, including in a case where
it was not in the client's best interest.
After she quit, Wells Fargo sent a letter to her clients in
her name announcing that she would be teaming with another
Wells Fargo employee to handle their accounts. The letter
stated that Ms. Canard was still at Wells Fargo and that she
endorsed the employee. Is that true?
Mr. Sloan. I am not familiar with that situation.
Mr. Zeldin. Okay, it has been reported that Wells Fargo
spokesmen have confirmed that that has, in fact, happened. Are
you aware of this being a larger problem?
Mr. Sloan. No, I am not. And we have looked at that issue
as part in separate from that situation very closely.
Mr. Zeldin. You can assure us that this is a unique
occurrence of a former employee having a letter like this that
sent on behalf of Wells Fargo?
Mr. Sloan. I can assure you that our team who works with
our clients and Wells Fargo advisors and any of our wealth
management or retail banking business that provides investment
products works very hard to follow the rules and regulations
that they are supposed to follow.
Mr. Zeldin. But you can't--
Mr. Sloan. That is the feedback that we have from our risk
teams that oversee that unit.
Mr. Zeldin. Okay, but you can't assure us that there
haven't been other letters like this that have been sent out?
Mr. Sloan. There may have been. I am not aware of any.
Mr. Zeldin. Okay, Mr. Tipton also asked you if you have a
fiduciary duty to your clients. You did not answer ``yes,'' you
gave a different answer. Do you have a fiduciary duty to your
clients?
Mr. Sloan. Well, in certain businesses--fiduciary is a
legal term. In certain businesses, there is a fiduciary
requirement, for example in some of our wealth businesses and
our Wells Fargo's financial advisor business.
In other businesses, there is not a fiduciary standard. And
in those businesses, we use a standard of doing the right thing
for our customers, and making sure we are providing them with
the right services and products.
Mr. Zeldin. Thank you for adding additional context to Mr.
Tipton's question. I want to get specifically though into the
situation with veterans. I was actually deployed myself to Iraq
during this window. I am a Wells Fargo customer myself.
Mr. Sloan. Thank you.
Mr. Zeldin. And can you just briefly sum up--not generally,
but briefly sum up specifically what Wells Fargo did to wrong
our veterans?
Mr. Sloan. Sure. We had a system in place that we have
changed since I have become CEO, in which each one of our
business lines was responsible for complying with the SCRA
responsibilities, which we take very seriously. But
unfortunately, we didn't have a standard set of rules and
oversight in places. The changes that we have made, it is that
we have centralized--
Mr. Zeldin. But I am not asking about the changes. What did
you do to wrong the veterans specifically?
Mr. Sloan. In circumstances--
Mr. Zeldin. And really quick. We are short on time.
Mr. Sloan. Yes. In circumstances where we did not know they
had been deployed, we had not given them their full rights
under the SCRA Act.
Mr. Zeldin. Okay. Then I will just sum up that you were
charging servicemembers higher rates on certain loans than were
allowed. You weren't disclosing that servicemembers were on
active-duty status to courts when they were facing eviction
proceedings, repossessing servicemembers' vehicles without
first obtaining a court order. These are some of those
specifics.
I would assume you would say that Wells Fargo knew that it
was doing these things as it was doing them, correct?
Mr. Sloan. I don't think we always knew that, and part of
the reason was we didn't necessarily have updated information
from the Department of Defense.
Mr. Zeldin. Well, I mean, you were repossessing a
servicemember's vehicle without a court order, you didn't know
that you didn't have a court order?
Mr. Sloan. We may not have known at that time that they
were deployed. And so that is why we have created this SCRA
Center of Excellence so that we get up-to-date multiple times a
day updates from the Department of Defense. We then have that
group take a look at it before any sort of action. And it is
done on a very frequent basis. And our defect rate today is
zero.
Mr. Zeldin. And I appreciate you doing what you can to
address this, it is very important. But I am concerned that
your regret was that--
Mr. Sloan. It should have never happened.
Mr. Zeldin. --you got caught, and not that you were doing
it in the first place. There should have been better systems in
place as our veterans were deployed.
I yield back.
Mr. Sloan. I completely agree with you.
Chairwoman Waters. The gentleman from Florida, Mr. Lawson,
is recognized for 5 minutes.
Mr. Lawson. Thank you. And good afternoon, Mr. Sloan.
Mr. Sloan. Good afternoon.
Mr. Lawson. Thanks for coming before this committee. The
chairwoman and the ranking member from the minority party have
really set protocol and I would like to commend you for all of
the questions that you have answered here today.
And walking away from this committee, I would like for you
to just tell me for--we know what the situation is, based on
what we have heard here. What other five or six things that
need to be recapped again that Wells Fargo under your
leadership has done to correct the financial crisis that was
taking place over the last 2 years?
Mr. Sloan. So, first, we have changed the leadership team.
Second, we have changed and reorganized the company. And third,
we have changed our incentive programs, not only in our retail
banking business but we have had a look across the entire
company related to that. So this is still part of number three.
We have created a better check and balance in terms of the
oversight of those incentive plans by our risk and human
resources group.
I think, fourth, we have changed the way the way that we
compensate team members, including raising the minimum wage, as
well as making sure that they had the right benefits and we
have made them all shareholders. And then, fifth, we have
changed the way that we communicate to our team members,
including to encourage them to raise their hand if there is any
concerns that they have that they see that are going about in
the company.
Mr. Lawson. Okay. And thank you. And in reference to, which
I had the opportunity to look at, The New York Times article
and I heard your statement in relation to it, and oftentimes,
it could be considered as fake news, you know, some of the
things that were reported--
Mr. Sloan. I just said it was inaccurate.
Mr. Lawson. Yes, okay. Well, it was inaccurate from your
standpoint.
The other thing I would ask you, which is extremely
important to me because I have a lot of students in my
district, is that the student debt crisis has impacted more
Americans than any other consumer issue. Private lenders have
placed skyrocketing interest rates on student loans, with loan
conditions buried in pages of the legalistic language.
What is your company doing to lower rates in the private
market when it is appropriate and to provide more transparency
in terms of conditions of the loans?
Mr. Sloan. Our student loan business is relatively small.
And we generally do not make a loan to a student unless there
is a co-signer or a guarantor. However, we are working on a
program that we are going to be introducing this year to allow
non-Wells Fargo customers or Wells Fargo customers with other
student loans to consolidate those loans and then receive a
lower rate.
Mr. Lawson. Okay. And one other thing you mentioned is
about the diversity that you have. And you said that a lot of
women have been added to the staff. Has any African American
been involved in that diversity issue?
Mr. Sloan. Yes. I don't have any African Americans who
report to me directly, but if you look at the next level of
leadership in the company, that is about 100 people, there are
a significant number of African Americans, including Bev
Anderson who runs our credit card business, and including Titi
Cole who runs the operations for our retail business.
Mr. Lawson. Okay. Thank you.
And just before my time runs out, you mentioned about the
veterans, I have a large number of veterans--retired veterans
in the Jacksonville area, the largest in the State of Florida.
And you all are continuing to work on that issue in reference
to the problem that they had with the crisis, right?
Mr. Sloan. Correct.
Mr. Lawson. Okay.
With that, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you.
Mr. Davidson, the gentleman from Ohio, is recognized for 5
minutes.
Mr. Davidson. Thank you, Madam Chairwoman.
And thank you, Mr. Sloan, for your presence and clearly
some thorough preparation. I have a question: Do you consider
any crimes to have been committed?
Mr. Sloan. No.
Mr. Davidson. No crimes? So that would explain why no one
has been charged with criminal fraud?
Mr. Sloan. That is correct.
Mr. Davidson. So when tellers from time to time or other
people who are employed--literally hundreds of thousands of
people employed by Wells Fargo commit crimes of theft, whether
that is from Wells Fargo or from Wells Fargo customers, have
any of them ever been charged with theft?
Mr. Sloan. They may have been. To the extent that we find
anyone has violated the code of ethics in a situation like
that, our responsibilities are, one, to fire them, which we do,
and then two, to file a suspicious activity report with the
Federal authorities.
Mr. Davidson. So in fact, there have been prosecutions and
convictions of people who have stolen money from Wells Fargo
and from Wells Fargo clients, in one case, $185,000 from a
homeless man. And so, it is curious to me that as these acts of
fraud were perpetrated that none of them violated a criminal
statute in any of the States.
Mr. Sloan. Again, I misunderstood your initial question as
it relates to individual circumstances like that that may have
occurred.
Mr. Davidson. Okay, right. And so, in this case, aside from
some of these folks no longer working for the company, are you
aware of any ongoing investigations involving criminal conduct
by employees at Wells Fargo in these scandals?
Mr. Sloan. There are a number of investigations that are
going on in terms of, by Federal agencies regarding Wells
Fargo. I can't comment on anything beyond what we have
disclosed in our 10-K and 10-Q.
Mr. Davidson. So as encouraging as it is to hear some of
the progress that has been made with the change of leadership,
with the change in the organizational chart, many changes in
terms of initiatives to try to impact and steer the culture in
a different way, I think for a lot of people, they are going to
feel like justice hasn't really been served, that there really
are two standards, where employees of a big bank like Wells
Fargo who steal in one case are held criminally responsible,
and in another case, where it clearly was designed to meet
performance criteria or to help the firm, well, there is no
accountability.
Maybe they lost their job, maybe they didn't get their
bonus, but there is no one in jail. And customers truly do have
a property right in their credit score, you are reimbursing
them because they have had financial harm and financial impact.
They have had something taken from them and Wells Fargo is
making them whole.
But the person who took it from them is not being
prosecuted. And so, I feel like that is a highlight, not just
for us here, but it is also something that might merit some
attention by States and municipalities around the country. As
you have highlighted, State law is important because you are
handling cases differently with respect to GAP insurance, for
example.
So, I hope we move forward on that. I am encouraged, not
just by the structural changes but by the investments that even
predate this in innovation. So in 2015, Wells Fargo launched an
innovation center, and I wonder if you can tell me, without
divulging company secrets, some of the promising things that
might help with financial technology, better position in Wells
Fargo, but also better protect Wells Fargo customers.
Mr. Sloan. I will give you two examples. One is that in and
around our innovation group, we have developed artificial
intelligence capabilities to be able to scan various
transactions, particularly for small businesses and commercial
customers, to look for anomalies in terms of transactions and
if something doesn't look right, then we will notify the
customer.
On the consumer side, it would be our new Greenhouse
account in relationship, it is an all mobile relationship that
is focused on students and customers that--potential customers
that haven't--the underbank who haven't been able to be
customers, and what that allows them to do is have an all
mobile relationship--
Mr. Davidson. Yes, thank you for that highlight on the all
mobile. And as we look at stable coins, JPMorgan just launched
a token economy, and I perhaps look forward to more information
on that going public if you have one in the offering. My time
has expired and I yield back.
Chairwoman Waters. Thank you. The gentlewoman from
Michigan, Ms. Tlaib, is recognized for 5 minutes.
Ms. Tlaib. Thank you, Madam Chairwoman.
My 13-year-old boy the other day, asked, why say socialism
or capitalism? Why not people-ism? And I thought that was
genius. And in that spirit, Mr. Sloan, I want to address some
of the scams that your bank launched on our people.
You know, so many people are using the words consumer
abuses, scandals, but if you look at the definition of scams,
they are fraudulent acts, intentional fraudulent acts. Only 5
months ago, Mr. Sloan, Wells Fargo reported that an internal
investigation had thus far revealed that it erroneously denied
or did not offer a loan modification to 870 customers due to an
underwriting software error. Are you familiar with that?
Mr. Sloan. I am.
Ms. Tlaib. According to Wells Fargo, your bank, the bank
foreclosed on 545 of these customers based on that error. Who
is held accountable for that?
