    [House Hearing, 116 Congress]
    [From the U.S. Government Publishing Office]

                        HOLDING WELLS FARGO ACCOUNTABLE:
                       EXAMINING THE ROLE OF THE BOARD OF
                       DIRECTORS IN THE BANK'S EGREGIOUS
                           PATTERN OF CONSUMER ABUSES

    =======================================================================

                                    HEARING

                                   BEFORE THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 11, 2020

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 116-92

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    42-867 PDF                  WASHINGTON : 2021

    --------------------------------------------------------------------------------------

                     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             ANN WAGNER, Missouri
    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            STEVE STIVERS, Ohio
    ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
    JIM A. HIMES, Connecticut            SCOTT TIPTON, Colorado
    BILL FOSTER, Illinois                ROGER WILLIAMS, Texas
    JOYCE BEATTY, Ohio                   FRENCH HILL, Arkansas
    DENNY HECK, Washington               TOM EMMER, Minnesota
    JUAN VARGAS, California              LEE M. ZELDIN, New York
    JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
    VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
    AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
    MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
    RASHIDA TLAIB, Michigan              DAVID KUSTOFF, Tennessee
    KATIE PORTER, California             TREY HOLLINGSWORTH, Indiana
    CINDY AXNE, Iowa                     ANTHONY GONZALEZ, Ohio
    SEAN CASTEN, Illinois                JOHN ROSE, Tennessee
    AYANNA PRESSLEY, Massachusetts       BRYAN STEIL, Wisconsin
    BEN McADAMS, Utah                    LANCE GOODEN, Texas
    ALEXANDRIA OCASIO-CORTEZ, New York   DENVER RIGGLEMAN, Virginia
    JENNIFER WEXTON, Virginia            WILLIAM TIMMONS, South Carolina
    STEPHEN F. LYNCH, Massachusetts      VAN TAYLOR, Texas
    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 11, 2020...............................................     1
    Appendix:
        March 11, 2020...............................................    47

                                   WITNESSES
                           Wednesday, March 11, 2020

    Duke, Elizabeth A., Chair, Wells Fargo & Company.................     5
    Quigley, James H., Independent Chairman, Wells Fargo Bank, N.A...     6

                                    APPENDIX

    Prepared statements:
        Duke, Elizabeth A............................................    48
        Quigley, James H.............................................    70

                        HOLDING WELLS FARGO ACCOUNTABLE:
                       EXAMINING THE ROLE OF THE BOARD OF
                       DIRECTORS IN THE BANK'S EGREGIOUS
                           PATTERN OF CONSUMER ABUSES

                                  ----------

                           Wednesday, March 11, 2020

                 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, Scott, Green, Cleaver, Perlmutter,
    Himes, Foster, Beatty, Vargas, Gottheimer, Gonzalez of Texas,
    Lawson, Tlaib, Porter, Axne, Casten, Wexton, Adams, Dean,
    Garcia of Illinois, Phillips; McHenry, Wagner, Lucas,
    Luetkemeyer, Huizenga, Stivers, Barr, Tipton, Williams, Hill,
    Emmer, Zeldin, Loudermilk, Davidson, Budd, Kustoff, Gonzalez of
    Ohio, Steil, Gooden, Riggleman, Timmons, and Taylor.
        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 Wells Fargo
    Accountable: Examining the Role of the Board of Directors in
    the Bank's Egregious Pattern of Consumer Abuses.''
        I now recognize myself for 4 minutes to give an opening
    statement.
        Today, we will receive testimony from Ms. Elizabeth Duke
    and Mr. James Quigley, whom, until earlier this week, served as
    the Chair of the board of directors of Wells Fargo & Company,
    and Wells Fargo Bank, respectively. Both have resigned after I
    called for their resignations following the release of a
    scathing Committee Majority staff's report on Wells Fargo's
    compliance failures, and their individual failures as board
    members.
        But their resignations do not absolve them of their
    failures. Directors at Wells Fargo and institutions across this
    country must understand that they are the last line of defense
    when it comes to protecting their company's shareholders,
    employees, and customers. And while Ms. Duke and Mr. Quigley
    said they resigned to ``avoid distraction,'' let me be clear.
    This is not a distraction. We are examining misconduct and
    dereliction of duty.
        Over the past decade, Wells Fargo's board, management, and
    regulators have all failed to fix the company's internal
    control weaknesses that caused enormous harm for millions of
    consumers throughout the country. The Majority staff's report
    examines Wells Fargo's compliance with five consent orders that
    required the company's board and management to clean up the
    systemic weakness that has led to widespread consumer abuses
    and compliance breakdowns. As board members, Ms. Duke and Mr.
    Quigley were responsible for ensuring that Wells Fargo's CEO
    and other management executed an effective program to manage
    those risks.
        However, the Majority staff report found that Wells Fargo's
    board failed to ensure management could competently address the
    risk management of deficiencies; allowed management to
    repeatedly submit materially deficient plans to address
    consumer abuses; prioritized financial considerations over
    fixing consumer abuses; and did not hold senior management
    accountable for repeated failures.
        The Majority staff's report also revealed attitudes and
    failures on the part of Ms. Duke and Mr. Quigley that are
    dismaying. When the Consumer Financial Protection Bureau (CFPB)
    included Ms. Duke's letters requesting actions from the bank,
    she responded by asking, ``Why are you sending it to me, the
    board, rather than the department manager?'' This was
    surprising to CFPB officials, and gives the appearance of a
    see-no-evil mentality from Ms. Duke and an unwillingness to
    exercise the oversight required of her as a member of the
    board.
        Mr. Quigley also did not appear to understand the gravity
    of his board responsibilities. When the Office of The
    Comptroller of the Currency (OCC) wanted to schedule a meeting
    with the bank's directors to discuss, ``progress and
    accountability,'' Mr. Quigley told other bank officials that he
    was, ``currently scheduled to be away on vacation in some
    islands on those dates,'' and commented that, ``the sense of
    urgency is surprising.''
        These statements were made after several public enforcement
    actions against Wells Fargo for massive consumer abuse
    scandals. While Ms. Duke and Mr. Quigley have resigned, they
    must be held accountable for the dereliction of their duties.
        I now recognize the ranking member of the committee, the
    gentleman from North Carolina, Mr. McHenry, for 4 minutes.
        Mr. McHenry. Thank you, Madam Chairwoman. Thank you for
    holding this hearing, and I want to thank our witnesses for
    voluntarily complying with the request of the committee to
    appear.
        Today's hearing and the legislative proposals attached to
    it would make Rahm Emanuel proud. He once said, ``You never
    want a serious crisis to go to waste.'' Well, make no mistake,
    Wells Fargo has been in crisis mode for awhile now. We will
    hear more about the makings of that crisis today from our
    witnesses. They had a front-row seat. They are a part of the
    problem in many respects.
        In that spirit, the Democrats followed Rahm Emanuel's
    advice and rolled out policy proposals that would do everything
    from expand the scope of CFPB's authority to automatically
    downsizing certain banks, and from those proposals, it has a
    complete lack of connection with evidence before us in the
    example of Wells Fargo.
        We found with Wells Fargo that the problem wasn't that the
    CFPB lacked certain authority; the problem was that the CFPB
    ignored a series of red flags at Wells Fargo. That was under
    Richard Cordray's leadership as Director of the CFPB. We found
    the problem wasn't that Wells Fargo is too-big-to-manage. The
    problem was that it was deeply mismanaged.
        My colleagues on the other side of the aisle also have some
    ideas about the standards to which we should hold board
    members. How about we start with the proper legal framework and
    the standards that shareholders and the courts use? So, let's
    start there. Let's walk through those.
        Under the law, members of a corporate board of directors
    owe three fiduciary duties: the duty of care; the duty of
    loyalty; and the duty of good faith. Those concepts aren't very
    complicated. Directors must be diligent, they must subordinate
    their personal interests beneath the interests of the company,
    and they have to act in the best interest of the shareholders.
    Those standards make sense because, at the end of the day,
    directors represent the interests of the shareholders.
        Shareholders expect the board to do three basic things:
    first, hold management accountable; second, push back when
    management provides incomplete or overly optimistic
    information; and third, make sure the company has the right
    leaders in place. It looks like, based on what we heard
    yesterday from Mr. Scharf, the board might have finally got
    that last one right, the question of leadership.
        But we have a lot of questions today about everything
    leading up to the board's decision to elect Mr. Scharf. We need
    to hear why the board chose a company insider to lead Wells
    Fargo back in 2016. We need to hear why the board failed to
    recognize that management wasn't fixing the company's problems.
    And we need to hear why the board stood behind that management
    team for so long, until the Trump Administration's regulators
    forced a change.
        I think there is a lot that we can learn to ensure that new
    decision-makers deliver on the much-needed changes to this
    institution. I look forward to your answers today about this
    history, and thank you, Madam Chairwoman, for hosting this
    hearing. I look forward to the questions.
        Chairwoman Waters. Thank you very much. I now recognize the
    gentleman from Texas, Mr. Green, who is also the Chair of our
    Subcommittee on Oversight and Investigations, for one minute.
        Mr. Green. Thank you, Madam Chairwoman. Madam Chairwoman,
    the evidence speaks for itself. I have an article styled, ``35
    bankers were sent to prison for financial crisis crimes.''
    Bankers can go to jail. They can be held accountable. This is
    from CNN Business on April 28, 2016.
        Many of these crimes involved relatively small amounts of
    money at smaller banks. Smaller banks pay a price. Big banks
    pay off the government--$3 billion in fines paid by Wells
    Fargo, a bank that has demonstrated that it will commit fraud--
    NBC News article, February 21, 2020.
        I also have an article that is styled, ``Violation Tracker
    Parent Company Summary.'' This is from Good Jobs. And the total
    amount of penalties that Wells Fargo has paid since 2000
    amounts to $17,296,835,949. The evidence speaks for itself.
    Wells Fargo has been running a criminal enterprise.
        Chairwoman Waters. I now recognize the subcommittee's
    ranking member, Mr. Barr, for one minute.
        Mr. Barr. Thank you, Chairwoman Waters and Ranking Member
    McHenry. Ms. Duke, Mr. Quigley, you will testify to the
    committee today in your capacity as former board members of
    Wells Fargo.
        Let me be clear about two things. First, it is clear that
    the board made some mistakes. We heard yesterday how important
    new leadership is to the company, and I think the board will
    also benefit from fresh perspectives.
        Second, decisions about whether certain directors should
    continue to serve are for shareholders to make. Congress should
    not substitute its judgment for theirs. The chairwoman's call
    for the witnesses to resign was inappropriate, and I am sorry
    you are here under these circumstances.
        The Republican staff report highlights a series of missteps
    by Wells Fargo's board since 2016, and I will address those in
    my questioning shortly.
        But right now, I wish to emphasize what the ranking member
    said yesterday: There are pressing issues affecting our economy
    that this committee should focus on. Instead, we are spending
    time, energy, and resources speaking to two former board
    members of a company whose CEO testified yesterday.
        I yield back.
        Chairwoman Waters. I want to welcome today's witnesses.
    Until earlier this week, Elizabeth Duke was the Chair of the
    board of directors of Wells Fargo & Company. Prior to joining
    Wells Fargo's board, Ms. Duke served in a number of positions,
    including as a member of the Board of Governors of the Federal
    Reserve System.
        Also, earlier this week, Mr. James Quigley served as both a
    director of Wells Fargo & Company and as the independent
    chairman of Wells Fargo Bank. Concurrently with his service as
    a director of Wells Fargo, and chair of Wells Fargo Bank, Mr.
    Quigley served, and continues to serve as the chairman of the
    board of Hess Corporation, and director of the board of
    Merrimack Pharmaceuticals.
        While Ms. Duke and Mr. Quigley no longer serve on Wells
    Fargo's board, it is my expectation that they will be
    forthcoming in their testimony and responses to Members'
    questions today. Without objection, all of the witnesses'
    written statements will be made a part of the record.
        Before we begin, I would like to swear in the witnesses.
    Ms. Duke and Mr. Quigley, please stand and raise your right
    hand.
        [Witnesses sworn.]
        Let the record show that the witnesses answered in the
    affirmative. You may sit now.
        Each of you will have 5 minutes to summarize your
    testimony. When you have one 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.
        Ms. Duke, you are now recognized for 5 minutes to present
    your oral testimony.