Mr. Sloan. The issue that occurred, as you described,
Congresswoman--
Ms. Tlaib. No, no, we don't need to know, we know it is an
error, right, Mr. Sloan? You are the boss. How do we--I mean,
these 545 people didn't lose a boat; they lost their home. What
are we doing? What are you doing to help them?
Mr. Sloan. The first thing we have done is we have reached
out to each one of them, we sent them a $15,000 check, which is
2 \1/2\ times the standard that was set in the mortgage
servicing settlement, and then we are asking them to come to
see us and if there was additional harm that was done to them,
we will make it right.
Ms. Tlaib. Mr. Sloan, the additional harm, and I can tell
you this from my district, is to their credit scores, their
consumer report. It is the access now to not only housing and
loans, you know this, but to employment. I have young people
who can't even get into the military--I mean, there are all of
these things that are tied to it. Car insurance, everything is
tied to consumer reports.
How do you address that? Those are things that are really
important and I just want to mention that. I have other
questions that are really important.
Mr. Sloan. So, if I could answer that question--
Ms. Tlaib. Yes. Go ahead--
Mr. Sloan. --because I think it is a very important one,
and that is why we are working very closely in terms of
remediating those customers. So we have sent those customers a
check for $15,000, which is I mentioned is 2 \1/2\ times the
standard that was set in the mortgage servicing center.
Ms. Tlaib. I think the credit bureau needs to know it was
your mistake, as well.
Mr. Sloan. And then what we are also doing is ask them to
come in and see us and tell us what additional harm, if any, we
caused.
Ms. Tlaib. But Mr. Sloan, they might not know what those
additional harms are. I just want you to know.
Mr. Sloan. We have centralized the team that is interacting
with those customers, that has experience in dealing with the
issues that you just described, because I agree, there could
have been additional hardship that could have affected credit
scores and we are making--
Ms. Tlaib. No offense, I know this is an internal
investigation that you did, but I doubt it is only 545.
Now, Mr. Sloan, last week the Michigan attorney general,
our attorney general, Dana Nessel, announced that debt
collection was one of the top consumer complaints that her
office received in 2018 so far. Neither half of the complaints
were for credit reporting and debt collection. In that context,
if Wells Fargo's debt collectors are required required to place
375 calls per day, how can those consumers expect to receive a
good experience, but also enough time to help solve their
problem?
Mr. Sloan. I can't confirm that we have a minimum standard
of 375 a day--
Ms. Tlaib. Yes, it is a quota. Okay. I would love to
follow--if he can follow up and find out if that is accurate,
that you have some sort of quota--
Mr. Sloan. We have expectations for everybody at Wells
Fargo.
Ms. Tlaib. No, no, no--I think--is it within--Madam,
Chairwoman, I know I am--
Chairwoman Waters. You still have additional time.
Ms. Tlaib. Yes. I know I am new here. But, Madam
Chairwoman, if later on, I am pretty sure, Mr. Sloan, you will
have a certain period of time to answer that question in
writing, so go back, talk to your team, and I would love the
answer to that.
Really quickly, there have been a number of claims as a
person who is a civil rights attorney in Detroit, I can tell
you one of the things that claims of targeting black and Latino
communities, and a number of lawsuits, not only in California,
and Madam Chairwoman's State, as well as in Philadelphia and
others, some of the things were really disturbing.
A former Wells Fargo employee said that they were
instructed to offer lender credits to borrowers in minority
neighborhoods. Another Wells Fargo loan officer said they were
likely to charge, and this was intentional, a higher rate to
borrowers with Mexican names. Was that some sort of internal
memo that was going around saying, if somebody is black or
Latino, this is how you approach them, with higher rates and
higher--
Mr. Sloan. None of that is true.
Ms. Tlaib. Okay.
Mr. Sloan. And no institution in this country has done more
for diverse communities than Wells Fargo.
Ms. Tlaib. Yes.
Mr. Sloan. We have a $185 billion commitment to Hispanic
and--
Ms. Tlaib. Yes, I saw that. And just--I know, Mr. Sloan,
but the data is there. And I don't think these Wells Fargo
employees are--but lastly, Madam Chairwoman, I would like--and
I don't have time--to insert in the record this study that
reveals the way racial discrimination is embedded within the
structure of mortgage lending.
Chairwoman Waters. Without objection, it is so ordered.
Ms. Tlaib. Thank you so much, Madam Chairwoman.
Chairwoman Waters. The gentleman from North Carolina, Mr.
Budd, is recognized for 5 minutes.
Mr. Budd. Thank you, Madam Chairwoman.
And thank you, Mr. Sloan, for joining us, for your time
here today. Look, I think you know better than anyone that
mistakes were made and you have sought to remedy them. You have
acknowledged that and you have owned up to that, and I commend
you for that.
You have also said that these mistakes require fundamental
and structural changes at your bank. And I know that you have
been committed to this in your tenure as a CEO. But in that
vein, can you highlight for this committee the most--and this
is really a question of priority--important changes, in your
view, that have been made at Wells under your leadership?
Maybe that is something you have not been able to highlight
yet. But what changes have you made and how will those changes
prevent these problems from recurring?
Mr. Sloan. I think the fundamental change of centralizing
our enterprise risk and control functions is probably the most
important change that we have made from an enterprise
standpoint because what it does, regardless of leadership, is
create an appropriate check and balance in terms of ensuring
that we are providing the right products and services to our
customers and managing our risks in an appropriate way, check
and balance between those frontline team members across the
company who are making those decisions each day, and then
having the oversight to make sure that they are following all
of our policies and procedures.
And then as part of that, the way that information and data
is being shared today is completely different. We connect data
in a different way to spot problems across the entire company.
And that is fundamental to the changes that we have made since
I became CEO.
Mr. Budd. You addressed some of those problem-spotting
advances that you have made with Mr. Davidson's questions. But
I want to go back to some of the small business--as most folks
know, you are one of the largest lenders for small businesses
in the United States.
Mr. Sloan. That is correct.
Mr. Budd. The protection of growth of small businesses is
one of our top priorities, as Republicans on this committee,
and also for Ranking Member McHenry. Can you tell this
committee what infrastructure and controls are in place to
protect these small business clients?
Mr. Sloan. Sure. The small business group and business
banking group were moved out of our retail banking business and
moved into our wholesale business. So there is a different team
of folks who lead those businesses today.
In addition, the oversight for those--or the check and
balance in terms of enterprise control functions is outside of
the business line. So that the changes that I talked about that
are enterprise-wide also apply to a small business lending,
both in terms of our obligations under following the SBA rules
and regulations as well as non-SBA type of small business
lending.
Mr. Budd. So what additionally would you say in regards to
small businesses? You addressed it a little bit, but to make
sure they are being treated fairly. I mean, these people are
coming out and they are operating no longer as an individual,
but now as an entity in small businesses. So how are you making
sure that they are treated fairly?
Mr. Sloan. Well, we are making sure that we have the same
checks and balances in place for those customers that we do for
customers outside small business.
Mr. Budd. Very good. I know it has been a tough day, and it
is probably even tougher knowing that you are talking to an App
State grad and that you went to Michigan, but I appreciate your
time today.
And Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from California, Ms. Porter, is recognized
for 5 minutes.
Ms. Porter. Mr. Sloan, thank you for your patience during
this hearing.
In November 2016, you said, ``I am fully committed to
taking the necessary steps to restore our customers' trust.''
You also said on a call in January 2017, ``We have already made
progress in restoring customers' trust and we have remained
committed to being transparent with investors.'' In your 2017
proxy statement to investors, you said, ``Restoring your trust
and the trust of all key stakeholders is our top priority.''
Those statements, to me, are pretty vague. They sound like
they might be obscure, empty promises. Do those statements
really mean something to you, Mr. Sloan?
Mr. Sloan. They do.
Ms. Porter. Why should we have confidence in those
promises, in those statements you have made?
Mr. Sloan. Well, when you look at the changes that I have
made since I have become CEO, you see that team members are
much more excited about working at Wells Fargo. They like what
they do. Team member voluntary turnover is down to its lowest
level in 6 years. The feedback we get from our team in terms of
the changes that we have made is positive.
We still have more work to do, I don't mean to suggest that
we are done. I don't think we should ever be done. Likewise,
our customers are feeling the same way.
Ms. Porter. Okay. So it is safe to say that the statements
you have made mean something to you and that customers and
investors can rely on those statements?
Mr. Sloan. That is correct.
Ms. Porter. Okay. Then why--Mr. Sloan, if you don't mind my
asking--are your lawyers in Federal court arguing that those
exact statements that I read are ``paradigmatic examples of
non-actionable corporate puffery on which no reasonable
investor could rely?''
Mr. Sloan. I don't know why our lawyers are arguing that.
You asked me a direct question in terms of, do I believe in the
statements that I have made--
Ms. Porter. Well, I understand that is convenient--
Mr. Sloan. --and the answer was absolutely correct.
Ms. Porter. Mr. Sloan, you are a personally named defendant
in Purple Mountain Trust v. Wells Fargo and Timothy J. Sloan.
Are you lying to a Federal judge or are you lying to me and
this Congress right now about whether we can rely on those
statements?
Mr. Sloan. Neither.
Ms Porter. It is convenient for your lawyers to deflect
blame in court and say that your rebranding campaign can be
ignored as hyperbolic marketing. But then, you come to
Congress, and you want us to take you at your word. And I think
that is the disconnect, that is why the American public is
having trouble trusting Wells Fargo.
Mr. Sloan, I also want to ask you about--when we met, you
said that Wells Fargo is taking an ``expansive view of
remediating its customers who have been harmed.'' Why then are
you fighting tooth and nail in Federal court to avoid returning
about $350 to each of 50 auto loan customers in Southern
California? And the money I am talking about, to be clear, is
loans these customers paid off early, meaning they are now
entitled to a partial refund of their GAP insurance.
Mr. Sloan. Because it is not our responsibility to ensure
that customers receive those refunds from the dealers who
receive that money. It never went through Wells Fargo.
Ms. Porter. Your salespeople sold them that GAP insurance.
It was part of the transaction when those customers took out
the automobile loans.
Mr. Sloan. That is incorrect. The transaction occurred
between the auto dealer and the customer. Wells Fargo was not
involved. We never sold GAP insurance.
Ms. Porter. You never sold GAP insurance. Do you profit
from the sale of GAP insurance?
Mr. Sloan. No.
Ms. Porter. Okay. Because the situation that I am
understanding for these customers, is that they are being told
that if they want a refund of their own money to which they are
entitled because they paid off their loans early, they have to
write a formal letter and mail it to American Heritage
Insurance servicers. Why is this money just not being
automatically refunded?
Mr. Sloan. Because it would--in that circumstance, and I
will take that circumstance as being correct, Wells Fargo did
not receive that money. That is a transaction between the
customer, the auto buyer, the dealer, and the GAP insurance
company.
Ms. Porter. So, the GAP insurer would be the one who should
be doing these refunds in your view?
Mr. Sloan. That is correct.
Ms. Porter. Okay. My last question relates to what Ms.
Tlaib, my colleague, was asking you about. As you know, I was
very involved with the national mortgage settlement--I was the
California monitor for the settlement. In your brochure, you
said that attempts to contact the remaining affected customers
are ongoing. This is the 870 people that you failed to give a
modification to and the 545 that you wrongly foreclosed on. I
think this means there are more problems there. Is that
correct?
Mr. Sloan. We don't believe so. What we have done in that
circumstance is we have asked our audit team to review the
internal review that the business and the independent risk
function did. And we don't believe that is the case.
Ms. Porter. Okay.
Chairwoman Waters. The gentleman from Tennessee, Mr.
Kustoff, is recognized for 5 minutes.
Mr. Kustoff. Thank you, Madam Chairwoman. And I appreciate
Chairwoman Waters scheduling this very important hearing today.
Mr. Sloan, I appreciate you appearing today.
You have answered a lot of questions, frankly, a lot of
tough questions about the problems that have existed at Wells
Fargo that have led to several cases, a number of cases being
brought against the company by Federal regulators as well by
affected customers.
For the record, I want to state that I clearly believe it
is critical to our entire financial system that Wells Fargo
continue to do everything that it possibly can to identify the
customers affected, to compensate them accordingly, and most
importantly to make sure that this never happens again.
I also think it is very important that Wells Fargo continue
to cooperate with Federal regulators and with Federal
authorities. And I think it is your testimony today that you
are doing that.
Given the number of scandals and admissions by Wells Fargo
that there are customers who have been affected that you can't
identify, what are you doing? What is Wells Fargo doing in
order to try to identify these people who when their accounts
when opened by your employees, they have been opened with
incorrect and frankly fraudulent contact information?
Mr. Sloan. So for example on the retail sales practices
matter, when we contacted over 40 million customers through 264
million different interactions, we sent them all their accounts
and said, let us know if any one of those accounts was opened
inappropriately. And if that is the case, then we will make it
right by you.
And we have had multiple interactions with those customers.
And so, we have done our best to try to ensure that any
customer who feels that an account was opened inappropriately,
that we make it right by them.
Mr. Kustoff. Some of these customers may find out on their
credit reports obviously, that accounts have been opened
without their authorization. Their credit history therefore
would have been impacted.
I have two simple questions that, frankly, require simple
answers. Is Wells Fargo working with these customers to help
repair their credit scores?
Mr. Sloan. Oh, absolutely. What we found--and generally
when we opened up a deposit account, we didn't run a credit
check. The instances that we were most concerned about would be
in a situation where there was a credit card that was opened up
inappropriately.
And in those circumstances, about--and 40 percent of the
time when we did a credit pull there was no impact on the
credit score, in the other--in roughly half, the credit score
actually went up. What we are concerned about are the
situations in which the credit score went down.
Where it went down, it generally went down between four and
nine points. That is a range that can have a bigger impact on
some people because it generally impacted customers with higher
credit scores more than customers with lower credit scores.
But we are asking any of those customers to come in to see
us so that if there was any impact, that we would make it right
by them. In addition, those customers can also take part in the
class action settlement.
Mr. Kustoff. Right. Let me ask it another way, because as
you know, dealing with credit bureaus is not easy for the
consumer. Is Wells Fargo working with the credit bureaus to try
to help those customers?
Mr. Sloan. Oh, yes. In any situation in which we found that
by our error, we provided inaccurate information to the credit
bureaus, we are correcting that information.
And again, we are asking our customers to contact us if
they believe that is not correct. We believe that once we do
that, it is correct. And to ensure that if there is any impact.
Mr. Kustoff. On your website, on the frequently asked
questions portion of your website, you acknowledge about the
consent order being in effect, that you are aiming to meet the
requirements of the consent order by 2019. We are now in March
of 2019. Have you had conversations with the Fed or any other
Federal regulator about lifting the consent order or consent
orders?
Mr. Sloan. We have a very constructive relationship with
all of our regulators. And by the way, I don't think I have
said enough today that the feedback that we have received from
our regulators on all of these issues has been very helpful in
terms of us making progress and improving risk operational
oversight customer compliance across the board, every
regulator, the Fed, the OCC, the CFPB and so on. But in terms
of our--
Chairwoman Waters. Time has expired--
Mr. Kustoff. I yield back my time.
Chairwoman Waters. The gentlelady from Iowa, Mrs. Axne, is
recognized for 5 minutes.
Mrs. Axne. Thank you, Madam Chairwoman. And thank you, Mr.
Sloan, for being here, I appreciate it. I value the employers
in my district. And as I know you are aware, Wells Fargo
employs almost 15,000 Iowans in my district.
But when The New York Times quotes Mark Willie, one of
those Des Moines employees who graciously is here today, saying
that there is an overwhelming sense of frustration, I will take
notice.
That article describes that in Des Moines, workers are
expected to handle 33 calls an hour and recoup $40,000 per
month. So, let me clarify that, that is 1.8 minutes per call.
Can you confirm that you use these targets to evaluate your
debt collection employees?
Mr. Sloan. I am not familiar with those specific targets,
Congresswoman.
Mrs. Axne. Well, I am told you use a four point scale, and
that completing a call every 1.8 minutes only gets you a three,
so it doesn't even get you to the top of that scale. Can you
confirm that Wells Fargo has terminated employees for not
meeting these targets?
Mr. Sloan. I am not aware of that, no.
Mrs. Axne. Well, I spoke to an employee who said that
people--
Mr. Sloan. I am not saying that we didn't. I am just saying
I am not aware of terminating any team members related to that
incentive plan.
Mrs. Axne. Thank you. I spoke to an employee who said that
people have been fired for not reaching these goals, and I want
to add that hitting these goals is far more based on random
luck of who picks up the phone than anything that they can
control.
I actually spoke to one of your account retention
specialists and he described a system where if he fell below 90
percent of his target in any key performance indicator, then he
would receive an informal warning. If he fell below an A,
essentially, he would receive an informal warning. If that
persisted for 3 more months, then he would get a formal warning
and then be reviewed for termination.
This sounds to me like those cash bonuses that were used
for hitting targets previously, that caused all of these issues
at Wells Fargo, are now being switched out for an incentive
just to keep people's jobs, and I would argue that is even
worse.
My entire career has been focused on organizational
development and helping people perform better so organizations
reach their goals, and when I hear that people are afraid to
use your ethics line because of fear of retaliation, I fail to
see how you have changed your culture.
Mr. Sloan. Congresswoman, retaliation has no place in Wells
Fargo today. We have fundamentally reorganized our ethics line
since I have become CEO. I brought in an independent third
party to look at our ethics line in conjunction with our human
resources and risk team. All of the calls that go to our ethics
line go first to an outside third party.
Mrs. Axne. I appreciate that, thank you. Reclaiming my
time. I appreciate that. Certainly, we know that people have
said they don't feel comfortable in doing that because they
have actually seen the retaliation, but moving on.
In September 2018, Wells Fargo announced it planned to
reduce its workforce by laying off as many as 26,000 workers,
and then in November of 2018, Wells announced it was laying off
1,000 employees, and 400 of those were in Des Moines, is that
correct?
Mr. Sloan. We never announced that we were going to lay off
up to 26,000 employees. What is said at a town hall where I--
Mrs. Axne. Did you lay off 400 employees in Des Moines?
Mr. Sloan. I was just referring to the first part of your
question.
Mrs. Axne. I appreciate that. But--
Mr. Sloan. And that is not an accurate statement.
Mrs. Axne. Okay.
Mr. Sloan. Generally, what I said was that that over the
next 3 years, we expect our total employment to reduce by
between 5 and 10 percent.
Mrs. Axne. Thank you.
Mr. Sloan. And most of that is--
Mrs. Axne. I appreciate that, but I am concerned about the
people in my district. Were 400 of those people in Des Moines?
Mr. Sloan. Four hundred folks were displaced in Des Moines.
And--
Mrs. Axne. And what was the reason for that layoff in Des
Moines?
Mr. Sloan. It depended upon their job. Some of those folks
were displaced because of the fact that the amount of servicing
demand that we had in the mortgage servicing business had
declined. There were other reasons. Somewhere between--
Mrs. Axne. I have a signed affidavit here saying that an
employee in Des Moines was told her job was being moved to
India, and that employees in that area have gone to India to
train those replacements.
And then, I have also heard from employees who are using
your virtual classrooms for that same purpose, to train people
in other countries. Are these most recent layoffs really just
you moving jobs overseas?
Mr. Sloan. No, that is incorrect.
Mrs. Axne. Okay, well, you have added more than 10,000
employees between India and the Philippines in the last 5
years, and I know you are building a new facility in the
Philippines for another 7,000 employees, I believe. Can we
expect that more of your planned layoffs are just going to be
jobs moved overseas?
Mr. Sloan. No, I don't think that is going to be the case.
We have 20,000 job openings in Wells Fargo today. Ninety
percent of those are here in the U.S., probably more than that.
We hire between 40,000 and 50,000--
Mrs. Axne. I appreciate that. I fail to understand, though,
how we are laying people off in this country and building jobs
overseas. Thank you.
Chairwoman Waters. Thank you. The gentleman from Wisconsin,
Mr. Steil, is recognized for 5 minutes.
Mr. Steil. Thank you. I want to start by thanking
Chairwoman Waters for calling today's hearing. I think it is
important that we understand what went wrong at Wells Fargo and
ensure that the meaningful remedial actions have been taken.
We have heard a lot of discussion today about the bank
scandal and I think Members on both sides of the aisle are
committed to holding Wells Fargo accountable and preventing
future abuses. I also recognize that we are having a valuable
discussion today about the role that big banks play in our
financial system.
Mr. Sloan, according to the figures your company has
released over the past few years, a significant number of
Wisconsinites have been harmed by Wells Fargo's practices.
Almost 9,000 customers have been impacted by unauthorized
accounts, 9,500 were harmed with the auto insurance scandal,
and the bank's mortgage rate lock scheme affected over 900
people.
My concern is that the reputational damages that have
occurred to Wells Fargo are bleeding over into other banks that
are by and large acting and abiding in a legal and ethical
manner.
And so, I am looking at this reputational damage and I am
nervous that we are going to walk away with a view that having
a strong, healthy financial services in our country is
important.
And so, I hope that we can come away from this hearing with
an understanding that in order to have a healthy, vibrant
economy that provides opportunities for all Americans, we need
to have a financial services sector that includes big and small
institutions and operates with customers in mind.
I would like to dig down--we have heard today a little bit
about the size of the operation. Do you think the size of the
bank caused the problems? Or was it an issue with the culture
and incentives that were in place at Wells Fargo?
Mr. Sloan. I think it was driven by our organizational
structure, some of our incentive plans, and leadership.
Mr. Steil. So, it's fair to say that you don't think it was
too-big-to-manage?
Mr. Sloan. No, I don't.
Mr. Steil. I would like to jump over--you mentioned that
you now have a starting wage at $15 an hour.
Mr. Sloan. That is correct.
Mr. Steil. Is that because you felt that you needed to
bring in people of high quality, high talent, to come in and
alter some of the problems that were existing before?
Mr. Sloan. Well, I think our team before we changed our
minimum wage was high quality and was doing a good job in
meeting their customer needs. What I was concerned about is
that the turnover at many of those entry level roles was too
high, and so what that could create would be an inconsistent
experience with our customers.
So, while the expense of increasing our minimum wage was
high initially, I thought it was the right long-term decision
in terms of reducing our turnover, and that is exactly what we
have seen.
And that has created a better experience because our
customer experience and loyalty scores in those areas that were
most impacted by the increase in the minimum wage have actually
gone up. So, I think it was the right decision to make.
Mr. Steil. I am supportive of driving up those wages caused
by market forces, that is how you are recruiting individuals to
come into the bank, not by socialism or ``people-ism,'' but by
a free market approach that is moving wages up and then
ultimately improving the customer experience at Wells Fargo?
Let me shift slightly and go over to the oversight role.
Your Chief Enterprise Risk Officer is now a direct report to
you?
Mr. Sloan. That is correct, Mandy Norton.
Mr. Steil. And that has been an effective way--that
conversations continue ongoing between you and your Chief
Compliance Officer?
Mr. Sloan. Oh, absolutely, I interact with Mandy every day,
and we talk about a variety of things. In fact, one of the
changes that we have made since Mandy has joined the company is
that we have a new Enterprise Risk and Control Oversight
Committee that she and I both Chair.
We hold that meeting on a monthly basis. Those meetings are
ways--and we have that kind of structure in each one of our
business lines, and enterprise control functions, that is where
key risks in the company are determined and discussed. And
those meetings have been very helpful. Anything that comes out
of those meetings is then escalated to our Board and our Board
risk committee.