      TESTIMONY OF ELIZABETH A. DUKE, CHAIR, WELLS FARGO & COMPANY

        Ms. Duke. Chairwoman Waters, Ranking Member McHenry, and
    members of the committee, thank you for inviting us to testify
    at today's hearing.
        With heightened volatility in financial markets, a strong
    Wells Fargo is needed now more than ever. Transformational
    changes are getting traction inside the company with strong new
    leadership and management. I believe that today, the company
    has the right team and path forward to be fully deserving of
    the trust customers place in us every day.
        Over the past several days, however, it became clear to my
    colleague, Jim Quigley, and me that the recent attention on our
    leadership of the board could hinder the ability of the company
    and its new CEO to turn the page and focus on the future, and
    this company must move forward. For this reason, last Sunday we
    informed our board colleagues of our decision to resign,
    effective immediately. We are confident that the board has all
    the necessary experience and skill sets to smoothly manage the
    leadership transition.
        When I look at Wells Fargo today, I see a community bank
    that, under Mary Mack, focuses on customers rather than sales.
    I see a fully transformed board with structural changes that
    improve the board's governance and effectiveness. I see an
    executive management team that balances a new approach with
    institutional knowledge. I see a risk management team and a
    risk platform that is under construction from the ground up.
    And I see a CEO with the ability to execute on the significant
    remaining work necessary to meet the company's regulatory
    commitments.
        Ever since the board learned the truth about what was going
    on inside Wells Fargo, it has been continuously and deeply
    engaged in understanding the problems and their solutions and
    insisting on action. I served on the board committee that
    investigated sales practices. Not only was I appalled by the
    harm to customers but I was sickened to hear how our employees
    were treated by their managers. I started as a teller and a new
    accounts representative, and I identified with those employees.
        Our investigation of sales practices was thorough and
    unfettered. Our attorneys conducted 100 interviews, reviewed
    interview notes from over 1,000 more, and collected 35 million
    documents from over 300 custodians. We instructed them to brief
    regulators, government agencies, and the staff of this
    committee to assist in your own investigations.
        The appendix in my written testimony provides a comparison
    of our findings and those of the OCC, the SEC, and the DOJ.
        The work to truly and sustainably address the root causes
    of the problems we discovered in the company has taken time to
    implement, more time than anyone anticipated, and more time
    than any of us, especially the board of directors, would have
    liked. I get the frustration of this committee and our
    regulators. It comes through loud and clear in your reports.
        But I can assure you that nobody is more frustrated than we
    are that the bank has not yet satisfied the requirements of the
    consent orders we have entered into. As members of the
    committee overseeing consent order work, Jim and I reviewed
    progress reports and grilled staff and management about every
    detail on a monthly basis, and we are confident the board will
    continue to hold management accountable until the job is
    finished.
        Throughout our tenure on the board, however, we remain
    mindful that the board cannot supplant management in the
    administration of the enterprise. Consistent with widely
    accepted principles of corporate governance, the board's
    primary responsibilities are to oversee the company's
    management and business strategies, to select a well-qualified
    CEO, to monitor and evaluate the CEO's performance, and
    importantly, not to micromanage the company's business,
    including in its day-to-day execution of the consent order
    requirements.
        Recognizing the critical importance of the responsibility
    to select a well-qualified CEO, I appointed Jim to lead the CEO
    search that resulted in the hiring of Charlie Scharf. You heard
    from Charlie yesterday about his plans and timetables going
    forward. We know that our former colleagues on the board are
    determined to provide him the space and support to complete the
    work.
        We are no longer able to speak on behalf of Wells Fargo, or
    address questions about the company going forward. We are also
    constrained by the scope of regulators' waivers of their
    confidential supervisory privilege. But within those
    limitations, we are here to answer your questions to the best
    of our ability.
        Thank you.
        [The prepared statement of Ms. Duke can be found on page 48
    of the appendix.]
        Chairwoman Waters. Thank you. Mr. Quigley, you are now
    recognized for 5 minutes.

      TESTIMONY OF JAMES H. QUIGLEY, INDEPENDENT CHAIRMAN, WELLS
                            FARGO BANK, N.A.