Mr. Steil. I appreciate that, thank you for your time. I
yield back the balance of my time.
Chairwoman Waters. Thank you. The gentleman from Illinois,
Mr. Casten, is recognized for 5 minutes.
Mr. Casten. Thank you, Madam Chairwoman. Thank you, Mr.
Sloan, for coming here today.
I have some math questions, and these are I think
straightforward, but I am scratching my head. If I am following
the math right, last year you had about $3.5 billion in fines.
Mr. Sloan. I'm sorry, can you repeat that?
Mr. Casten. You had about $3.5 billion in fines last year,
if I add up the two point one, and the one, and some of the
smaller ones just looking at the handouts we have here.
Mr. Sloan. I think because that included the settlement of
the RMBS matter from about a decade ago, that is correct.
Mr. Casten. Okay. Now, the tax cut last year saved you
about the same amount. If I look at the falling tax rate, from
an after-tax earnings perspective, it was about a wash for you.
Mr. Sloan. No, I wouldn't--I would say it is a bit less
than that. But it was--but there is no question that Wells
Fargo--
Mr. Casten. Squint your eyes, it was pretty close.
Mr. Sloan. On the reduction in the tax rate, that is
correct.
Mr. Casten. And certainly if I look at your share price,
assuming constant earnings multiples, your share price today is
about where it was in 2017, so the market seems to have said,
plus one, minus another, you are about even. The first question
is, given that a lot of your senior executives, your
compensation is tied to share price in some fashion, is that
about a wash for you personally, for the senior leadership
team?
Mr. Sloan. I'm sorry, I am not following in terms of wash--
Mr. Casten. You are down $3.5 billion worth of fines, you
are up $3.4 billion dollars in terms of avoided tax revenue, so
your earnings are about constant. Your price earnings ratio
looks to be about constant because your share price is about
where it was in 2017.
Mr. Sloan. That is correct, but I would say there were a
number of other variables that had an impact in terms of our
results.
Mr. Casten. Okay, so here is where I start to answer my
question. If this was a one-time event, you would say that
market shouldn't factor it in. You know, in actual fact, 2018
wasn't an anomaly, you had $1.4 billion in penalties in 2016,
$3.4 billion in 2013, and if I assumed the market is
discounting that back, that is like your 11 price earnings
ratio where you are, 15, you have been at a high. That is like
17 percent to 25 percent of your market cap that has taken a
hit on these funds.
And I am scratching my head at how your investors possibly
tolerate that. When I got my--I was a CEO of an energy company
for a long time and one of my Board members was fond of telling
the three envelopes joke that you may have heard, that when you
come in as a new CEO, the old CEO says, here are three
envelopes, if you hit a problem, open them in order. First one
says blame the last CEO, works great. Hits a second problem,
opens the second envelope, blame the last CEO, works great.
Hits a third problem, opens a third envelope, and it says
prepare three envelopes.
Mr. Sloan. I only got one when I became CEO. And that was
to fix problems that existed at the company, and I think the
changes that I have made since I have become CEO, some of which
have been easy, some of which have been hard, are the changes
that are needed to satisfy our shareholders.
Mr. Casten. Okay.
Mr. Sloan. Our shareholders are generally longer-term
shareholders and they see the future of Wells Fargo.
Mr. Casten. So one would hope, but here is the problem, in
2016 you guys laid off 53,000 employees, that was supposed to
address the prior change and it was structured for a lot of the
reasons that you described today. A year later, you got a
record-breaking fine.
You have talked a lot about the compensation changes among
tellers and among junior staff. If those changes in the past
haven't made a difference, what are the incentives at the
senior level, and particularly what if anything has been done
to the basis of short-term cash compensation in the C-Suite,
and in clearly, if your equity price is basically flat after
all these fines, how much do you really care if you are getting
a bunch of equity compensation, because it would seem to me
that the markets are kind of writing this one off?
Mr. Sloan. We care about it a lot because most of the
compensation for senior leaders at Wells Fargo, including me,
is in the form of long-term equity performance. That
performance--the vesting of those shares is based upon our
relative performance and our return on equity measure, the
total shareholder return measure, which would address the issue
that you just described, as well as the achievement of certain
risk requirements that have been set by us. So there is a
multitude of reasons in which we would--that equity would
ultimately vest in the dollar amount--
Mr. Casten. But you still have a one-way hedge, right? If I
am sitting there and saying your share price is 25 percent
lower--
Mr. Sloan. No, because it could go down to zero.
Mr. Casten. Your share price is 25 percent lower than it
would be if your earnings were $3.5 billion higher.
Mr. Sloan. No, because--I'm sorry, I don't mean to
interrupt, but the way that the return on equity measure would
work is if we don't achieve certain hurdles relative to our
peers then the equity vesting actually can be less than what
the original grant would be.
Mr. Casten. But in another case, you are getting equity. If
I was an owner of Wells Fargo stock, I would be much more
scrupulous than it appears your owners have been. I yield back
my time.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Gooden, is recognized for 5 minutes.
Mr. Gooden. Thank you, Madam Chairwoman, and thank you, Mr.
Sloan. Would you explain to me the forced collateral protection
insurance issue, what happened, what that is, where it went
wrong?
Mr. Sloan. Yes. So, we had a business and have a business
that makes auto loans. And frequently when we make an auto
loan, we buy it from a dealer. When a customer takes out an
auto loan they are responsible for having some level of
insurance in place to protect the underlying collateral of the
vehicle.
There is nothing wrong with that, that is very standard
anytime somebody buys a car and takes out an auto loan--where
we made a mistake was our operational oversight of what would
happen if, for whatever reason, that insurance would lapse, and
the customer didn't have insurance, we had contracted with a
vendor to provide that insurance to our customer, the borrower,
and we didn't have the appropriate oversight in those
situations to ensure that the information that the vendor was
using was correct.
And so in some circumstances, our vendor provided insurance
to customers who already had insurance. We should have done a
better job. When that issue was escalated to me when I was in
my prior role as Chief Operating Officer of the company, I
instructed our team, because we couldn't assure ourselves that
we have proper oversight, that we should end that process and
we did as of September 30, 2016.
Mr. Gooden. Very helpful, and thank you. To that end, there
was a settlement to many of the States to the tune, I believe,
of about $385 million. Does that number sound correct, to pay
these loan recipients back who didn't need that insurance?
Mr. Sloan. No, they are--that is our estimation of what our
remediation to customers is going to be for the collateral
protection insurance. There was a separate settlement with 50
State attorneys general as well as the District of Columbia
related to CPI and other consumer matters that was $575
million. And that went directly to the States.
Mr. Gooden. Has all that been paid out so far?
Mr. Sloan. I believe that all of it has been paid out to
the States. We are in the midst of remediating customers. That
is taking longer than I would like. We are about a third to 40
percent through right now. We believe that we will have all of
the customers remediated by the beginning of next year.
Mr. Gooden. Okay. Do you know what the delay is for
repayment? I understand about 10 percent of the customers who
are awaiting payment are in Texas. And I would just like some
kind of estimation on when we can expect that.
Mr. Sloan. Well, I think that is an example of where the
relationship with our regulators has been very helpful, in
particular with the OCC, where we have had a lot of give-and-
take in terms of how extensive the remediation should be. We
have taken a lot of really good feedback from them.
We now have the remediation plan in place. It has taken
longer than I would have liked, and I apologize for that, but
we want to make sure that it is done right. But the pace of
that remediation has increased and, again, we will have
everyone remediated by the beginning of next year.
Mr. Gooden. Thank you.
I yield back.
Chairwoman Waters. The gentlewoman from Massachusetts, Ms.
Pressley, is recognized for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman.
Mr. Sloan, I wanted to follow up on a few questions that my
colleagues had touched on earlier related to the corporate
culture at Wells Fargo. In your testimony, you specifically
referenced Wells Fargo's commitment to address some of the
country's most pressing social and economic issues.
Picking up on some of what my colleague, Representative
Porter, was getting at, I am encouraged by this pledge, but
skeptical. Last year, Bloomberg News reported on the long
relationship between Wells Fargo and the National Rifle
Association. Since 2012, Wells Fargo issued approximately $431
million in loans to some of the largest firearms and ammunition
companies.
Additionally, according to financial filings last year,
Wells provided $40 million worth of lines of credit to Sturm,
Ruger & Company. As I am sure you are aware, Mr. Sloan, Sturm,
Ruger is one of the largest firearm manufacturers in the
country and their products have been used in the last nine mass
shootings. This company has also donated significantly to the
NRA.
I bring this up because gun violence is an issue that is
particularly rampant in the Massachusetts 7th Congressional
District. There have been nearly 2,200 gun violence incidents
in my district over the last 5 years alone.
So given your pledge and your commitment to help address
some of the county's most pressing social and economic issues,
yes or no, because I only have 5 minutes, do you think that
stemming the epidemic of gun violence is a pressing social and
economic issue?
Mr. Sloan. I do.
Ms. Pressley. Okay. So could you tell me why, when Bank of
America has stopped lending to Sturm, Ruger and other companies
who make assault style rifles, Citigroup announced it would cut
ties, and JPMorgan announced that they are significantly
cutting exposure to the gun industry--so, Mr. Sloan, what is
Wells Fargo waiting on?
Mr. Sloan. We are not waiting on anything. We want to
continue to bank industries across this country that follow the
laws and regulations on a local, State, and national basis, and
we will continue to do that.
In addition, what we are doing is we are going to be
partnering with a number of nonprofits to donate $10 million
for nonpartisan research in terms of how we can reduce--
Ms. Pressley. Sorry, reclaiming my time, I only have 5
minutes here.
Your website specifically states that you are committed to
the highest standards of integrity, transparency, and
principles performance and that you do the right thing in the
right way and hold yourselves accountable. And yet, you are
providing millions of dollars to an industry lobby that is
determined to manufacture firearms of ever-increasing
lethality, firearms that have been used to murder tens of
thousands of Americans each year.
So my question was actually a rhetorical question, because
I already know why you have not divested from the NRA.
According to IRS filings, the NRA paid nearly $10 million in
banking fees between 2015 and 2016 alone to Wells Fargo. They
also held up to $13.2 million in cash and cash equivalents in
Wells Fargo accounts.
According to recent SEC filings, the Political Victory
Fund, NRA's PAC, paid Wells Fargo nearly $71,000 in various
banking fees over the last 3 years. Does this sound right, Mr.
Sloan?
Mr. Sloan. That is old data--
Ms. Pressley. Well, it is not right, but does it sound like
what you are doing?
Mr. Sloan. It is not what we are doing, because we do not--
the only banking relationship that we currently have with the
NRA is that we have a loan which is amortizing on their
building. They have moved their banking relationship outside of
Wells Fargo.
Ms. Pressley. Mr. Sloan, one of our first hearings on the
Financial Services Committee was focused on the ways in which
one's credit score can either make or break a consumer's
ability to get ahead in life. For the consumers who were harmed
as a result of Wells Fargo's egregious breach of trust, many
are still suffering consequences from the systemic fraud that
took place at your bank through hits on their credit scores.
In October 2017, you testified before the Senate Banking
Committee that of the 3.5 million potentially unauthorized
accounts, about 190,000 incurred $6 million in fees and
charges, and that Wells Fargo was working on refunding every
nickel. But in your testimony today, you did not provide much
detail on your progress in making these harmed consumers whole.
Could you elaborate?
Mr. Sloan. Sure. So in addition to the outreach that I
described in my testimony, what we have been able to do is
continue to remediate customers. That has totaled now, as
relates to retail banking sales practices, about $31 million.
We are not seeing any additional customers are coming in to
indicate that we haven't made things right. They can still,
obviously, do that.