        Mr. Quigley. Chairwoman Waters, Ranking Member McHenry, and
    members of the committee, I am here to share my perspectives as
    a former member of the board of Wells Fargo on the bank's
    commitment to its customers to restore its brand and to realize
    its aspirational vision and purpose.
        As the committee is aware, I decided to resign from the
    board to permit the bank to turn the page and move forward with
    a focus on its future. I brought to my role as a Wells Fargo
    board member a deep conviction in the values of trust and
    confidence. I learned those from my parents, a forest ranger
    and a schoolteacher, and I took them with me to Deloitte where
    I rose to become the CEO.
        Restoring customer trust and confidence in Wells Fargo was
    our most important priority, after we learned of the egregious
    sales practices. In her written testimony, Ms. Duke has
    detailed many of the transformational changes that the board
    has overseen in our efforts to do everything possible to ensure
    that similar problems never happen again. And while there is
    more to be done, undeniably, I believe Wells Fargo is making
    progress.
        I would like to highlight two changes that are particularly
    important to me. First, the board oversaw a huge investment to
    strengthen the compliance function of Wells Fargo. One of my
    roles at Deloitte was leading the manufacturing group, so I
    understand the importance of zero defects. I know why it is
    critical to do it right the first time, and I carried that
    thinking with me to my governance and oversight role at Wells
    Fargo. I wanted zero customer harm. And if it ever occurred, I
    wanted it detected through the bank's control and monitoring
    processes and remediated as quickly as humanly possible.
        As you heard from Mr. Scharf yesterday, the bank's
    compliance teams have added more than 3,300 employees since the
    end of 2017, more than doubling the size of that function in
    less than 3 years.
        Second, the board encouraged and supported the changes in
    senior management of the bank, bringing new capability and
    stimulating cultural change. Since 2006, Wells Fargo has hired
    a new chief operating officer, chief risk officer, general
    counsel, chief auditor, chief compliance officer, head of HR,
    and head of technology. I personally devoted much of 2019 to
    leading the search for a new CEO, and I am confident that we
    selected the best candidate to lead the bank. Because I believe
    deeply in the critical role of culture in an organization like
    Wells Fargo, I was especially supportive of the culture Mr.
    Scharf is working to establish, one with clear priorities,
    best-in-class standards of operational excellence and
    integrity, a unified bank with clear line of sight across the
    business, accountability of management, and most important of
    all, a renewed commitment to completing the work of doing right
    by our customers and satisfying our regulators.
        The cultural and structural changes that are necessary to
    address the bank's challenges are far-reaching. We believe that
    getting those things right, and in a way that would provide
    lasting change, ultimately serves customers and employees
    better than doing them quickly. I believe the changes we
    oversaw will make Wells Fargo stronger, more reliable, and more
    deserving of customer trust. And while there is still more to
    do, I am confident the company is moving in the right
    direction.
        Because I am no longer a member of the company's board, I
    cannot speak for the board today. I have my personal
    reflections, including the importance of distinct and separate
    roles for management and the board. The board must oversee the
    company's management and business strategies, but it cannot
    replace or do the job of management. And that principle was
    critical to me during my tenure at Wells Fargo.
        In my testimony today, I must also respect the limits on my
    ability to disclose confidential bank supervisory information.
    The regulators have not provided full CSI waivers, and I need
    to be particularly careful to stay within the limits of the
    waivers we have received.
        Within those constraints, I look forward to answering the
    committee's questions.
        [The prepared statement of Mr. Quigley can be found on page
    70 of the appendix.]
        Chairwoman Waters. Thank you very much, and I appreciate
    your presence here today. I now recognize myself for 5 minutes
    for questions.
        Let me start by asking Ms. Duke, how many years have you
    served Wells Fargo on the board?
        Ms. Duke. Five years.
        Chairwoman Waters. Five years. Mr. Quigley, how many years?
        Mr. Quigley. Six years.
        Chairwoman Waters. Six years. Are you compensated for
    serving on the board?
        Ms. Duke. Yes, we are.
        Chairwoman Waters. How much is your compensation?
        Ms. Duke. My compensation in the last year was somewhere
    around $630,000.
        Chairwoman Waters. Six hundred and how much?
        Ms. Duke. --thirty thousand.
        Chairwoman Waters. Thirty thousand. Mr. Quigley, how much
    was your compensation?
        Mr. Quigley. $417,000 last year.
        Chairwoman Waters. Thank you very much. I want to get into
    the Majority staff's report. Ms. Duke, how did you prepare for
    today's hearing? Did you read the Majority staff's report?
        Ms. Duke. I did.
        Chairwoman Waters. Mr. Quigley, how did you prepare for
    today's hearing? Did you read the Majority staff's report?
        Mr. Quigley. Yes.
        Chairwoman Waters. Ms. Duke and Mr. Quigley, you stated
    that you resigned from the board, ``out of continued loyalty to
    Wells Fargo and ongoing commitment to serve our customers and
    employees,'' and to, ``avoid distraction that could impede the
    bank's future progress.''
        Ms. Duke, Mr. Quigley, notably absent from your resignation
    announcement is any acknowledgement of responsibility for the
    multitude of board failures documented in the Majority staff
    report. Do you disagree that as Board Chairs, you were
    responsible for the board's approval of poor quality consent
    order submissions and failure to hold ineffective leaders, like
    former CEO Tim Sloan, accountable?
        Ms. Duke?
        Ms. Duke. Thank you, Madam Chairwoman. I believe
    wholeheartedly that we both spent the time, used our judgment,
    did the inquiries, and did our job as thoroughly and as
    completely as we possibly could, and made decisions in
    accordance with our best judgment about what was the best
    course of action for the company. Our role in reviewing the
    consent order submissions was in reviewing them from a very
    high level. Any of the deficiencies that were in the details of
    those submissions are the responsibility of management.
        Chairwoman Waters. Thank you. Are you aware that Wells
    Fargo has paid out $17 billion since 2008, I believe, on
    settlements because of fraud, wrongdoing, and other kinds of
    problems at the bank? Are you aware of that?
        Ms. Duke. I would take that to be true. I don't know the
    total dollar amount.
        Chairwoman Waters. Mr. Quigley, how were you made aware of
    each of these problems that ended up in the hands of our
    regulators where Wells Fargo had to pay out these settlements?
    How did they come before the board? Did you know about each of
    them?
        Mr. Quigley. I was aware and I was informed as a result of
    being the chairman of the audit committee and the judgments
    that are required in preparing timely, reliable financial
    information, and the need to be able to estimate when an
    obligation is probable and measurable and needed to be
    recognized in those financial statements.
        I was also a member of the risk committee and a member of
    the regulatory compliance and oversight committee, and
    management was transparent with us as those items were maturing
    and moving forward.
        Chairwoman Waters. Weren't you shocked when time and time
    again, you were confronted with these scandals that were being
    presented to the board, and they continued right up through
    today?
        Mr. Quigley. The sales practice abuses were very troubling
    to me, and shocked perhaps is not an overstatement of how I
    felt when I was made aware that, in fact, those practices were
    something far more than had earlier been provided to us.
        Chairwoman Waters. Doesn't the Majority staff report
    demonstrate your dereliction of duty as board chairs to ensure
    that the company submitted comprehensive plans and met all of
    the requirements of the orders? Do you take responsibility for
    that?
        Mr. Quigley. I absolutely agree with what Ranking Member
    McHenry pointed out on what is the duty of care and what is the
    business judgment rule, and how can a board member be properly
    informed on matters that are clearly management responsibility.
    I emphasized, in my opening statement, that I believe effective
    governance requires clear separation between management and the
    board, and any time those lines get blurred, I believe the
    enterprise becomes less safe and less sound--
        Chairwoman Waters. So are you saying to me--
        Mr. Quigley. --and less accountable--
        Chairwoman Waters. --that you do not consider it a
    dereliction of your duty to Wells Fargo's shareholders and its
    customers in dealing with these consent orders? You are trying
    to talk now about making sure that there are clear lines
    between the board and management, and to separate yourself from
    some of the management responsibilities. Don't you think it was
    a dereliction of duties not to be on top of all of this?
        Mr. Quigley. I know what I have done as a board member of
    Wells Fargo, and I am comfortable with that work and the way
    that I performed that role. I did my very best. I could do
    nothing more, and the company deserved nothing less.
        Chairwoman Waters. Thank you. My time is up, and the
    gentleman from North Carolina, Ranking Member McHenry, is
    recognized for 5 minutes.
        Mr. McHenry. So, Mr. Quigley, you are in charge of the
    audit committee. There was never any question about the quality
    of the financial information provided? There are severe
    negative consequences for management decisions made and board
    decisions as it relates to management. So, let's get to this
    question of fiduciary duty.
        Ms. Duke, you were Chair of the Board, so I want to start
    with you. Mr. Quigley says the terminology I used on fiduciary
    duty for board members is approximately right. Do you agree?
        Ms. Duke. I do.
        Mr. McHenry. Okay. So, that responsibility to ensure that
    the company is managed appropriately is a key component of
    that.
        Ms. Duke. That is correct.
        Mr. McHenry. Okay. So the board's responsibilities under
    the consent orders that Chairwoman Waters mentioned--what was
    the board's responsibility under the consent orders?
        Ms. Duke. The board's responsibility under the consent
    orders was to review and make sure that the submissions were
    submitted and to review quarterly progress reports for
    submission to the regulators for the OCC and for the Federal
    Reserve. For the CFPB, the frequency was a little bit
    different, but it was the same responsibility.
        Mr. McHenry. What does it mean when a regulator rejects a
    submission made by the bank for material deficiencies?
        Ms. Duke. It means that the bank has to correct those
    deficiencies, has to address those issues.
        Mr. McHenry. Both the CFPB, in December 2019, and the OCC,
    in July of 2019, referred to deficiencies. It was based on the
    quality of the submissions. So, did the CFPB ever reject the
    bank's submissions?
        Ms. Duke. I don't remember receiving--
        Mr. McHenry. The answer is yes, they rejected--there has
    never been a submission to the CFPB that was fully accepted.
        Ms. Duke. We have never received a non-objection from the
    CFPB on the consent orders that were submitted.
        Mr. McHenry. Non-objection?
        Ms. Duke. That is the regulatory term.
        Mr. McHenry. Sure. There were deficiencies in the quality
    of submissions. Is that correct? Material deficiencies is the
    term. The answer is, yes.
        Ms. Duke. Yes.
        Mr. McHenry. Okay. Did the OCC ever reject the bank's
    submissions? Again, the answer is yes. Herein, lies the
    problem. When the board and the Board Chair cannot answer this
    question, under the consent orders with the Federal Government,
    that the board had a requirement to review these plans, I am
    asking you a very basic question. My hope was that I could get
    to my point here, and you won't even answer yes when it was
    clear that the board decision here, that there were material
    deficiencies from every one of your regulators in the
    submissions you had.
        So, let me move on. The Federal Reserve also rejected your
    submissions. I am not going to ask for a response. The answer
    is, yes. We will move on. And since you are a former Governor
    of the Federal Reserve, I think that is a particular concern.
        So what efforts did the board make to remedy the deficient
    submissions?
        Ms. Duke. We reviewed the submission. We discussed with the
    regulators what the deficiencies were. We had the management
    begin to work on resubmissions. We reviewed those
    resubmissions. The resubmission to the Federal Reserve was
    submitted. It came back with portions of the consent order
    being put into three buckets: generally acceptable; partially
    acceptable; and not acceptable.
        With respect to paragraph 2, the paragraph that covers the
    board's effectiveness, all of them were generally acceptable
    with the exception of three, which were partially acceptable.
    On paragraph 3, there were several that were partially
    acceptable, I believe one was generally acceptable, and two or
    three primarily around compliance and operational risk
    management were not acceptable and are currently under
    resubmission. The paragraph 2 resubmission was resubmitted, I
    believe, in early February.
        Mr. McHenry. Okay. So was there ever a sense of a question
    about the urgency of management to respond to the regulatory
    orders?
        Ms. Duke. There was never any question about the importance
    of the work in the company.
        Mr. McHenry. Was there a concern by the board about the
    speed with which management was responding to these orders?
        Ms. Duke. There was a great deal of concern by the board
    about the speed with which not only the orders were being
    responded to, but also the work to improve the risk management
    of the company and the quality of that work.
        Mr. McHenry. How do incomplete and late submissions reflect
    on the safety and soundness of your institution, of your former
    institution?
        Ms. Duke. They don't reflect well.
        Mr. McHenry. Okay. Wells entered into a $480 million
    settlement with shareholders in 2018, is that correct?
        Ms. Duke. That is correct.
        Mr. McHenry. Can you help us understand the basis for that
    settlement?
        Okay. Then, let me help you with that. The bank and the
    executives made misrepresentations and omissions about the
    bank's business model and sales practice.
        I have a lot of other questions here that I won't able to
    get to. I have deep concerns about just the responsiveness of
    the board. It is clear from the documents that the Majority and
    the Minority have the same findings of facts. There were severe
    deficiencies in management practices that were unique to Wells
    Fargo, and unique failures of this board of directors. That is
    why we are having this hearing, even though you have both
    resigned.
        So with that, thank you, Madam Chairwoman, for hosting this
    hearing, and I look forward to the questions.
        Chairwoman Waters. Thank you very much. The gentlewoman
    from New York, Ms. Velazquez, is recognized for 5 minutes.
        Ms. Velazquez. Thank you, Madam Chairwoman, and Mr. Ranking
    Member. Ms. Duke and Mr. Quigley, yesterday I questioned Mr.
    Scharf about the Federal Reserve's 2018 consent order, and
    listening to your answers to the ranking member, I can't help
    but question the fact that you reviewed those plans that were
    materially deficient, but you concluded that they were
    acceptable, and then you sent them. Was this on purpose?
        Ms. Duke. Excuse me? I'm sorry?
        Ms. Velazquez. The fact that you sent acceptable but
    deficient materials, that plan that you sent to the Fed, did
    you do that on purpose?
        Ms. Duke. No, ma'am.
        Ms. Velazquez. No. Paragraph 2 of the consent decree
    requires Wells Fargo to submit a plan that enhances the board's
    effectiveness in carrying out its oversight and governance of
    the bank. Ms. Duke, until Sunday night you were both--you and
    Mr. Quigley--long-time board members of the bank. Don't you
    think submitting inadequate plans to the Fed shows the board's
    focus on profit, not on addressing the core operational risk
    management problems at the bank?
        Ms. Duke. I think the board and the company have been
    focused very intensively on the operational risk management of
    the bank. The requirements of the board--
        Ms. Velazquez. Then, explain how the Fed meeting minutes
    state that the Fed staff concluded you were primarily concerned
    with lifting the asset cap, even though you were unable to
    evaluate the degree of actual progress made by the bank on risk
    identification? Do you understand why this calls into question
    your commitment to the consent decrees requirement?
        Ms. Duke. My focus was on getting the work done to meet the
    requirements for operational risk management.
        Ms. Velazquez. After the Federal Reserve rejected Wells
    Fargo's April 2018 submission, Ted Craver, a director at Wells
    Fargo, sent you an email and questioned whether the plan,
    ``missed the mark because Wells Fargo perhaps rushed the job in
    its zeal to clear this hurdle--meaning the asset cap--
    quickly?''
        Given the comments in Mr. Craver's email, can you
    understand why regulators, legislators, and even consumers do
    not view the board's effort to comply with the consent decree
    to be genuine? Do you understand that?
        Ms. Duke. I do.
        Ms. Velazquez. And Mr. Quigley?
        Mr. Quigley. I also find that disappointing.
        Ms. Velazquez. Disappointing. And what actions have you
    taken to make sure that--
        Mr. Quigley. Paragraph 2 of the Fed consent order required
    significant changes in board effectiveness, and committee
    structures have been--
        Ms. Velazquez. Let me ask you, sir, what specific actions
    can you point to that you have taken to show that you are, in
    fact, committed?
        Mr. Quigley. We rewrote the charter for the audit
    committee, and we transferred the risk management oversight
    that was causing some confusion between the risk committee and
    the audit committee, and we moved those paragraphs to the audit
    committee charter.
        Ms. Velazquez. And are the regulators satisfied?
        Mr. Quigley. With respect to paragraph 2, which was related
    to board effectiveness, the Federal Reserve has said that we
    have been responsive there and we changed the committee
    structure--
        Ms. Velazquez. Thank you. Ms. Duke and Mr. Quigley, I think
    it is clear to me, to staff at the Federal Reserve, and even to
    other executives within Wells Fargo that the priority of the
    two of you and the overall focus of the board was on lifting
    the asset cap and exiting the consent decree, and not on
    actually fixing the risk management problems at the bank or
    holding senior management accountable. That is why you are
    here, and I will dare to say that probably you will have to
    come back if you do not change the culture in the institution.
        I yield back.
        Chairwoman Waters. The gentlewoman from Missouri, Mrs.
    Wagner, is recognized for 5 minutes.
        Mrs. Wagner. Thank you, Madam Chairwoman. Ms. Duke and Mr.
    Quigley, thank you for coming before the committee today to
    testify. Yesterday, we heard from Wells Fargo's new CEO, Mr.
    Scharf, about what steps he has taken in his first
    approximately 6 months to address the bank's deficiencies.
    While I remain cautiously optimistic that Mr. Scharf is the
    right person to move this business in the right direction, my
    questions today will be regarding your actions, and in some
    cases, lack thereof, to address the myriad of deep-seated
    issues within Wells Fargo.
        The committee's reports found that Wells Fargo routinely
    requests extensions to deadlines for submitting remediation and
    reform plans. Regulators typically grant those requests, but
    the bank's plans remain insufficient, even with the extra time.
        Ms. Duke or Mr. Quigley, do you see any differences between
    Mr. Sloan's and Mr. Scharf's handling of the consent orders?
    Meaning, I guess, is there a greater sense of urgency now with
    respect to regulatory compliance?
        Ms. Duke. First of all, I would like to say that the missed
    deadlines that the regulators talk about are completely
    unacceptable and I don't view those as acceptable. On the
    resubmissions and feedback on them, I guess because these are
    big, important pieces of work, I think about them similar to
    the first capital exercises that the Fed ran with Comprehensive
    Capital Analysis and Review (CCAR), as well as the submission
    of plans under the living will provisions, and those plans have
    gone through several iterations. There have been a number of
    banks, including Wells Fargo, whose original plans were not
    acceptable and they have had to improve them.
        Mrs. Wagner. Ms. Duke, was the board aware of the number of
    extensions that the bank requested in order to submit plans
    under the consent orders?
        Ms. Duke. The board was aware of any change in the plans
    for the consent orders themselves. I believe some of the
    comments about extensions had to do not just with the consent
    orders but with other work that was due to the agencies.
        Mrs. Wagner. Did that raise any kind of concerns for the
    board?
        Ms. Duke. It did. We spend, in our board meetings--they are
    now consumed with regulatory issues. So, we are now reporting
    not only to the board but to a number of committees as to the
    status of not just the consent orders, but matters requiring
    attention (MRAs), that are also the subject of regulatory--
        Mrs. Wagner. So, that was a red flag that the consent order
    program was not working?
        Ms. Duke. Let me give you this as an example. When Charlie
    came to the bank, and we were reviewing the agenda for the
    first board meeting he was going to attend--and we had long
    conversations with him about what we were doing--I said,
    ``Charlie, I apologize. There are no agenda items about the
    business. They are all about the regulatory situation.'' And he
    said, ``I understand. That is where we are.''
        Mrs. Wagner. What about the fact that plans were repeatedly
    rejected? Knowing that, why didn't the board take more
    aggressive actions with respect to holding management
    accountable for the deficiencies of the consent order
    compliance program?
        Ms. Duke. There are a number of places where the people who
    were working on those submissions were changed. Someone else
    was working on them, in particular the ones that had to do with
    risk management. So, we got a new chief risk officer, we got a
    new chief compliance officer, we have been through four chief
    operational risk officers. We were changing out the people,
    looking for the people who could actually get the plans written
    in a complete fashion.
        Mrs. Wagner. Ms. Duke, the documents show you preferred the
    regulators to provide feedback directly to the heads of
    business lines. Help us understand why you did not want to hear
    from the regulators directly?
        Ms. Duke. I would very much like to address that piece of
    the report. I have been in a regulated industry for all of my
    career. I have been in a regulatory agency. I have enormous
    respect for supervisors, examiners, and the work that they do.
    And I have been in constant contact with the regulators at the
    OCC and at the Federal Reserve. The individual there, we did
    meet with him on numerous occasions. I found him difficult, I
    found him not knowledgeable about what was going on in Wells
    Fargo, and I found that he sent--he did send us letters on
    details that really belonged somewhere else. But I should never
    have said, ``Why are you sending this to me?'' I know better
    than to do that, and I apologize.
        Mrs. Wagner. Thank you for that admission. I yield back,
    Madam Chairwoman.
        Chairwoman Waters. Thank you. The gentleman from
    California, Mr. Sherman, who is also the Chair of our
    Subcommittee on Investor Protection, Entrepreneurship, and
    Capital Markets, is now recognized for 5 minutes.
        Mr. Sherman. The nation was shocked by the behavior of
    Wells Fargo. But what was equally shocking is that Wells Fargo
    seems uninterested in atoning for what it did. Was there any
    discussion at the board, Ms. Duke, of being on the right side
    of history and instructing your lobbyists to lobby in favor of
    the Overdraft Protection Act so that you could do something
    good for the consumers of the country, having ripped them off
    by the tens of millions? Yes or no, was there a discussion of
    supporting that Act?
        Ms. Duke. In the board meeting, we discussed overdraft
    programs, but we have not--
        Mr. Sherman. But you did not discuss what your lobbyists do
    in Washington, which affects not just your customers, which
    might include 1 in 10, or 1 in 20 Americans. You didn't even
    discuss the idea of being on the right side of history for all
    of the consumers. Did you discuss whether you should assert the
    rights under the arbitration provision so that the arbitration
    provision kept somebody out of court for the phony account,
    when they only signed it for the real account? Was that
    discussed in the board?
        Ms. Duke. We did not, or--
        Mr. Sherman. Well, it sounds like the board is terribly
    disinterested in atoning for the harm done to consumers, in
    general, in the country, or the particular consumers who were
    consumers of the bank.
        But let's shift from the outrages of the past to the crisis
    of the present. The stress test is designed to deal with what
    happens when you have a catastrophic event in the economy,
    because we know that every year there is a chance that such an
    event might occur. But once one event occurs, that does not
    diminish the likelihood of a second event occurring.
        So, we have had one, called the coronavirus. You could
    almost call it two, the decline in oil prices, which has shook
    up a bit of the economy. That means we could very well have a
    third that is no more likely, or less likely that something
    else that you did the stress test for would occur.
        Every dollar of dividends you pay or stock buybacks that
    you do makes the bank less able to deal with these
    catastrophes. You testified that America needs a strong Wells
    Fargo in today's economy. You put together, at the board level,
    back in July, a stock buyback and dividend program. Did that
    program anticipate what you would do if the country had one,
    call it one-and-a-half catastrophes that could affect the bank
    and the economy, and could very well have another one?
        Ms. Duke. I believe the design of those stress tests
    actually does that. Within the stress test, there are not only
    changes in the economy and economic variables, but also plugged
    into it are assumptions about different risk events.
        Mr. Sherman. You were still on the board when the
    coronavirus hit. You were there a couple of days ago. You
    believe a strong Wells Fargo is needed for our economy, that
    you have a national duty to provide a strong Wells Fargo. After
    the coronavirus broke, did you have discussions of ending or
    scaling back your stock buyback program?
        Ms. Duke. I have not attended a board meeting since then,
    but I spent a lot of--
        Mr. Sherman. Well, I would assume this being a national--
        Ms. Duke. I did speak with Charlie about the actions the
    company was taking internally.
        Mr. Sherman. How about the stock buyback program? Weakening
    the bank, endangering the nation, because you are too-big-to-
    fail, in order to enrich the management by keeping the stock
    price up. No discussions of that since this epidemic arose?
        Ms. Duke. The design of the stress test on capital is to
    include the effects of unforeseen events.
        Mr. Sherman. But once you have one unforeseen event, then
    it is much more likely that you will end up with several--well,
    you plan for one or two or three. Once you have one, then the
    likelihood of four increases, because you already have one.
        Ms. Duke. Right.
        Mr. Sherman. And you are saying this coronavirus--you never
    thought about doing anything to diminish the payments to
    shareholders?
        Ms. Duke. I joined the Federal Reserve in August 2008. I am
    very much aware of the risk to banking. I know absolutely what
    it looks like when a run on a bank starts. I know once it
    starts, how difficult it is to--
        Mr. Sherman. So, we are just--
        Ms. Duke. I know how important capital is to the--
        Mr. Sherman. So, you know all these things--
        Ms. Duke. I know how important liquidity is.
        Mr. Sherman. When we have a change in circumstance, you
    would think we would have a change in policy, unless only the
    interests of management matter to the directors.
        I yield back.
        Chairwoman Waters. The gentleman's time has expired. The
    gentleman from Kentucky, Mr. Barr, is recognized for 5 minutes.
        Mr. Barr. Thank you, Madam Chairwoman. Ms. Duke and Mr.
    Quigley, I admit I am somewhat amused by my Democratic
    colleague's demand that you change the culture at Wells Fargo,
    otherwise you will have to come back to this committee. I am
    amused, because you both have resigned from the board as of
    last Sunday, and you are no longer in a position to make any
    changes at the bank. I think it is clear that the Majority
    wants only to embarrass you and to continue their persistent
    defamatory, anti-bank rhetoric.