We are also working with the class action to make sure that
they have all the data that we have, we have all the data that
they have--
Ms. Pressley. Excuse me. Are you removing harmful or
erroneous data from peoples' credit files?
Mr. Sloan. Oh, we have done that. To the extent that there
has been anything reported that has been incorrect, we have
corrected it. And to the extent that there has been an impact
on them, we have asked them to let us know what it is. We have
worked with them and we have remediated them.
Chairwoman Waters. The gentleman from Indiana, Mr.
Hollingsworth, is recognized for 5 minutes.
Mr. Hollingsworth. Good afternoon.
Mr. Sloan. Good afternoon.
Mr. Hollingsworth. I want to transition some of the
conversation away from the dialogue about Wells Fargo,
specifically, and I just want to talk a little bit more about
the architecture of the financial system, especially post-
crisis.
You obviously have worked in the field for very long time,
and have a great deal of experience in the field. And I am
curious, as an observer, about what has happened over the last
10 years; I am curious as to some of your observations. There
are a couple of things I wanted to set the stage with, though.
It seems to an outsider that we have an arms race going on,
an arms race between regulators and banks. Banks are getting
larger and more concentrated on account of some of the
regulatory efforts that have been undertaken, especially during
the crisis. Some statistics, pre-crisis, about 36 percent of
deposits were in institutions that have greater than $250
billion in assets; now it is 49 percent, correct? There used to
be six of these institutions, and now there are nine of these
institutions.
On the same side, regulators have grown dramatically. The
Federal Reserve operating budget is double what it was, the
FDIC is quadruple what it was, the OCC is quadruple what it
was. The CFPB, obviously, didn't exist beforehand, and has a
$300 million operating budget, at least prior to Mick Mulvaney
being over there.
What we haven't seen are a lot of new bank entrants. Prior
to the crisis, over the last 20 years 137 new banks were
started every single year. Since the crisis, there have been
1.5 banks, on average, that have started every year.
So, what my friends across the new aisle continue to talk
about is consumer empowerment, but what they really mean is
regulator empowerment, in the hopes that that will help the
consumer.
But to Hoosiers back home who are seeing their banking
choices decline dramatically, who feel like they can't get a
mortgage in their local community, that they can't reach out to
a financial institution, that they don't have control of their
financial future, they are saying, ``Where is the empowerment,
where is the real help?''
So, I wondered if you might be able to talk a little bit
about how the regulatory environment has constrained new
entrants into the banking industry and what that might mean for
the significant portion of the population, around 6.5 percent,
who are totally unbanked in this country.
Mr. Sloan. Well, I don't think the regulatory environment
post-crisis has fundamentally impacted our ability to serve any
of our customers, with a few exceptions.
I think that, in fact, there is a place for every size of
bank in this country--small, medium, and large--and I think
what you are seeing today is that larger banks have the ability
to use the economies of scale and technology to invest in
different products and services that customers really like.
Likewise, I think you are seeing new entrants, non-banks,
Fintechs, as they are sometimes described, come up with new
products and services that are very interesting. Sometimes,
they are offering those products and services directly to
consumers, and sometimes, they partner with firms like Wells
Fargo or others.
Mr. Hollingsworth. Yes, so to break apart your first point,
the economies of scale, one of the things we have seen is that
regulators have ramped up the number of regulations that are
being promulgated and the cost of doing business has gone up.
Banks, just like every other industry, have to respond to
that and they have gotten larger, because they have to amortize
those fixed costs over more and more people, more and more
loans, more and more accounts, et cetera. And we have seen the
number of community banks, the number of small banks in the
country, fall precipitously over the last 10 years. Is that
something that you would agree with generally?
Mr. Sloan. I think generally, but I would also support--and
there has been legislation that has been passed recently that
there should be different standards. I think as a large bank in
this country, that has a bigger impact on this country, we
should be held to a higher standard, and clearly, we are.
Mr. Hollingsworth. Right.
Mr. Sloan. I think that in terms of medium-sized banks and
smaller banks, it should be graduated down so it doesn't have
as much impact on their ability to serve their customers.
Mr. Hollingsworth. I think that is exactly right. I think
ensuring that we have a runway, we want to watch larger
institutions more carefully, they are more integral to the
global financial system, but we need to empower small
institutions, as well. And I, like you, firmly and
fundamentally believe that big does not necessarily equal bad
and that there is a place for every institution in the
ecosystem.
But I am firmly worried that the regulatory policies that
are being pushed, enacted, and now called for, might
meaningfully ensure that only big institutions can survive, and
for my rural district, those institutions aren't frequently
serving Salem, Indiana, aren't frequently serving
Jeffersonville, Indiana, and aren't frequently serving Bedford,
Indiana.
And I wondered if you might talk in the last 30 seconds
about some products that you are pushing that might help
reached those unbanked people? How can we further the reach of
the banking system to empower Americans?
Mr. Sloan. Well, we are not pushing products anymore.
Mr. Hollingsworth. Poorly worded, my fault.
Mr. Sloan. Yes, I can understand. But one would be a new
account that we are piloting right now in seven States called
``Greenhouse,'' which is a new checking relationship that is
focused on the underbanked and students.
Mr. Hollingsworth. Great.
Mr. Sloan. And the focus there is to provide a product that
can be completely mobile so you don't need a local branch to go
into, that doesn't allow overdrafts, that has a debit card,
that also has a budgeting system set up--
Mr. Hollingsworth. I love that.
Mr. Sloan. --to help with financial education.
Mr. Hollingsworth. Well, I appreciate that work. Hoosiers
back home will appreciate that. Thank you.
Mr. Sloan. Thank you.
Chairwoman Waters. The gentlewoman from New York, Ms.
Ocasio-Cortez, is recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you, Madam Chairwoman. Mr. Sloan,
earlier today you said that Wells Fargo does not put profits
over people, correct?
Mr. Sloan. That is correct.
Ms. Ocasio-Cortez. I am interested in the human rights
abuses and environmental disasters that some say are financed
by your bank, Wells Fargo. In a recent Guardian article by
Krystal Two Bulls and Matt Remle, they stated, ``Wells Fargo
has pursued profits without principles by investing in private
prisons, for-profit immigration detention centers, loan shark-
like payday lending, and holding much of the bond debt
strangling Puerto Rico's efforts to lift itself out of its
financial crisis.'' Is it true that Wells Fargo has invested or
financed in some of these industries?
Mr. Sloan. We made a decision 2 years ago to exit the two
relationships that we had with two public private--or public
prisons--private prisons firms. One has been exited, and then
when the credit agreement with the other one amortizes and
matures, we will no longer have that relationship.
Ms. Ocasio-Cortez. Are those two companies GEO Group and
CoreCivic?
Mr. Sloan. Correct.
Ms. Ocasio-Cortez. And which one has been exited, GEO Group
or CoreCivic?
Mr. Sloan. I can't recall exactly which one.
Ms. Ocasio-Cortez. Okay. And, Madam Chairwoman, I would
like to seek unanimous consent to submit three reports
highlighting the bank's role in debt financing these groups,
the for-profit prison companies running ICE detention
facilities.
Chairwoman Waters. Without objection, it is so ordered.
Ms. Ocasio-Cortez. Mr. Sloan, why was the bank involved in
the caging of children and financing the caging of children to
begin with?
Mr. Sloan. I don't know how to answer that question,
because we weren't.
Ms. Ocasio-Cortez. You were financing and involved in debt
financing of CoreCivic and GEO Group, correct?
Mr. Sloan. For a period of time, we were involved in
financing one of the firms. We are not anymore, and the other--
I am not familiar with the specific assertion that you are
making, but we weren't directly involved in that.
Ms. Ocasio-Cortez. Okay, so these companies run private
detention facilities run by ICE, which is involved in caging
children, but I will move on.
Mr. Sloan, Wells Fargo was also an investor, a major
investor in the Dakota Access pipeline and the Keystone XL
pipelines. They were prime investors and lenders to companies
building these pipelines in defiance of Standing Rock Sioux's
treaty rights to protect its water and sacred lands.
The Lakota Sioux warned early on that the pipeline was
unstable and bound to leak. Despite that, it was built anyway,
and it has leaked at least 5 times. And the Keystone XL in
particular had one leak that leaked 210,000 gallons across
South Dakota.
Since Wells Fargo financed the building of this pipeline in
an environmentally unstable way, why shouldn't the bank be held
responsible for financing the clean-up of the disasters from
these projects?
Mr. Sloan. Which pipeline are you referring to?
Ms. Ocasio-Cortez. Either. We know--
Mr. Sloan. We were not involved in the financing of the XL
Pipeline. We were one of the 17 or 19 banks that was involved
in the financing of the Dakota Access Pipeline.
Ms. Ocasio-Cortez. Okay. So Wells Fargo hasn't financed any
company associated with the Keystone XL pipeline?
Mr. Sloan. No, I didn't say that.
Ms. Ocasio-Cortez. Okay.
Mr. Sloan. I said we are not involved in financing that
pipeline specifically.
Ms. Ocasio-Cortez. Okay. So let's focus on the Dakota
Access Pipeline. Should Wells Fargo be held responsible for the
damages incurred by climate change due to the financing of
fossil fuels and these projects?
Mr. Sloan. I don't know how you would calculate that,
Congresswoman.
Ms. Ocasio-Cortez. Say from spills or when we have to
reinvest in infrastructure, building seawalls from the erosion
of infrastructure, or cleanups, wildfires, et cetera?
Mr. Sloan. Related to that pipeline? I am not aware that
there has been any of what you described that has occurred
related to that pipeline.
Ms. Ocasio-Cortez. How about the cleanups from the leaks of
the Dakota Access Pipeline?
Mr. Sloan. I am not aware of the leaks associated with the
Dakota Access Pipeline that you are describing.
Ms. Ocasio-Cortez. So, hypothetically, if there was a leak
from the Dakota Access Pipeline, why shouldn't Wells Fargo pay
for the clean-up of it, since it paid for the construction of
the pipeline itself?
Mr. Sloan. Because we don't operate the pipeline. We
provide financing to the company that is operating the
pipeline. Our responsibility is to ensure that at the time we
make that loan, that that customer--and we have a group of
people in Wells Fargo, including an environmental oversight
group headed by my colleagues who used to be at the EPA to
ensure that our--
Ms. Ocasio-Cortez. One question: Why did Wells Fargo
finance this pipeline, when it was widely seen to be
environmentally unstable?
Mr. Sloan. Again, the reason that we were one of the 17 or
19 banks that financed that is because our team reviewed the
environmental impact and we concluded that it was a risk that
we were willing to take.
Ms. Ocasio-Cortez. Thank you.
Chairwoman Waters. The gentleman from Ohio, Mr. Gonzalez,
is recognized for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman.
Thank you, Mr. Sloan, for being here. From the questions
and answers that we have heard so far today, it does seem clear
that there is still a significant amount of concern regarding
the steps Wells Fargo has taken since 2016, regarding some of
the misconduct.
I think it is important for us to remember that these
actions hit real families. They hit them in Ohio, my home
State. Misconduct resulted in more than 1,500 Ohioans having
unauthorized accounts, 3,200 being improperly charged for
collateral protection insurance, and nearly 1,500 impacted by
being improperly charged a rate lock extension fee. Our
constituents rightfully have to ask themselves what should they
do as a result.
For my first question, I want to go back to what Mr.
McHenry was talking about earlier. He mentioned that in the
last few months, there have been reports of ongoing
investigations into excessive fees in the wealth management
division, deficiencies in the bank's anti-money laundering
compliance program, an underwriting software issue, and just
last month, violations related to the sale of add-on products
and the freezing or closing of accounts.
I know that is a lot that we just talked about. But from
your perspective, can you give the committee a sense of which
issues you are tracking right now and give us a sense of
whether we are out of the woods? Because candidly, it does feel
like there is a lot still up in the air here.
Mr. Sloan. Well, there is, and I am tracking all of those
issues, not just one of them. All of those issues occurred
prior to my stepping into this role as CEO, but now that I am
CEO, I take responsibility for resolving them.
I think the changes that I have implemented since I have
become CEO are addressing those issues. And one of the promises
I made to all of our stakeholders when I stepped into this role
is that we would look far and wide within the company to make
sure that there were no other issues.
That is why some new issues have occurred. They are not
necessarily new errors that we have made. It is just that we
have encouraged the team to look very hard so that we can get
through this very challenging part of our history and make sure
that any customers who were impacted, that we treat them
appropriately.
Mr. Gonzalez of Ohio. Got it. So if I am understanding this
correctly, what you are basically saying is we did have a lot
of issues. That is obvious.
Mr. Sloan. There is no question about that.
Mr. Gonzalez of Ohio. Nobody is denying that. But since you
took over as CEO, you feel like you have kind of put a stop to
that. You are still investigating the things that went on prior
to your arrival. And that going forward, since your time as
CEO, you feel very comfortable with how the bank has performed
on these issues?
Mr. Sloan. Well, I can't promise you perfection.
Mr. Gonzalez of Ohio. Right, but--
Mr. Sloan. But what I can promise you is I believe that the
organization we have put in place, the investment in thousands
more risk professionals, as well as technology, as well as
investment in risk, is putting us in a place where the chance
of these types of issues occurring again is much, much less.
Mr. Gonzalez of Ohio. Okay, great.
My next question shifts to the culture. I know The New York
Times just wrote an article suggesting maybe the cultural
changes haven't been as effective. Can you talk about
specifically what you are doing at the executive level, at your
level, to make sure that the culture does in fact turn over? It
is a big organization; it is hard to turn around a culture in
just a few short years, so--
Mr. Sloan. Yes. So one of the key changes that we made is
encouraging team members that if they see something that they
are concerned about, or if they have a good idea, that they
should raise their hand and let us know.
Mr. Gonzalez of Ohio. Has that resulted in proactive
communication?
Mr. Sloan. Oh, absolutely, yes. And the way that we track
that kind of information is much different. We have also
encouraged our team to the extent that they are uncomfortable,
raising something to their manager or human resources group, to
call our ethics line. And calls into the ethics line now go
outside the company and they are dispositioned in a much more
independent way to ensure that there is no retaliation in the
company.
Mr. Gonzalez of Ohio. Great. And then for my final
question, some of my colleagues on the other side of the aisle
are what I would call attacking Wells Fargo for conducting
business that is perfectly legal with customers. So the groups
that were just mentioned, were any one of them breaking Federal
law when you were banking them?
Mr. Sloan. Not that I am aware of. And one of the standards
that we set in banking any sort of industry that has various
reputational issues is to make sure that there is a double-
check beyond just a normal credit underwriting that we would do
for on a reputational basis, so that we don't run into those
kinds of issues.
Mr. Gonzalez of Ohio. Thank you.
And I yield back.
Chairwoman Waters. The gentleman from Utah, Mr. McAdams, is
recognized for 5 minutes.
Mr. McAdams. Thank you, Madam Chairwoman.
Mr. Sloan, I think without question, Wells Fargo and its
various actions have caused harm to hundreds of thousands and
possibly millions of customers. Your violations have stretched
from egregious sales practices, whereby the company opened
millions of accounts in customers' names without their consent
or knowledge, to violations of the Servicemembers Civil Relief
Act.
And just in November of this past year, it was reported
that you foreclosed on 545 customers based on a computer error:
545 families kicked out of their homes when they shouldn't have
been, 545 families with their stability uprooted. All the
consent orders and fines in the world can't repair that damage.
In your written testimony, you discussed the transformation
of the company and I believe that you do want to improve the
company. And we want to improve the company because we also
want these practices to cease. Wells has over 3,000 employees
in my State, and I know these employees, and I want them to be
proud of where they work and not have a workplace that pushes
them to act unethically or illegally.
So, Mr. Sloan, I wanted to go back to your comments about
The New York Times article. And I am paraphrasing, but I think
in a previous question that was asked, you basically said that
you disagreed with the content of that story. But if these
employees feel this way, then that, I think, is a concern for
us. You can disagree with the article, but those employees
matter and their concerns matter.
And the article says, ``In a survey of more than 27,000
employees in the bank's information technology department late
last year, top concerns included their ability to raise
grievances with managers and whether Wells Fargo conducts its
business activities with honesty and integrity.''
The article goes on to report that the workers at Wells
Fargo recently flooded the bank's internal logs with hundreds
of angry comments about Wells Fargo's sales incentives and pay
and ethics leaders' doublespeak. So if employees feel like they
can't raise grievances with managers, whether or not you
believe that to be the case, then that is a concern and it
raises questions about the culture at Wells Fargo.
What do you think are the root causes of these employees'
concerns? And do you believe these employees when they say that
they feel this is a problem?
Mr. Sloan. I don't mean to question how any of our team
members feel. And there is no question that improving culture
is a journey. I don't mean to sit here and suggest today to you
that we solved the culture issue, because it requires
leadership and managers and communication and an open
relationship with our team members.
One way I deal with it, and I will just give you my
example, is that I hold town halls every other month. In those
town halls, I provide an update for about half-an-hour for our
team members. There are generally 500 to 2,000 team members in
attendance. The town halls are broadcast to the entire company
live, and then we take unscripted questions from team members
in whatever they would want.
And at the end of every one of those town halls, I say the
following, ``If there is any concern that you feel about this
company, that you feel hasn't been raised, call me or send me
an e-mail.'' I get communications from our team all the time,
and I make sure that we follow-up.
Congressman, I can't promise you that every one of our
260,000 team members jumps out of bed, runs into work at Wells
Fargo, and it is the happiest place on Earth, right?
But what I can promise you is when we survey our team
members across the entire company, that is not the results we
get. That doesn't mean that everybody feels the way I would
like them to, and that is why this changing culture is a
journey and we are not done yet.
Mr. McAdams. I just want to make the point that I don't
think it is about morale or how people feel about the
workplace, but it is, do people feel comfortable they can
report concerns or grievances up the food chain without
retribution? Do you think it is alarming? And so, the reports
are that many employees still feel this way, that they feel
that the culture is not one where they can raise red flags up
the food chain without consequences.
Mr. Sloan. I think it is disappointing, based upon the
progress that we have made and the changes that we made that
any of our team members feel that way. And to the extent that
that is how our team members feel, we will redouble our efforts
to make sure that we have communicated to them all the changes
that we have made and that there is no place for retaliation in
Wells Fargo.
Mr. McAdams. It is alarming to me that employees are still
feeling this way because if employees don't believe you when
you say that the culture has changed, then I don't know that we
can conclude that the culture has changed.
Mr. Sloan. Well, again, Congressman, we have 260,000 team
members and most of them when we survey, an overwhelming
percentage of them feel that the changes we have made are
making a difference. And again, that is not to say we are done
yet. I am not going to be satisfied until every one of them--I
don't know if we will ever reach that, but that is my goal.
Mr. McAdams. Thank you, Mr. Sloan.
And I yield back.
Chairwoman Waters. The gentleman from Georgia, Mr.
Loudermilk, is recognized for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman.
Mr. Sloan, it has been a long day. I know it has been a
long day for you. And quite frankly, some of the actions by
Wells Fargo have been very egregious and it is probably
worthwhile for you to be here. I have a couple of questions
before I--the core question I want to ask you is going to deal
with the OCC's consent order and beneficial ownership, just so
you know where I am eventually going to go with this.
Mr. Sloan. Okay.
Mr. Loudermilk. But I want to address a couple of things
that I think are maybe overlooked or is unfortunate in the
direction some of my colleagues have taken today's hearing.
What was your customer base prior to the investigation or
scandal from the consumer standpoint? How many customers did
you have?
Mr. Sloan. Approximately 70 million.
Mr. Loudermilk. How many do you have today?
Mr. Sloan. A little bit more than that.
Mr. Loudermilk. So you experienced some loss, I would
imagine, during that time?
Mr. Sloan. Well, actually no. What we experienced is, I
mean, we are always gaining and losing customers every day--
Mr. Loudermilk. Right.
Mr. Sloan. People move and so on and so forth. We compete
for business with other banks and we win and lose it every day.
But overall, since the fourth quarter of 2016, what we have
seen is our customer base grow. It is not growing as much as I
would like, but it is going in the right direction now.
Mr. Loudermilk. So I would take it then that your customers
are pretty satisfied with the service you are giving, some of
the corrective actions you are making?
Mr. Sloan. That is the feedback that we get from them. We
survey our customers--in addition to on a specific basis in our
retail business where we survey customer experience and loyalty
scores, we also separately have a survey that we do monthly.
And we are going in the right direction. Again, we have more
work to do, but your statement is correct.
Mr. Loudermilk. Okay. One other issue I want to address is,
do you make auto loans?
Mr. Sloan. We do.
Mr. Loudermilk. Are you going to continue to make auto
loans?
Mr. Sloan. We are.
Mr. Loudermilk. The reason I am asking you this is because,
according to the CDC, more people were killed by auto accidents
than by guns in the past several years. Using the logic of some
of my colleagues, I am not going to sit here and ask you to
quit making auto loans.
Mr. Sloan. Thank you.
Mr. Loudermilk. I am one of the few on this committee who
has been a victim of both gun violence, and of what should have
been a fatal auto accident. You very well may have made the
loan to the rental car company to buy that car in which I was a
victim of a triple flip-over accident on an interstate. My wife
and I were fortunate to survive. On two occasions, I have been
shot at: once on the baseball field; and once back at home.
I don't want you--I am not expecting to use your business
as a tool to shape culture, or do a cultural experiment or make
it a lab to do something that wouldn't be done otherwise. And I
think that it is unfair to put you in that position. Both of
those are legal in the United States and those businesses that
operate--whether they sell automobiles or manufacture
automobiles, or sell guns--that is something that shouldn't be
laid at your table. I just wanted to address that.
Now, onto the core question I have. The Office of the
Comptroller of the Currency, as has been mentioned already, has
given you a consent order regarding beneficial ownership. And
during your second quarter 2018 10-Q filing, you stated that
some Federal agencies have been making inquiries into the bank
regarding potentially inappropriate conduct related to the
collection of beneficial ownership information.
Mr. Sloan, what is the potentially inappropriate conduct
that took place?
Mr. Sloan. The consent order that we have in place with the
OCC actually covers our BSA/AML program and our wholesale
banking business. I will be quick.
And what the focus there is, is not that we are not
following BSA/AML laws, but that we were not doing a good
enough job of documenting how we make decisions. By the way,
the OCC is completely correct, and we are reforming and
improving our capabilities.
One of the requirements that was introduced about a year
ago is a beneficial ownership forms. And what we found, because
of a call to the ethics line that we put into place after I
became CEO, was that some of our team members were not
following our policies and procedures in completing those
beneficial ownership forms, and that is unacceptable.
Mr. Loudermilk. So you are complying with the consent order
at this point?
Mr. Sloan. We are. We have more work to do because the
consent order hasn't been lifted, and we take our
responsibilities to the OCC seriously, but we are making
progress.
Mr. Loudermilk. I know there is a lot of confusion with the
FinCEN customer due diligence rule regarding this, and so I
applaud your efforts. What has taken place is egregious. I
don't think anybody on this committee would depart from that.
But I do appreciate the effort you are making to move forward.
Mr. Sloan. Thank you.
Mr. Loudermilk. I yield back.
Chairwoman Waters. The gentlewoman from Virginia, Ms.
Wexton, is recognized for 5 minutes.
Ms. Wexton. Thank you, Madam Chairwoman, and thank you, Mr.
Sloan, for joining us here today. As I was going through the
materials to prepare for today's hearing, I was just so struck
by really the scope and the breadth and the depth of fraudulent
activities throughout basically every one of Wells Fargo's
subsidiary businesses.