        But since you are here, let's look to the past. Let's look
    to your service on the board in the past, which I think you can
    testify about.
        The Republican report provides evidence that you and your
    fellow board members understood the regulators' frustration
    with Mr. Sloan, yet he remained in place. And let me just read
    to you specifically from that report. The reports says, ``The
    evidence shows that Mr. Sloan and his team provided incomplete
    and exceedingly optimistic information to Congress, the public,
    and the board of directors. Wells Fargo was no closer to
    complying with the regulators' consent orders when Tim Sloan
    resigned in March 2019, than when his team took over in 2016.''
        What troubles me the most is that the report finds that
    between 2016 and 2019, the company routinely submitted
    incomplete plans to the regulators and missed deadlines. The
    submissions were frequently late or incomplete, or both.
        So my question is, why did Mr. Sloan remain as CEO for so
    long during that course of an incomplete compliance program?
        Mr. Quigley. I would just want to emphasize that our
    assessment of Mr. Sloan and his performance collected many,
    many data points from lots of places, and it wasn't reliant
    solely on representations that he might make. I acknowledge
    that he led as a glass-half-full type of leader, and he had a
    sense of optimism. I also had regular, and many times during
    the past year, daily communications with our regulators, and so
    I understood what their thinking was, and that helped me in my
    oversight of Tim and his performance as our CEO, and the HRC
    committee, because they were concerned about wanting to drive
    accountability deeper into the culture, revised our performance
    management system so that in order to qualify for a bonus, you
    had to have made significant progress on regulatory matters.
        Mr. Barr. Ms. Duke? Well, let me move on. Let me ask you
    this. The Republican report also shows very clearly that the
    regulators under the Obama Administration were asleep at the
    switch. Federal regulators identified issues related to Wells
    Fargo's sales practices as early as 2009. Unfortunately, it
    took an L.A. Times article to bring it to their attention years
    later, and even then, under Director Cordray and other
    regulators, they dragged their feet.
        In contrast, regulators under the Trump Administration have
    taken decisive action to correct the mistakes at the bank,
    including implementing an unprecedented asset cap and calling
    for sweeping changes to the bank's risk management.
        Ms. Duke, do you believe that the actions by the Trump
    Administration financial regulators, including the imposition
    of the asset cap, were appropriate and fair, given the gravity
    of the abuses and the need to send a message to management?
        Ms. Duke. I don't disagree with any of the actions of our
    regulators.
        Mr. Barr. I was encouraged yesterday to hear Mr. Scharf
    speak about the urgency and the focus on the consent orders and
    dealing with the consent orders. He testified yesterday that
    resolving the regulatory matters was his top priority. Do you
    feel that was the case under Mr. Sloan?
        Ms. Duke. I feel like resolving the issues that led to the
    consent orders, so resolving the weaknesses in operational and
    compliance risk management, were the priority across the
    company. But I do applaud and appreciate Mr. Scharf's emphasis
    on getting this work done. It is one of the reasons that we
    were so happy to hire him.
        Make no mistake, his job is not going to be easy, and I
    think he needs the full support of the board and needs to be
    able to put his full attention on doing that.
        Mr. Barr. Well, my time is expiring, but I was impressed by
    Mr. Scharf's testimony as well. And more than just his
    testimony, but also the fact that he is making these changes
    and bringing in outside leadership. There have been dramatic
    changes that have taken place there, and I wish him well.
        I yield back.
        Chairwoman Waters. The gentleman from New York, Mr. Meeks,
    who is also the Chair of our Subcommittee on Consumer
    Protection and Financial Institutions, is recognized for 5
    minutes.
        Mr. Meeks. Thank you, Madam Chairwoman.
        Let me ask both of you, Ms. Duke and Mr. Quigley, you have
    accountability, right? As Board Chair or on the board, there is
    accountability that you have?
        Mr. Quigley. Yes.
        Ms. Duke. Yes.
        Mr. Meeks. CEOs have accountability, correct?
        Mr. Quigley. Yes.
        Mr. Meeks. Okay. Mr. McHenry said that the responsibility
    is care, loyalty, and good faith. So the first question I would
    have is, is there any loyalty to your customers as board
    members? Was there loyalty there or just to the stockholders or
    the shareholders and those individuals who were employed by the
    company? Does any loyalty go to the customers?
        Mr. Quigley. Use of the terms, ``duty of care,'' ``duty of
    loyalty,'' and ``business judgment rule,'' all of that is
    grounded in Delaware law and relates to the Companies Act and
    the relationship between the board and the shareholders who
    elect us to represent them.
        Mr. Meeks. But I am asking you as a member of the board--
        Mr. Quigley. I absolutely have a sense of loyalty and a
    sensitivity related to all stakeholders that an enterprise--
        Mr.  Meeks. Okay. So, here is my question. Up until when
    you first were at the company, you were on the board. So I want
    to talk about those things that took place while you were on
    the board just to make sure. You were on the board, if I am not
    mistaken, in September of 2016. Is that correct?
        Mr. Quigley. That is correct.
        Mr. Meeks. Okay. So you were there when there was the fake
    account scandal. You were on the board, again, in 2016 when it
    came out that there was improper repossessing of
    servicemember's cars. You were on the board in December 2016
    when Wells Fargo failed its living will test. You were on the
    board and supposed to have some accountability in March 2017
    when there were more fake accounts. You were on the board again
    when Wells Fargo flunked the community lending test. You were
    on the board in April 2017 when the whistleblower won a $5.4
    million decision and got his job back.
        You were on the board in August 2017 for the lawsuit for
    overcharging small business retailers. You were on the board in
    February 2018 when the Federal Reserve restricted your size.
    You were on the board in February 2018 also when Sacramento
    sued Wells Fargo over discrimination against Black and Latino
    borrowers. You were on the board in March 2018 when the wealth
    management investigation emerged. You were on the board in
    April 2018 when there was a $1 billion settlement for mortgage
    locks and auto loan issues. You were on the board in May 2018,
    with altering business information without client knowledge.
    You were on the board in May 2018, with $480 million to settle
    a securities fraud lawsuit. You were on the board in June 2018,
    with the SEC fine for leading investors astray. You were on the
    board in July 2018, with refunds over ads like pet insurance
    and legal insurance. You were on the board in July 2018, with
    private bank wealth management issues.
        I could keep going on, but I am running out of time. I will
    probably run out of time before I talk about all of the things
    that took place at Wells Fargo when you were on the board and
    Chair of the Board and supposed to have some accountability.
    And doing all of this, my question then would be, in December
    2015, when the Fed came back, were there changes made to the
    composition of the Wells Fargo board in response to the Fed's
    concerns back then? You do not have to answer that, because I
    know. No, there was none, except for one board member who
    retired. The company nominated its entire 2015 board for
    reelection in 2016 when all this was going on. Did Wells Fargo
    change its CEO? Did the board change? I will answer for you:
    No. The chairman and CEO, John Stumpf, retired a year later in
    October 2016 in the wake of the sales fraud scandal, and only
    after he had offered unsatisfactory testimony before us. That
    might be why you resigned before you came to us.
        How about the chief risk officer? Did Wells Fargo find a
    new chief risk officer in response to the Fed's concerns about
    a weak risk culture at the company? I will answer for you
    again: No. Wells Fargo's then-chief risk officer Mike Loughlin
    continued to serve in that role through his retirement in mid-
    2018, and claimed that the Corps should not donate to charity
    unless regulators acted more favorably towards Wells Fargo.
        In fact, in response to the Fed's concerns going back to
    2015, Wells Fargo's culture was the source of its risk
    management problems, and Wells Fargo made no changes. You made
    no changes.
        Chairwoman Waters. The gentleman from Missouri, Mr.
    Luetkemeyer, is recognized for 5 minutes.
        Mr. Luetkemeyer. Thank you, Madam Chairwoman.
        I want to follow up a little bit on Congressman Barr's
    comments with regards to the Republican report and the
    information in there, and go back to where I think some of the
    problems started here from the fact of not being able to
    recognize it. It really concerns me from the standpoint that,
    you go back already to 2009 when it shows that the regulators
    indicated there was a problem with some of your employee sales
    tactics, and then in 2013 the Los Angeles Times ran a story
    leading to ethical breaches at Wells Fargo, and then in 2014,
    in December, they broke the story that eventually broke
    everything out.
        I think, Mr. Quigley, you were on the board for most of
    that period of time, and I think, Ms. Duke, you came on very
    shortly thereafter or right around that period of time, so what
    was your reaction to the news story at that point?
        Mr. Quigley. We were appalled by the claims in that story.
        Mr. Luetkemeyer. And what action did you take to find out
    other information or stop the practice?
        Mr. Quigley. The Risk Committee asked the leader of the
    community bank to come to the committee and explain what had
    been asserted.
        Mr. Luetkemeyer. Mr. Stumpf was in here during that period
    of time, and I asked him point-blank, because he was firing
    about 1,000 people a year over a 5-year period and kept it up.
    I kept asking him, ``Why have you not changed the culture in
    your bank? Because you keep firing people.'' He said, ``Well,
    now we are fixing it.'' I replied, ``No, you are not fixing it,
    if you keep firing 1,000 people every year. That is not fixing
    it. You should have fixed it so you do not have to fire
    everybody, so everybody is doing the right thing.''
        Did that not send up some red flags for you when he kept
    firing people and nothing changed?
        Mr. Quigley. The board was not aware of the pace of those
    terminations that you are referencing until the testimony that
    Mr. Stumpf gave in September of 2016, and we read the materials
    that he was going to be providing to this committee. That was
    the first time that the magnitude of those sales practice
    violations became known to the board, and the board then acted
    decisively. And that is when we commenced the special
    investigation to do the root cause analysis, and the incentive
    compensation plan in the community bank was then terminated, as
    was the leader of that bank.
        Mr. Luetkemeyer. Well, that is fine, but then according to
    our report here, it says the chief risk officer who joined
    Wells Fargo in 2018 showed that the company lacked the capacity
    to detect and fix problems compared to its competitors, which
    means you have a different business model, a different
    management style, which is fine as long as it works, but
    apparently it was not working.
        So was the board concerned--and according to our report
    here, it indicates that their concerns were dismissed by that
    individual. They were not believed. You believed your executive
    officer, Mr. Sloan, over the Risk Management Committee's
    report, apparently. Did that not strike you as kind of
    concerning, that the Risk Committee said, ``We need to be
    changing our management style,'' and yet, there was a conflict
    there? Did you take sides? Apparently, you did on this.
        Mr. Quigley. I'm sorry, but I sort of lost track--
        Mr. Luetkemeyer. Okay. My question is--
        Mr. Quigley. --of you moving forward, but the federated
    model--
        Mr. Luetkemeyer. You have a different management style than
    most banks your size, and there was concern about that style
    with regards to the risk officer that you hired in 2018, who
    apparently resigned in 2019. Did that not concern you at the
    time that there was a pointing out of this problem, and yet the
    executive officer seemed to say, we are okay, our management
    style is fine? So apparently, you took sides in this situation
    and chose your executive officer over your risk management team
    who said, ``We need to change the way we are going and what we
    are doing and how we are doing business here.'' Can you give me
    a rationale on why you did that?
        Mr. Quigley. There is no question that we had to build an
    independent risk management structure as we were transitioning
    from and trying to make part of our--what the old Wells Fargo
    was, that federated model. When the risk management sat inside
    that line of business, we did not have independent, effective
    risk management, and we did not have the right issues being
    escalated, and so I am pleased with the progress that was being
    made to build out that independent risk management group, and
    as the chairman of the Compliance Subcommittee of the Risk
    Committee, I worked very closely with our chief compliance
    officer and the significant, dramatic addition of resources and
    new capability that was coming to the bank to build that
    independent risk management function.
        Mr. Luetkemeyer. That answer leaves me wanting more, but my
    time has expired. Thank you. I will yield back.
        Chairwoman Waters. Thank you.
        The gentleman from Georgia, Mr. Scott, is recognized for 5
    minutes.
        Mr. Scott. Thank you, Madam Chairwoman.
        This has been an interesting and yet very disturbing
    hearing, and let me tell you why. Something is rotten in the
    cotton here. You all are not coming with the truth.
        Yesterday, we spoke with your chief executive officer. He
    had an excuse. He has only been around for 4 weeks. You brought
    him in. But you two have been on this board throughout the
    entire germination of this shameful attack on the trust and
    confidence of the American people in your bank.
        Now, first of all, while you were on the board, you allowed
    the bank's management to repeatedly submit material that was
    deficient in response to the consent order from our regulators.
    You did that. You did not hold your management accountable. If
    I was sitting on the board of directors and I was making
    $400,000, or $600,000, I would be much more plain, for what?
    You mean the Federal Reserve is coming in and laying the
    blame--they did--directly at the feet of the board, saying you
    are not holding management responsible. Who came up with this
    idea to make up accounts, make them up, false accounts? Not
    just for one or two people, but for millions. And you all sat
    on that board, and you said nothing, you did nothing?
        We have to find the answer from you today. Why did you
    allow this rabid conflict with the American people's trust in
    our banking system to permeate while you were sitting there all
    those years? Whose idea was it to place this on the backs of
    your employees to make up these accounts? Somebody had to do
    it. Your chief executive from yesterday cannot be held
    responsible for that, but you two can. Who came up with the
    idea to do this? Tell us right now. Tell us. Somebody had to.
    You were sitting on the board when they were coming up with
    this. And you all did not hold your management responsible?
    What a sorry excuse for a board, that you said nothing about
    this. That is what is amazing about this appearance. Why? Who
    made that decision to say, ``Let it go on?'' And why did you do
    it and say nothing? Answer that for me.
        Why didn't you hold your management responsible? And why
    did you allow them to give these unacceptable reports to our
    banking regulators? Why? Whose idea was it? Come on, tell us.
    Come closer. Tell us. Who made that decision to make up these
    accounts falsely? Who? Tell us.
        Therein, lies the problem, and I hope and I pray that the
    people of this country see your stone silence when you will not
    even answer this question, when you will not even respond to
    the regulators. This is an unpardonable sin that Wells Fargo
    has committed upon the American people.
        Chairwoman Waters. Thank you.
        The gentleman from Colorado, Mr. Tipton, is recognized for
    5 minutes.
        Mr. Tipton. Thank you, Madam Chairwoman, and I appreciate
    both of you coming here as private citizens, now voluntarily
    coming in to address this committee.
        I have a number of critiques, and I believe you probably
    understand that many are valid. But I think a lot of our job
    needs to be looking forward as well in terms of as a
    legislative body, what rules and regulations ought to be
    applied? Were regulators asleep at the switch in terms of
    actually enforcing with Wells Fargo, and some of the board
    compliance as well?
        One of the issues that we have had a lot of conversation on
    in our committee is in regards to the Community Reinvestment
    Act (CRA). In March of 2017, Wells Fargo received a rating of,
    ``needs to improve.'' And a press release that came out of the
    bank dated in March 2017 stated that the performance aspects of
    the CRA exam included lending tests, the investment test, and
    the service test. Wells Fargo earned an ``outstanding'' or
    ``highly satisfactory'' rating. Ultimately, the ``needs to
    improve'' CRA rating came, according to the OCC, from the non-
    CRA performance factors.
        Ms. Duke, you were privy to the circumstances of this
    rating downgrade in your capacity on the board. Is that
    accurate?
        Ms. Duke. Yes, sir, it is. Under those tests, the company
    received higher scores, but as a result of the issues, not only
    sales practices but with some other issues, the OCC elected to
    double-downgrade the--
        Mr. Tipton. Okay. What was your reaction to that rating
    downgrade?
        Ms. Duke. I understood the reason for it. We did appeal
    that rating, and the reason for that is this: I think the CRA
    is a really, really important law and a really important part
    of our banking system. When I was a regulator, I actually did
    hearings around the country about changes to the CRA. And I
    think it is important that the CRA be used for the purposes for
    which it was intended. And while I recognize and do not condone
    at all the behavior that led to the double-downgrade, I
    question the use of that as a tool to deal with the other
    problems of the company.
        Mr. Tipton. As a former regulator, you have had a lot of
    different capacity. Do you think it is important, with CRA
    ratings as an example, that they are less subjective and more
    objective in terms of some of the performance?
        Ms. Duke. I no longer make the rules on CRA, so I think my
    opinion is not--
        Mr. Tipton. Well, as a former regulator, I was just
    curious.
        Ms. Duke. I think CRA is really important, and we need to
    find ways to measure it, but we also need to find ways to
    measure and know what the needs of communities are and
    individual communities, be they urban or rural. And I think the
    banks have a really important responsibility to meet those
    needs, especially in low- to moderate-income areas.
        Mr. Tipton. Wells is a big bank. I have a lot of small
    community banks that are within my district as well. In
    general, what options are available to a bank that
    fundamentally disagrees with a decision that is handed down
    from a regulator?
        Ms. Duke. There is an appeal process, but at least in our
    case, that appeal was denied. And I would say that the issues
    at small banks--because I was a community banker for almost all
    of my career--is it is much harder in a community bank to be
    able to find the investments that do meet the requirements of
    the CRA and to have as complete a picture. So I think, paying
    attention to the resources and the ability of the different
    institutions, I have seen cases where community banks got
    together, pooled their funds, and did really good things in
    their community together rather than individually.
        Mr. Tipton. You have dealt with small banks and big banks.
    You peel back to the very regulators that make a determination,
    with no real chance to be able to turn it over. It occurs to me
    that there ought to be some independent measures to be able to
    have some of that actually addressed.
        You both have been hit a lot here today in terms of board
    performance. You probably have reflected back just a little bit
    in terms of how the boards ought to be able to react to
    management decisions and hiring. Do you have some thoughts that
    maybe when we are looking at legislation, now reflecting back,
    where things could be done better?
        Mr. Quigley. I think there is no question about the
    fundamental approach to corporate governance and having the
    opportunity to be able to play that hand and do what you need
    to do in the best interest of your shareholders. Now in the
    world, as we think much more broadly than just shareholders, as
    Charlie pointed out yesterday, thinking about all of those
    stakeholders, we absolutely were appalled by the sales
    practices abuses. And as soon as we were aware, we took
    immediate action.
        Chairwoman Waters. The witnesses have requested a brief
    break, so the committee will stand in recess for 5 minutes.
    Thank you.
        [brief recess]
        Chairwoman Waters. The committee will come to order.
        The gentleman from Texas, Mr. Green, who is also the Chair
    of our Subcommittee on Oversight and Investigations, is
    recognized for 5 minutes.
        Mr. Green. Thank you, Madam Chairwoman.
        Madam Chairwoman, as a practitioner, I once represented a
    recipient of welfare who was charged with a crime because she
    made more money at a job and received some benefits from the
    Federal Government. She had to be prosecuted. A crime was
    alleged.
        If this bank was much smaller, had maybe ten employees who
    were engaging in this type of activity--opening up fraudulent
    accounts, creating fraudulent credit cards--someone would be
    prosecuted. A small bank would have had prosecutions take place
    within the ranks of the person within the bank. Evidence shows
    that small banks have had persons prosecuted.
        But Wells Fargo created 1.5 million fraudulent accounts.
    Wells Fargo had over 500,000 credit cards created fraudulently.
    Is it the case that if you become so big and you create such a
    grand scheme, that you are beyond the law? The law ought to
    apply to Wells Fargo just as it applied to that welfare
    recipient, just as it would apply to any small bank in this
    country. Wells Fargo cannot be too-big-to-prosecute. It cannot
    be too-big-to-jail. Wells Fargo has to be held accountable. We
    cannot allow $17,296,835,949 in penalties to become simply the
    cost of doing business.
        While these criminal activities were taking place, you were
    making billions. And you sat on the board, and you knew what
    was happening, and this morning you as much as acknowledged
    fraud when Chairwoman Waters asked about the accounts. Did
    anybody ever think to say, somebody ought to go to jail,
    somebody has to be prosecuted, this is a crime? There were 1.5
    million fraudulent accounts. It is unbelievable. It is
    unimaginable. Yet, no one has been prosecuted.
        Maybe, I am mistaken. If someone at Wells Fargo has been
    prosecuted for these egregious offenses, would you kindly
    extend a hand into the air, either of the two of you or both?
        Let the record reflect that no hand has been extended into
    the air. I shall have a photograph of this in my office, and it
    will have under it: ``Ask me about this picture.'' And it will
    show you with no hand raised, and I will explain this to
    people. You cannot escape the long arm of the law. It applies
    to all.
        If you believe that this board could have done more to
    bring to justice those who perpetrated these criminal
    activities, raise your hand, please.
        Let the record reflect that the board members have
    concluded that the board could not have done more, because no
    hand was raised. I shall have a photograph of this in my
    office, along with other photographs, I might add, that I have
    collected from persons who have been similarly situated.
        We are now at a point in our history where we have to
    rethink the Wells Fargo paradigm. I concur with those who are
    saying we have to rethink whether or not Wells Fargo is not
    only too-big-to-fail, but we corrected that, but also too-big-
    to-exist. Maybe, you are too-big-to-manage. Maybe, the solution
    is going to have to be something that emanates here because you
    are not being prosecuted. At some point, the long arm of the
    law has to reach Wells Fargo.
        I yield back the balance of my time.
        Chairwoman Waters. The gentleman from Texas, Mr. Williams,
    is recognized for 5 minutes.
        Mr. Williams. Thank you, Madam Chairwoman. Thank you both
    for coming here today. Yesterday, we heard from the new CEO,
    Charles Scharf, who said that Wells Fargo still has a lot of
    work to do before the structural problems that allowed these
    scandals to go unnoticed for so long are fixed.
        The previous CEO, Tim Sloan, seemed to only care about
    getting the asset cap lifted by the Fed to expand businesses
    without fixing the underlying problems that caused customers to
    be harmed in the first place.
        As board members, I am disappointed that you were not more
    active in your positions to get Wells Fargo back to the strong
    presence that they have historically been in this country.
    Reports uncovered that the board was well aware of the
    regulators' concerns over Mr. Sloan's poor performance and
    misleading public comments about the company's progress, and
    yet he was still able to keep his position as CEO.
        As a small business owner myself for 50 years--I am a car
    dealer in Texas--I know how important the attitude at the top
    levels of leadership is to my employees. The CEO sets the tone,
    and if they are not taking the past problems seriously, then it
    is hard to get other employees to change their behavior as
    well.
        Ms. Duke, quickly, why did you stick with Tim Sloan for so
    long?
        Ms. Duke. I am going to answer your question, but if I
    could just respond?
        Mr. Williams. No, ma'am. I have the time here. Please
    answer my question.
        Ms. Duke. Okay. We made Tim Sloan the CEO when we replaced
    John Stumpf. Tim Sloan immediately stopped the sales practices
    and incentives, and replaced most of the management in the
    community banks. He took action quickly. We had problems that
    needed to be addressed immediately. The time it takes to find
    someone, an external search, and as a number of you noticed,
    the question of whether or not anyone with the ability to fit
    into this role, would be willing to come into that role, a
    question of--
        Mr. Williams. I understand. The committee reports uncovered
    that there were a lot of third-party consultants brought in to
    work with regulators once the scandal broke. It makes sense to
    bring outside experts in, in order to make the necessary short-
    term adjustments to protect consumers.
        However, it also does not seem like there was a large push
    internally to hire individuals to deal with the non-financial
    risk in the long term.
        So, Mr. Quigley, did you have any concerns that Wells Fargo
    could not do this work internally? Or why wasn't it a priority
    even after the regulators voiced their concerns?
        Mr. Quigley. I definitely had concerns, and I was unhappy
    with the pace that was occurring. With respect to the use of
    third parties, as the former CEO of a large professional
    services firm, I know that sometimes when you want to
    accelerate progress, you will look to a third party to try to
    accelerate the activity that needs to be done. But we needed to
    build capability, and we needed to recruit capability, and we
    needed to build capacity into that independent risk management
    group. And one thing that I know is true is that to find the
    most able resource takes much more time than finding the most
    available resource.
        I am not happy with the time that has been required, but I
    am pleased that progress is now being made, and I agree with
    the points that Mr. Scharf made yesterday with respect to the
    real urgent nature of the action that needs to be taken and his
    absolute focus on regulatory.
        Mr. Williams. Good. As we mentioned earlier, the regulators
    took the highly unusual step of making a public statement that
    Tim Sloan was being overly optimistic in his comments about the
    progress of Wells Fargo in becoming compliant with various
    consent orders. So, Mr. Quigley, in your testimony, you state
    that once the board was made aware that they were not receiving
    quality information, decisive actions were taken to fix the
    issue.
        So my question is, quickly, what structural changes were
    made internally to ensure that the board will receive complete
    and accurate information moving forward?
        Mr. Quigley. We have a very active communication between
    committee Chairs and their liaison officer who is bringing
    information. We review those agendas and challenge the quality
    of the data that is coming our direction.
        I was pleased with the elimination of the federated model.
    I was pleased with the need to strengthen the independent risk
    management group, and with that came higher-quality information