And I know we have been through these before and time is
short, but I do think it is important to tick off some of them:
in consumer banking, with the opening of fraudulent accounts;
opening credit cards without customers' consent; debit cards on
auto loans. I know that you dispute the actual selling of the
force-placed insurance, but you did repossess a number of cars
that you shouldn't have as a result of that.
On Wells Fargo wealth advisers, on the wealth management
side, there was some churning of investments that were supposed
to be long-term investments, and selling those to receive
commissions and fees.
On the mortgage side, there were inappropriate fees charged
for interest rate locks even when the delay was due to Wells
Fargo's own actions, and the violations of the Servicemembers
Civil Relief Act are pretty egregious, including repossessing
cars from servicemembers who were deployed abroad. Wells Fargo
is now subject to, I think you said, 14 separate consent
decrees, is that correct?
Mr. Sloan. Correct, yes.
Ms. Wexton. And so, you would agree with Chair Yellen's
assessment that there was pervasive and persistent misconduct
at Wells Fargo?
Mr. Sloan. I think we made a significant number of mistakes
that we shouldn't have made. We have taken responsibility for
those errors and since I have become CEO, we have made
fundamental changes in the company to address those
shortcomings.
Ms. Wexton. Now, you had said that one of the causes or
what you perceived to be a potential cause of all of these
offenses was that you had a decentralized sort of management
system at Wells Fargo, is that correct?
Mr. Sloan. That is correct.
Ms. Wexton. In other words, each subsidiary was kind of
going rogue on their own, is that correct?
Mr. Sloan. Well, I didn't say they were going rogue on
their own, but I think that the way that they were organized
is, they had the enterprise risk and control functions within
the business line that didn't create enough--the check and
balance that we have today.
Ms. Wexton. Okay. But I just find it so interesting that
each one of these businesses was engaging in the same kind of
pattern of fraudulent misconduct, even though they were each
operating in their own little spheres. So now you say that
management and everything is centralized and that is going to
solve this problem, or at least help ensure that it is not
going to happen again. Is that correct?
Mr. Sloan. I think that is one of the fundamental changes
that we have made since I have become CEO to address it, but it
is not the only one.
Ms. Wexton. Okay. I can't wrap my head around why and how
every single subsidiary of Wells Fargo was engaging in some
sort of fraudulent activity if it wasn't coming from the top.
Would it be your position that all banks do this sort of thing
and Wells Fargo is just the one that got caught?
Mr. Sloan. No, of course not. But I wouldn't agree with the
statement that every one of our operations was engaging in
inappropriate activity. There is no question that it happened.
Ms. Wexton. Well, just the ones that I listed, the auto,
mortgage, and consumer deposit accounts, all of those were,
right?
Mr. Sloan. There is no question we made errors in those
businesses.
Ms. Wexton. You have been employed at Wells Fargo for about
30 years or thereabouts?
Mr. Sloan. 31\1/2\.
Ms. Wexton. Okay. And most recently as Chief Operating
Officer before you became CEO, right?
Mr. Sloan. Yes, I was Chief Operating Officer for about 10
months.
Ms. Wexton. Okay. And so to the consumers who were wronged
by Wells Fargo during this long pattern of misconduct, how do
we assure them that you are the best person to change the
culture when you have been a part of the culture for the last 3
decades?
Mr. Sloan. Because having knowledge of the company allows
me to make the difficult decisions to reorganize the company
more quickly, and that is what I have done. This company is
going through fundamental change. It is more fundamental change
than it has ever gone through in its history.
Ms. Wexton. Is that because of your leadership or because
of the oversight of the various Federal agencies who have
consent decrees with--
Mr. Sloan. I have made all the decisions, so I take
responsibility for those decisions and whether they work or
they don't.
Ms. Wexton. Thank you. I see my time is up. Madam
Chairwoman, I yield back.
Chairwoman Waters. Thank you. They have called the votes on
the Floor, and we are going to try and avoid having to return
so that we don't have to keep Mr. Sloan here. So, Mr. Lynch,
you are recognized for 5 minutes, and I am going to be very
strict on the number of minutes so we can all get to vote.
Mr. Lynch. Thank you, Madam Chairwoman. I will try to be
quick. Mr. Sloan, I have to say, I am amazed. I have been here
for a while, I was here during the financial crisis, and I am
amazed at the willful and disgraceful conduct of Wells Fargo. I
really am.
I mean, AIG made mistakes, they mispriced some products,
and there were mistakes, real mistakes made there. But in your
case, you robbed your customers. You robbed your customers.
We deal a lot on this committee with the Financial Crimes
Enforcement Network and a lot of those cases are people hacking
or cyber criminals stealing funds from strangers.
But in your case, you robbed your customers, the people who
came to you and trusted you. So when you say, ``We made a
mistake,'' robbing your customers is not a mistake. There is
something deeper going wrong there. You said that, ``We had
errors in those businesses.'' Robbing your customers is not an
error in business in the deepest sense. There is something more
sinister in that.
When people come to you, they deposit money into your bank
and you rob them, 3.5 million-- 3.5 million--fake accounts and
fake credit cards. And I am just stunned--I don't know if I am
madder at Wells Fargo or madder at our regulators that they did
not just step in, remove Mr. Stumpf, and appoint a receiver for
Wells Fargo and break you up.
You are still like the 12th biggest bank in the world, with
$2 trillion in assets. And I think your conduct over the past
decade has proven that you are way too big to even manage what
you have going on right now. You say that, ``We are going to
make a difference now because everything is centralized.'' The
robbing of your customers was centralized, 3.5 million. This
was not an outlier. You fired 5,300 employees, and they were
fired for following company policy.
Make no mistake, 5,300 people don't go rogue together.
These were employees who were following company policy. It is
disgraceful.
You know, the FDIC, one of your regulators, has grounds for
removal and taking over the back and breaking it up. One of the
standards is if there was a willful violation and concealment
of the institution's books, papers, records or assets--opening
up fake accounts, taking the information that you got, Social
Security numbers, all of that stuff that your customers gave
you, and filling out fake credit cards and charging them for
that, opening up fake accounts with people's names on them that
they gave to you as a fiduciary, that would seem to qualify.
If there was a violation of law or regulation of any
unsound practice or condition that weakens the bank's
condition, that is you. That is you all over in terms of your
bank. If the bank was found guilty of any Federal criminal
money-laundering offense, so you got a violation of the Bank
Secrecy Act and then you have one of your employees doing deals
with the Sinaloa cartel, allowing them to buy an aircraft. You
funded it through Wells Fargo.
So, you basically qualify with all of the things that would
lead the FDIC and the regulators to remove the CEO and take
over that bank. And I don't know why they haven't. They are
going to be up before this committee eventually, in a couple of
weeks, and I am going to ask them the same question.
But if I were you, and you really wanted to do the right
thing, put this bank on the right path, then break it up.
Decide how you would dismantle it so we don't lose all the
jobs, but you are way too big. Your conduct has been
disgraceful. And I think you would serve your customers and you
would serve the financial system and our country much better if
you agreed to just break up the bank in functioning pieces that
are able to be accountable to their customers and to the
general public.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much. The gentlewoman
from Pennsylvania, Ms. Dean, is recognized for 5 minutes. They
are holding the Floor open for the vote. We are going to see--
Ms. Dean. Okay, I am going to talk really fast.
Chairwoman Waters. --if we can make it. Thank you.
Ms. Dean. Thank you. Thank you, Madam Chairwoman.
Thank you, Mr. Sloan, for being here. I wanted to say to
you that I was eager to read your testimony before coming to
this hearing today. And I will preface it by saying that I am a
Wells Fargo customer, I have an account or two at Wells Fargo
in addition to other places. My local branch couldn't be nicer.
Mr. Sloan. Thank you.
Ms. Dean. But that is neither here nor there. I was eager
to read your testimony. I come from a background of teaching
writing at a university for 10 years, and I have always taught
my students avoid euphemism, because euphemism just fogs over
the real meaning of what is going on.
I was gravely disappointed at the testimony that I read,
and here is why. In your first paragraph, you said that you are
looking forward to the opportunity to discuss the
transformation at Wells Fargo over the past 2 years under your
leadership. You were determined to address the retail sales
practice issues that occurred in community banks. You pledged
to look back years.
``We discovered issues that we need to address, every one
of which was a disappointment to me. I want to be accountable
and transparent.'' These are your words; I am taking them in
pieces, of course. ``And we have,'' that is what you said. ``We
have been accountable and transparent. We have gone above and
beyond what is required in disclosing these issues.''
If you can hear the theme here, I was struck by the lack of
transparency. I was struck by language that didn't at all
reveal the grave fraudulent things going on at Wells Fargo, not
just in the past 2 years, but maybe as far back as 2002.
So what struck me was that the first step in solving a
problem is recognizing there is one. And I have seen here in
the last 4 hours an absence of a recognition of the real
problem and the real grievous harm you caused people. There is
a draining of humanity in this whole conversation that I can't
believe.
I was a State representative before I came here. I sat with
people trying to go through the tangled web of mortgage
modifications. And when we take a look at your mortgage
modifications, and what you revealed, that 870 customers were
incorrectly denied loan modifications because of a computer
glitch--again, there is no humanity in that, some computer ran
for 5 or 6 years and denied people modifications, and 545 of
those customers lost their homes.
What did you do? How did you calculate the exact harm to
each and every single one of those 545, not to mention the 325
who were wrongly denied?
Mr. Sloan. So what we are doing--
Ms. Dean. And I want an exact calculation. Give me an
example of one human being.
Mr. Sloan. Well, for some of the customers that we
foreclosed inappropriately on, because they didn't receive a
modification, we have sent them a $15,000 check, and they have
been satisfied with that remediation.
Ms. Dean. I have to stop you there. I went on your website
and I looked at different places where a customer like me could
go in, and the things you have said today--you sent $15,000,
and because you didn't hear back from them, you consider them
satisfied.
Mr. Sloan. No, not at all.
Ms. Dean. Imagine losing your home.
Mr. Sloan. No. No.
Ms. Dean. You don't know what equity they might have lost
in that, the stresses, the human toll. Have you seen families
sit and go through what they think is a shameful experience?
``I can't keep a home over my children's heads.'' It is a
shameful feeling, a horrible feeling. Not to mention the
uncertainty of it. And you thought a $15,000 check satisfies
it? Shouldn't there be an exact calculation of harm per
individual, yes or no? Yes or no? Should you calculate per
individual?
Mr. Sloan. And that is what we are doing--
Ms. Dean. No, you put the burden back on the borrower.
Mr. Sloan. I want to take this specific situation you
described--to the extent that there was a foreclosure and there
was any equity in the home, that was returned to the customer
already. Okay? We have said to those customers, if $15,000,
which is 2.5 times the amount, please--
Ms. Dean. I am going to stop you there.
Mr. Sloan. Please.
Ms. Dean. We have heard you say the $15,000 fee, 2\1/2\
times. Here is what is dissatisfying to me. As the commander,
as the captain of this ship, what I think you should have
instructed your subordinates to do was to say, don't offer them
$15,000 and see if that will satisfy them. Find out the exact
harm that we caused--
Mr. Sloan. And that is what we have done.
Ms. Dean. Just like a recall of a bad drug.
Mr. Sloan. No, no, no. That is what we have done.
Ms. Dean. Find out the exact--no, you have put it back on
the customer, just like the customers who might have had too
much of a fee taken from them for holding on to an interest
lock. You put it back on the customer. Get back to us if you
think you were wrongly charged. How are they to know they are
wrongly charged?
I am going to end with this, Madam Chairwoman, because I
know I am out of time. I would ask you to--
Mr. Sloan. I would love to be able to answer your question.