    to the board to enable stronger and more effective oversight.
        Mr. Williams. Okay. In closing, let me just say this: I
    hope that this institution eliminates the, ``I do not know''
    attitude. We have heard that from so many people; ``I do not
    know.'' It is unbelievable. I have 200 employees, and I think I
    know. And that, ``I do not know'' attitude has really run
    rampant, and I hope that your leadership level will stop that.
    And I still cannot believe how much money they pay as a board
    of directors.
        Chairwoman Waters. Me either, Mr. Williams.
        The gentleman from Missouri, Mr. Cleaver, who is also the
    Chair of our Subcommittee on National Security, International
    Development and Monetary Policy, is recognized for 5 minutes.
        Mr. Cleaver. Thank you, Madam Chairwoman.
        Let me, first of all, express some appreciation and some
    surprise. You were not subpoenaed, you came here of your own
    volition, so thank you for coming. Some of us were doubting
    seriously whether or not you would come, so I appreciate you
    coming.
        Let me try to get some information from you. I am gravely
    concerned about the report we received, the Committee report we
    received. Are either of you aware of an informal, unofficial
    secret back channel to the CFPB, to the regulators at the CFPB?
        Mr. Quigley. I am not aware of that, and I do not believe
    it occurred. I do not know what was referenced--I did read the
    Committee report, and I was the one who had quarterly meetings
    with Mr. Blankenstein. And when I would meet with him, there
    were always members of the CFPB there with him, and I was
    always accompanied by people from Wells Fargo.
        Mr. Cleaver. Thank you. So, you are saying that people got
    something wrong or made it up or--
        Mr. Quigley. I understood your question was, was I aware of
    any back channel communication to the CFPB, and I am saying no,
    I was not.
        Mr. Cleaver. I know, but that also means they put it in the
    report, so somebody did something incorrectly or falsely, maybe
    even with intentionality. But you just really got my attention
    when you said you met with Mr. Blankenstein. Did you detect any
    kind of racial attitudes when you were meeting with him?
        Mr. Quigley. I did not. He came to our board of directors
    and spoke on behalf of the CFPB, and following his report to
    the board, I then reached out to try to meet with him if he had
    time when I was in Washington. And again, in those meetings, I
    was always accompanied by someone from Wells Fargo, and he was
    always accompanied by others from the CFPB. I never had a one-
    on-one with him.
        Mr. Cleaver. Well, I am only interested in that because of
    the fact that we know he used an ``N'' word, because it was in
    his text message--his email. You are not aware of that?
        Mr. Quigley. I read what was in the report, but I had never
    seen that before.
        Mr. Cleaver. It is right there now.
        Mr. Quigley. Oh, this was the note that Alan sent to me
    just summarizing the discussion that he had had with Mr.
    Blankenstein, and then at the time that he was departing. And I
    did not follow up. I did not ever have any further
    communication with him.
        Mr. Cleaver. But when you saw that, were you alarmed?
        Mr. Quigley. Well--
        Mr. Cleaver. If you have to think about it, you were not.
    There has been an allegation about the back channel, which you
    say was not there. And so, I will change that. It is so
    offensive to me as a human being to be referred to with the
    nastiest name that somebody could call somebody of my color.
        So, let us move on. Who appoints the Compensation
    Committee? I mean, you guys are gone. I am trying to find out,
    get information on who appoints the Compensation Committee?
        Ms. Duke. All of the committees are appointed by the
    Governance and Nominating Committee.
        Mr. Cleaver. Is that like the desirable committee on the
    bank board?
        Ms. Duke. I do not think it is necessarily the desirable
    committee. We look for people on that committee who have had
    responsibility in their careers for human resources. We also
    look to make sure that that committee is diverse because they
    deal with so many issues related to our management and
    employees.
        Mr. Cleaver. A lot of people want to be on the
    Appropriations Committee here in Congress. Mr. Quigley, do
    you--
        Mr. Quigley. I'm sorry. I did not understand the question.
        Mr. Cleaver. The same question, the Compensation Committee,
    are people like pushing and shoving to get on it?
        Mr. Quigley. There was a time--and as an auditor, I am a
    little sensitive to this, but there was a time when everybody
    wanted to avoid the Audit Committee because they felt that was
    just simply a place not to be. But I believe the aggressive
    approach--
        Chairwoman Waters. Finish your statement.
        Mr. Quigley. The aggressive approach with respect to the
    Human Resources Committee and the Compensation Committee, that
    has become a difficult seat on any board, and I do not see
    people elbowing and fighting and trying to have that privilege.
    That is a very heavy lift.
        Mr. Cleaver. Thank you. Thank you, Madam Chairwoman.
        Chairwoman Waters. Thank you.
        The gentleman from Ohio, Mr. Davidson, is recognized for 5
    minutes.
        Mr. Davidson. I thank the chairwoman.
        Ms. Duke, Mr. Quigley, in your view, now that you are no
    longer with the board, do you believe that some of the criminal
    actions taken by employees at Wells Fargo should be prosecuted
    by Federal officials? Or do you believe that the fines that
    have already been implemented provide enough redress for
    consumers?
        Ms. Duke. I appreciate the ability to answer that. I wanted
    to respond to it twice before. When we did our investigation of
    what happened in sales practices, we delivered all of the
    evidence that we found to the SEC and the DOJ, both civil and
    criminal, and--
        Mr. Davidson. The plea agreements highlighted that you paid
    fines, settlements as a corporation, and you acknowledged that
    crimes were committed.
        Ms. Duke. That is correct. We do not have the ability to
    prosecute, but what we did do with the individuals that we
    found to be culpable was to claw back, forfeit, not pay
    compensation, to terminate for cause, and we fined individuals
    through those mechanisms $180 million or so, and, in
    particular, with Carrie Tolstedt and John Stumpf, we took
    significant amounts of monies, 60-some million dollars each, I
    think.
        Mr. Davidson. Should the Federal Government prosecute them
    for committing Federal crimes?
        Ms. Duke. That is a decision for the prosecutors, but there
    is--we have in no way impeded their ability to do so.
        Mr. Davidson. Mr. Quigley?
        Mr. Quigley. We have provided all of the information that
    we learned through the investigation to those bodies--
        Mr. Davidson. I understand. Should they be prosecuted? They
    committed crimes. Should they be prosecuted?
        Mr. Quigley. I am not in a position--
        Mr. Davidson. You do not have an opinion on the matter? You
    vote, ``present?''
        Ms. Duke. I would say, yes.
        Mr. Davidson. On the buttons you get, ``yes,'' ``no,'' or
    ``present.'' So, you both say, ``present?'' It is not an essay.
    ``Yes,'' ``no,'' or ``present,'' should they be prosecuted? You
    acknowledged that someone--
        Ms. Duke. I think, yes.
        Mr. Davidson. It was not the ATMs. It was not the
    conference rooms that committed crimes. Someone who worked for
    Wells Fargo committed crimes.
        Mr. Quigley. Your point is acknowledged.
        Mr. Davidson. Should they be prosecuted?
        Mr. Quigley. Your point is acknowledged.
        Mr. Davidson. ``Present.'' Pathetic. I do not know what
    else to say. I am glad you are not on the board there, frankly.
    Presumably, by getting hired for such a board, you had an
    exceptional amount of experience and you were well-qualified or
    considered so by someone who offered you the position and a
    generous compensation package for being board members.
        How was the culture at Wells Fargo different than the
    presumably positive cultures that you were part of before? Or
    is this really just endemic in all of the places? Should we
    look at every one in this industry the same way that the world
    is looking at Wells Fargo?
        Mr. Quigley. At Wells Fargo, we have said very statedly and
    very clearly that a culture change is needed. I am pleased with
    the progress that is being made. These are early days for
    Charlie, but his commitment to change culture, as I stated in
    my opening statement--I am pleased that that is one of his top
    priorities.
        Mr. Davidson. Well, better late than never, right? I do
    think that Mr. Scharf has a lot of potential. I like his resume
    and background and, frankly, it is not my job to hire the board
    members or the CEOs of any corporation now that I no longer own
    shares or control shares of a privately held company like I
    once did. But I do know that culture matters, so unless he is
    empowered to change a ship of 270,000 employees, that culture
    is not going to change overnight.
        Now, as the Federal Government, having seen very little
    action by the Executive Branch, with a duty to take action
    where Federal crimes have been committed, I think it is right
    that the Legislative Branch is calling attention to that, not
    just with the failures with this particular bank, but with the
    failures within the Department of Justice to prosecute people.
    Yes, there is prosecutorial discretion, but the idea is that
    everyday Americans feel like there is one standard for them and
    a different standard for the well-connected, well-to-do people
    who operate companies like Wells Fargo or, frankly, work at the
    FBI, the Director of National Intelligence, the CIA, or any
    other part of the Executive Branch. And we cannot have people
    going around saying, ``Lock her up,'' ``Lock him up,'' all day
    because the Department of Justice continually fails to apply
    one standard of law and have Lady Justice blindfolded. There
    has to be accountability and, frankly, when crimes are
    committed, particularly in cases like this, six-plus billion
    dollars in fines and an acknowledgment that the crimes were
    committed, someone should go to jail. We need our Department of
    Justice to provide that accountability, and we need board
    members who are going to do their duty.
        So, I look forward to the progress made under new CEO
    Scharf, and I hope that we never need to see Wells Fargo here
    again except to commend them for the positive change in culture
    that has been accomplished. And I yield back.
        Chairwoman Waters. The gentleman from Colorado, Mr.
    Perlmutter, is recognized for 5 minutes.
        Mr. Perlmutter. Well, I guess I am going to sound like a
    board apologist compared to everybody else here, because I look
    at the role of the board a little differently than the others.
    But I am a customer of the bank and have been a customer of the
    bank for 40 years, and I am a customer who went from two
    accounts to eight accounts, had a line of credit that I got
    when I just got out of law school, cut in half but given a
    credit card for twice that amount with a big line of credit
    attached. Things I never asked for just sort of appeared. So, I
    know the abuses that occurred.
        My problem here is there has been a lot of time that has
    passed, obviously. The report details all of that. The board,
    in some instances, appears to have taken really some serious
    action with Mr. Stumpf, and with Mr. Sloan, trying to deal with
    the consent decrees, but time just kept passing.
        So my questions to you two, and you can answer them as you
    choose--I think there are sort of three choices for me sitting
    up here. Either you were derelict in your duties and did not
    address these consent orders, or the culture of the bank needs
    to be changed pretty dramatically in terms of its personnel and
    operations, or the thing is just too big, and for any board or
    anybody, any manager, to get their arms around it cannot be
    done.
        So, Ms. Duke, if you could respond to my concerns?
        Ms. Duke. What we have found is that some of the issues are
    directly attributable to individuals, but a number of the
    issues are attributable to the structure of the way the company
    is managed, the decentralized structure, and that has required
    that we centralize and also standardize and simplify the way
    all of our employees do their work. We need to be much clearer
    about that. What that looks like is, for example, if you take
    83 different human resource departments and put them together,
    you do not get one fully functioning human resource department.
    It takes quite a bit of time to build the capabilities of a
    central human resources department to work with 265,000
    employees.
        Mr. Perlmutter. That leads me to some other questions for
    you, but, Mr. Quigley, your response?
        Mr. Quigley. If I could just comment on the multiple choice
    that you offered, I would choose culture change, and that is
    what you heard from our CEO yesterday. He is driving to build a
    culture of operational excellence and integrity as a number-one
    priority. I am pleased that that is what he said to the entire
    team on day one, and he has not varied from that message. He
    continues with execution, execution, execution, and we need to
    get to that point.
        Mr. Perlmutter. Well, let me challenge you both on that,
    then, because--I do not know how many customers--70 million
    customers, me being one of them, 275,000 employees, 83
    personnel departments, at least 5 years from the first consent
    order to try to remodel or revamp the culture, and yet that has
    not taken place, it is still ongoing, and with a lot of things
    unanswered. It is getting to me that this thing is just too
    big. And that is not the answer I was thinking I would get to,
    but that is where it is going. Ms. Duke?
        Ms. Duke. I do not think the problems are a function of
    size. I think they are a function of the way the company is
    organized and the way it has been organized historically.
        Mr. Perlmutter. But now, we have gone 5 years. How long is
    it going to take to restructure or reorganize? I was a
    bankruptcy lawyer for a long time, and did a lot of
    reorganizations. How long do you think it is going to take to
    reorganize this company, now that you can look in the rearview
    mirror.
        Mr. Quigley. We have a new CEO that you heard from
    yesterday, and you saw that he is moving with a sense of
    urgency. He has a new Operating Committee. He is rebuilding the
    culture. This is his number-one priority, and he filled the
    seat of chief operating officer who has made regulatory
    progress. That individual's number one priority--
        Mr. Perlmutter. So you do not think that the last two CEOs
    were capable of doing that? You are saying this is different?
        Mr. Quigley. I believe having a CEO from the outside is