Ms. Dean. I would ask you to take a look at your overall
language, because your language reveals that you don't get it,
that you are fogging over the problem. In this beautifully
printed book, ``Our Culture'', chapter 3, listen to this and
tell me what in God's name it means. ``After extensive internal
research--
Chairwoman Waters. The gentleman from Illinois, Mr. Garcia,
is recognized for 5 minutes.
Mr. Garcia of Illinois. Thank you, Madam President--or
Madam Chairwoman.
[laughter]
Chairwoman Waters. I like that.
Mr. Garcia of Illinois. Mr. Sloan, with respect to the
review of the scandals that Wells Fargo has been involved in
over the past several years, including the fraudulent customer
accounts that were probably the greatest of scandals, the
illegal student loan servicing practices, the checking account
overdraft fees, the mortgage lending abuses, the auto lending
abuses, that we have learned about in this hearing and prior to
the hearing, is it fair to characterize these scandals as the
largest scandal that has occurred among the big four banks in
this country in modern history?
Mr. Sloan. I am not familiar with the impact on other
banks, so I can't answer your question. There is no question
that--
Mr. Garcia of Illinois. But you are familiar with banking
in this country--
Mr. Sloan. I am.
Mr. Garcia of Illinois. And the scale that has occurred and
the penalties that have been imposed. Does that make it the
largest scandal in terms of consumer abuse?
Mr. Sloan. Based on the penalties that have been imposed,
the answer--
Mr. Garcia of Illinois. Based on everything, the scale, the
number of fraudulent accounts, and the other enumeration of
incidents that have been documented and litigated, et cetera,
do you believe it is the largest scandal in U.S. banking
history?
Mr. Sloan. Congressman, I am not trying to be difficult. It
may be; I just don't know the impact of--
Mr. Garcia of Illinois. Okay. I will take your answer, ``It
may be.'' Two, in the interest of time, Wells Fargo has engaged
the immigrant community, profited from the immigrant community
as customers, as a market share. And last January, you released
a video message urging Congress to adopt a legislative solution
for the young people known as the DACA class of immigrants who
are seeking a pathway to citizenship.
And you said, ``What happens with DREAMers is important to
Wells Fargo because it affects our customers and their
families. It also affects our own team since some DREAMers
already work for Wells Fargo.'' And that is fine. That is to be
applauded.
But Wells Fargo has a dubious record when it comes to its
treatment of immigrants and Latino customers. Because in April
of 2017, per a New York Times report which said that Wells
Fargo employees were ``instructed to round up immigrants,
corral them into a branch office, and cajole them into opening
bank accounts.''
Wells Fargo employees allege in sworn statements that they
were ordered to target undocumented workers at construction
sites, factories, and 7-Elevens. You have called these
allegations nonsensical because you ``can't do business with
undocumented immigrants by Federal law.'' If these charges were
false, why were employees willing to sign sworn statements that
Wells Fargo's aggressive practices targeted undocumented
immigrants?
Mr. Sloan. Congressman, I saw the same report that you did.
We investigated that and we found no incidence of that.
Mr. Garcia of Illinois. But there is a pending Federal
lawsuit pertaining to the DACA class of immigrants, pending in
San Francisco, correct?
Mr. Sloan. That is correct. But again, we have investigated
that, and we haven't found any incidents.
Mr. Garcia of Illinois. But a Federal judge has found that
it has standing and it remains an active lawsuit, correct?
Mr. Sloan. That is my understanding.
Mr. Garcia of Illinois. Yes, okay. With respect to--and
this is my final question, Madam Chairwoman. Your head of
consumer banking is quoted in a Times article describing how
the firm's entire system of how you pay, coach, and develop
team members is designed to focus on customer experience and
customer outcomes. And you testified this morning that your
performance evaluation system prioritizes customers.
Yet, according to a report released this morning by the
Committee for Better Banks, the maximum quarterly bonus for
employees under the ``customer experience,'' metric dropped
from $1,425 in 2017 to $875 for 2019. If you are truly
prioritizing the customer experience under your new performance
evaluation, why have these bonuses under the metric declined?
Mr. Sloan. I have asked our team, I saw that same report
that came out yesterday, and I asked our team to take a look at
it yesterday. And other than spelling Wells Fargo correctly and
acknowledging that our--
Chairwoman Waters. The gentlelady from New York, Ms.
Velazquez, is recognized for 5 minutes.
Mr. Sloan. We have raised our $15 minimum wage, and we
disagree with everything in that report.
Chairwoman Waters. Your time has expired.
Mr. Garcia of Illinois. Thank you.
Thank you, Madam Chairwoman.
Chairwoman Waters. Please, Ms. Velazquez.
Ms. Velazquez. Thank you, Madam Chairwoman.
Chairwoman Waters. Four votes are holding on the Floor.
Ms. Velazquez. Sure.
Chairwoman Waters. Please.
Ms. Velazquez. Mr. Sloan, I have to repeat what you have
heard before. Since 2016, Wells Fargo has been cited and fined
for fraudulently opening millions of deposit and credit card
accounts, abuses involving servicemembers violation with its
mortgage and auto lending businesses, and security fraud
charges associated with the sale of complex financial products
to retail investors.
Your bank also continues to be the subject of a number of
ongoing investigations. Mr. Sloan, you cannot sit there with a
straight face and claim to not be responsible for all of these
abuses that have been committed against consumers. So my
question to you is, do you believe that consumer abuses as well
as fraudulent and deceptive actions practiced by large
financial institutions could pose a threat to financial
stability?
Mr. Sloan. I think that banks and banks like ours should
follow the rules and regulations that are set forth in this
country. I completely agree with that, Congresswoman. We have a
duty to provide products and services to our customers in an
appropriate way. And if we don't provide that, that there is
both financial and reputational harm that is done to the
institution, and that could have an impact on the economy.
Ms. Velazquez. So can you tell me why the Fed didn't remove
the asset cap?
Mr. Sloan. As part of the consent order with the Fed, they
want us to improve the Board governance and oversight, which we
have done.
Ms. Velazquez. Isn't the answer because you focus on growth
and profits not risk management? Is that the transformation
that is happening at your institution?
Mr. Sloan. We are significantly improving our compliance
and operational risk management, which is paragraph three of
the consent order with the Fed.
Ms. Velazquez. Well, the Fed does not agree with you and
that is exactly why they didn't remove the cap. And you know
it. Sir, all Americans deserve honesty, integrity, and trust
when it comes to placing their money in the banking system. A
culture of deception and deceit erodes that trust and leads
depositors to lose faith in our financial institutions. And to
me, I believe that represents a threat to financial stability.
I yield back.
Chairwoman Waters. Thank you. The gentlewoman from North
Carolina, Ms. Adams, is recognized for 5 minutes.
Ms. Adams. Thank you, Madam Chairwoman, for convening
today's hearing, and thank you, Mr. Sloan, for coming before us
today with your testimony. The last time we spoke, you assured
me that Wells Fargo was making a number of changes, including
changing the competitive and toxic sales culture, increasing
Board diversity, and developing an inclusive culture, among
other things.
Now, my colleagues have covered a lot of ground today, so
let me just shift gears a minute and ask a question or two
about diversity. As you know, the financial industry continues
to be plagued by lack of diversity and complaints about
harassment and discrimination.
I believe that if employers are serious about diversity
that they will link their end-of- year bonuses to their
diversity goals. So my question to you is, does Wells Fargo
currently link its diversity goals to corporate bonuses?
Mr. Sloan. Yes. In the incentive compensation for our
senior leadership team, one of the measures of the management
portion of that calculation is based upon not only their
commitment, but also their progress in meeting our policies and
procedures related to diversity and inclusion.
Ms. Adams. So do you believe that Wells Fargo, under your
leadership, has done everything that it can do to make the
company truly reflective--
Mr. Sloan. I think--
Ms. Adams. --of America's diversity?
Mr. Sloan. I think we have done a lot but we have more work
to do. Congresswoman, one example I would give you is that when
I stepped in the role of the Chief Operating Officer, I
instituted the Wells Fargo equivalent of the Rooney Rule, which
means that whenever we have a senior leadership role that is
open in the company, we need to ensure that we have a diverse
slate of candidates for that role and a diverse panel of
interviewers.
Ms. Adams. Okay. Let me move on.
Mr. Sloan. And that has made progress both in terms in the
number of women and diverse leaders in the company.
Ms. Adams. All right. We want to make sure we have some
African Americans in there, as well. You know, when we talk
about diversity, sometimes we forget that, because you can also
say minorities are women, as well, and I mean, I support that,
being an African-American woman.
Mr. Sloan. I don't mean to interrupt you, but to that
point, Michelle Lee, who runs half of our retail banking
business, who lives in Charlotte, is African American.
Ms. Adams. Okay. Let me move on to an issue that we are
having in Charlotte, as I am sure you aware of, and that is
affordable housing. According to your business standard report,
Wells Fargo home lending is the largest home mortgage lender
and servicer in the U.S., funding one of every nine loans and
servicing one of every seven loans. First of all, do you
believe that America is in the midst of an affordable housing
crisis?
Mr. Sloan. I absolutely do.
Ms. Adams. Okay. And given the dominance in the housing
sector by Wells Fargo, what are you doing to tackle and combat
the housing affordability predicament that many of our
communities are facing, particularly in the City of Charlotte?
Mr. Sloan. We are doing a number of things. I will give you
two quick examples. One is our neighborhood lift program, where
we are providing down payments in the form of grants to low- to
moderate-income folks.
For example, I was just at our neighborhood lift program in
Los Angeles and I was there when we provided the down payment
for the Ramirez Valenzuela family to afford their first home in
Palmdale, California.
In addition, we provided enough grants so 20,000 low- to
moderate-income homeowners, mostly diverse, have been able to
afford a home in the last 6 years, and that program has
distributed about $449 million and we are continuing on that
program.
Ms. Adams. Okay. You spoke earlier about the $15 minimum
wage or more. How did raising that wage to $15--how much did it
really cost Wells Fargo to do that?
Mr. Sloan. On an annual basis, it cost us about $200
million.
Ms. Adams. And what was the median annual salary that the
bank paid in 2018?
Mr. Sloan. It is about $60,000.
Ms. Adams. Okay. Are you going to increase it more? I mean,
$15 is good, but it is still very difficult, and we have a lot
of poverty in our community and communities all over this
country. So I am just curious about that. Will you have plans
for doing more?
Mr. Sloan. I want everybody who makes $15 an hour--
Ms. Adams. But are you all going to do more?
Mr. Sloan. We look at compensation every year in Wells
Fargo to make sure that we are paying competitively. I think we
have been a leader in the industry in terms of how we pay our
entry-level team members. That is how I started in banking,
working my way through college as a teller.
Ms. Adams. Okay. Thank you very much. Thank you very much,
Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you. I would like to thank our
witness for his testimony today.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witness and to place his responses in the record. Also,
without objection, Members will have 5 legislative days to
submit extraneous materials to the Chair for inclusion in the
record.
I ask our witness to please respond as promptly as you are
able.
This hearing has revealed that Wells Fargo has failed to
clean up its act, that it is too-big-to-manage, and that the
steps regulators have taken to date are wholly inadequate. As
was discussed today, The Wall Street Journal reported yesterday
that the Office of the Comptroller of the Currency (OCC), Wells
Fargo's chief regulator, is considering forcing out several
executives and Board directors.
I think the OCC should take this important step, and the
regulators should also consider it with you, Mr. Sloan. It is
also time for Congress to take bold action to protect our
constituents.
I intend to reintroduce the Megabank Accountability and
Consequences Act, a bill I first introduced in 2017, to address
rampant violations of consumer protection laws by megabanks,
and to hold them and their executives fully accountable for
their actions.
With that, this hearing is now adjourned.
[Whereupon, at 2:15 p.m., the hearing was adjourned.]
A P P E N D I X
March 12, 2019
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