    absolutely different. There was a question earlier about, what
    are the differences between Mr. Sloan and Mr. Scharf, and there
    is no question that this is different under Charlie. I have
    been on the board for 6 years, and I am now working with my
    fourth CEO. The board was not derelict in its duties, but very
    much actively at the table and trying to drive change in a way
    that could be sustainable and to make sure that customer harm
    never occurs. That is absolutely what I wanted and what the
    ambition was.
        Mr. Perlmutter. Thank you. I yield back.
        Mr. Green. Madam Chairwoman, I ask unanimous consent to
    insert the following items into the record: ``Thirty-five
    bankers were sent to prison for financial crisis,'' CNN
    business article; ``Wells Fargo to pay $3 billion over fake
    account scandal,'' NBC News article; and a Good Jobs article
    that tracks the amount of penalties that Wells Fargo has paid
    since 2000.
        Chairwoman Waters. Without objection, it is so ordered.
        The gentleman from Tennessee, Mr. Kustoff, is recognized
    for 5 minutes.
        Mr. Kustoff. Thank you, Madam Chairwoman, and thank you,
    Ms. Duke and Mr. Quigley, for appearing today.
        Ms. Duke, in your remarks I heard you talk about how you
    came up through the ranks as a teller to customer service
    representative. I did the same job back when I was younger. My
    question is, in my district, Wells Fargo does have a retail
    presence. If you were on the front lines today as a customer
    service representative, and you had one of your Main Street
    customers come into the bank, an hourly employee, a small-
    business person, what have you, why would you tell them that
    they need to continue banking with Wells Fargo after the years
    of misdeeds?
        Ms. Duke. Thank you for that question, and I would like to
    talk a little bit about the front-line employees at Wells
    Fargo, because the front-line employees at Wells Fargo were not
    the reason for the sales practices issues. It was the way they
    were managed, and there are hundreds of thousands of those
    employees who come to work every day who have served their
    customers for 40 years. Many of you have been their customers
    for 40 years, and the bond between those employees and their
    customers and the service that they are committed to and the
    importance of the bank to those customers has been something
    that to me, with all of the ugliness that I have seen, is the
    reason I joined the board of Wells Fargo. And I have employees
    who work there. Their jobs have been much, much harder during
    the time that we have created damage to their reputations and
    to their company's reputation, yet they continue to love this
    company and want to do everything they possibly can to make
    this company succeed. And their customers are pulling for them
    as well.
        Mr. Kustoff. Well, let me reclaim my time, and ask it a
    different way. Wells Fargo has put those front-line employees
    in the position of having to defend actions that you have just
    stated they are not responsible for. What do those front-line
    employees tell their Main Street customers about why they
    should continue banking at Wells Fargo?
        Ms. Duke. They tell them about the service that they offer.
    They pay attention to the customers' needs. They look at the
    customers' needs. They look at the products that we have that
    meet those customers' needs. We are still the largest small-
    business lender in the country. We are the largest lender in
    low- to moderate-income areas. We are the largest mortgage
    lender. We are the largest agricultural lender. Wells Fargo is
    still really important in communities and to our customers, and
    they talk about how important they are there.
        Mr. Kustoff. Mr. Quigley, would you agree that the Wells
    Fargo brand and reputation is damaged?
        Mr. Quigley. Unarguable.
        Mr. Kustoff. Do you believe it is irreparably damaged?
        Mr. Quigley. I believe it can be recovered, and the plans
    that Charlie reported yesterday, looking again at the future of
    Wells Fargo, were optimistic. We need and want a strong Wells
    Fargo.
        Mr. Kustoff. Yesterday, and some today, we have talked
    about sales incentives that were provided to employees back
    under Mr. Sloan and what they are today. How do you compare
    those sales incentives for those employees today versus those
    under Mr. Sloan?
        Mr. Quigley. The sales incentives were terminated as soon
    as the board was informed, and we understood it was part of the
    root cause of how this abusive behavior occurred. I am
    delighted that is a part of the past, and the new structure
    focuses on customer experience and how the individual who comes
    into the branch that you are asking about, what is their
    experience? And how do they benefit from being there?
        Mr. Kustoff. The two of you are no longer on the board, but
    I am going to ask you to speak for those members who are
    currently on the board. I will start with you first, Ms. Duke.
    Do you believe that all current members of the board have the
    right attitude for a new culture at Wells Fargo?
        Ms. Duke. I absolutely do. Many of them were recruited
    knowing what happened at Wells Fargo and being committed to
    making the changes necessary so that it would not happen again.
        Mr. Kustoff. And, Mr. Quigley?
        Mr. Quigley. The same. I am confident in my former
    colleagues and their commitment to do what is right.
        Mr. Kustoff. Thank you, and I yield back the remainder of
    my time.
        Chairwoman Waters. Thank you. The gentlewoman from Ohio,
    Mrs. Beatty, who is also the Chair of our Subcommittee on
    Diversity and Inclusion, is recognized for 5 minutes.
        Mrs. Beatty. Thank you, Madam Chairwoman, and I thank the
    witnesses. I have been sitting here for this whole hearing,
    trying to digest the questions and your responses, and quite
    frankly, I am trying to figure out what you thought your roles
    were as trustees and what you got paid for, with so many of
    these widespread consumer abuses, the regulatory findings, and
    certainly the lack of effective corporate governance.
        Let me start with you, Ms. Duke. You took great pains in
    writing about your background in your testimony, more than I
    have ever seen in any other testimony. You reminded us that you
    started out as a part-time teller at a drive-through bank. You
    transitioned as a new account clerk. You took great pains to
    tell us that you were the second-lowest paid employee, and how
    you sat across from customers and how you put them first, how
    you worked your way up, how you became the first woman to Chair
    the American Bankers Association, the Board of Governance, and
    how much you understood and knew about regulatory practices,
    that you were just stellar in this.
        Yet, you act like you are one of us. In your testimony, you
    also then say you were as appalled as the Members of Congress
    with all of these findings, and you didn't know how it
    happened. Well, that is appalling to me.
        And then I noticed that you then are the one who also
    agreed to Mr. Sloan's payment. The board decided that Mr. Sloan
    was worth more than $18 million in compensation, including a $2
    million bonus.
        Despite all of this, Ms. Duke, you also drafted a proxy
    statement that you released to the investors, stating, ``The
    board decided to award Tim a cash bonus for 2018 as recognition
    for his substantial progress in changing the culture and
    business practices of Wells Fargo, and building out a strong
    management team to focus on the remaining work to strengthen
    the compliance and operational risk.''
        Now with everything you knew, being paid, being
    responsible, and having this background, and then we hear what
    they did, the abuses to consumers, tell me why you drafted this
    statement, and did you really believe this, or did someone make
    you do this, or were you paid extra to do this?
        Ms. Duke. Congresswoman, I joined the board of Wells Fargo
    because of the company I thought that it was.
        Mrs. Beatty. No, no, no. That is not my question. Tell me
    why you wrote this statement about him, after all these things,
    and you were there, that happened before, when you wrote this
    statement in 2018.
        Ms. Duke. We did not find out that Mr. Sloan had any
    responsibility in sales practices. He became the CEO in 2016.
    We paid him no bonus for 2016--
        Mrs. Beatty. No. I am talking about your statement in 2018.
    A lot happened, as we heard Congressman Meeks read off all of
    the things that happened on your watch, and Mr. Quigley's. And
    you can jump in, Mr. Quigley, if you want to respond, since you
    were also there, and certainly read and witnessed when she
    wrote this to the shareholders. Did you have any response? Did
    you feel this was misleading the shareholders at Wells Fargo?
        Mr. Quigley. There is no question that I read the proxy,
    and there is also no question that--
        Mrs. Beatty. Do you agree with it? Yes or no?
        Mr. Quigley. Yes.
        Mrs. Beatty. Because it is my time, and I have a question
    for you.
        Mr. Quigley. Yes.
        Mrs. Beatty. So you all think, despite now saying it is
    appalling, all that you have heard that has happened, even in
    2018--you know what? This makes me feel that you are as
    irresponsible as he was in all of the things, and it is
    criminal that you are even sitting here.
        Mr. Quigley, let me follow up on Congressman Cleaver's line
    of questioning regarding a back-channel relationship between
    Wells Fargo and the CFPB, specifically a political appointee of
    the Trump Administration--you remember the question. Mr.
    Quigley, you stated to Mr. Cleaver that you did not believe a
    back channel exists. Yet in Appendix 3, which is already in the
    record, of the Majority staff report, there is an email from
    acting CEO Allen Parker to you regarding this political
    appointment. Are you aware of that?
        Mr. Quigley. I did see the email in the report, yes.
        Mrs. Beatty. And you still have the same response that you
    had after it, in quotes, says ``political?''
        Mr. Quigley. I interpreted that, ``political,'' as simply
    he was an appointee into the CFPB.
        Mrs. Beatty. I'm sorry. My time is up, and I yield back.
        Chairwoman Waters. The gentleman from Texas, Mr. Gonzalez,
    is recognized for 5 minutes.
        Mr. Gonzalez of Texas. Thank you, Madam Chairwoman, and I
    want to begin by thanking Anne Cruz, a dear constituent of
    mine, who is watching from back home.
        I will begin by saying, former Chairwoman Duke, today you
    have the auspicious honor of being the first board member, I
    believe, to testify in front of Congress since Enron. You
    allege in your testimony that you, and indeed the rest of the
    board, learned from public statements that over 20 times the
    number of employees were terminated than originally disclosed
    to you by management, yet no one in management was fired for
    this.
        At this point, you and the board retained independent
    counsel to conduct a full and unfettered investigation into the
    scope and causes of misconduct. Allegedly, this is when the
    board acted to thoroughly repair the damage done--again, your
    words, not mine. Since then, Wells Fargo engaged in charging
    improper interest on your customers' accounts, sold unnecessary
    auto insurance, foreclosed on customers' homes after wrongful
    denial of loan modification agreements, and essentially threw
    people out on the street. And finally, purposefully reduced the
    customer investment returns on the sales of Wells Fargo
    Advisors' products by actively trading securities you had
    disclosed as long-term holds.
        All of this conduct is admitted in one consent order or
    another. There are many active and open orders. That is quite a
    lot to digest. I want to ask you, why shouldn't we simply
    remove the bank charter, break up the company, and let the
    banks out there that can run clean operations have your
    customers, or Wells Fargo's customers? How many years until you
    can properly serve your customers? You don't have to answer
    that. I know you already have, in one way or another.
        If any attorney steals their clients' funds--and I know
    this because I am a lawyer and practiced law for 20 years--and
    mixes their funds with clients or deceives them as to the
    nature and scope of representation of them, and consequences
    are disbarment and potential jail time, why would a bank's
    charter be any different? You can answer that.
        Ms. Duke. There were employees who committed criminal acts.
    You asked, was anybody fired? People were fired for the acts
    that they committed, and the information about them has been
    turned--
        Mr. Gonzalez of Texas. Was this management that was fired?
        Ms. Duke. Yes. Yes. In the case of sales practices--
        Mr. Gonzalez of Texas. Senior management?
        Ms. Duke. Senior management. The senior executive
    responsible for the community bank was terminated for cause.
        Mr. Gonzalez of Texas. Well, it is clear that this--
        Ms. Duke. The management of the auto division, I believe,
    was terminated. And in individual cases where there was
    misconduct, those employees were terminated and the appropriate
    suspicious activity reports filed, I believe.
        Mr. Gonzalez of Texas. Okay. Well, it is clear that you do
    not serve your clients' best interests, and I think you have
    admitted that already. If it were up to me, and I believe many
    members of this committee, on both sides of the aisle, a few of
    you would be in jail today. And certainly, if you were the
    president of the American Bar Association instead of the
    American Bankers Association, you would be disbarred today.
        I clearly hope that the Department of Justice continues to
    investigate these bad actions by bankers and board members
    across the country, and hopefully stops the malfeasance in this
    country. The American people are looking forward to this. And I
    yield back.
        Chairwoman Waters. The gentleman from Florida, Mr. Lawson,
    is recognized for 5 minutes.
        Mr. Lawson. Thank you, Madam Chairwoman, and witnesses,
    welcome to the committee.
        I was going to say that I won't ask the same questions that
    some of the other Members asked, simply due to the fact that
    they center around the same area. But one of the things that I
    want to know, and get you, Ms. Duke, to respond to is, it says
    that--in a 2017 independent investigation, a report was
    released into Wells Fargo's fraudulent account scandal. The
    board was supposed to accomplish three goals, and these are the
    ones that I want you to respond to, and you have said some
    things about them. But one was to get to the root cause of the
    company's sales scandal and identify solutions so it would
    never happen again, and restore trust in the bank.
        In response, Wells Fargo's board, from what I can gather,
    blamed it on ex-employees. But don't you think the board,
    yourself included, failed in oversight duty? By serving on the
    board, on those three issues that came up, how were those three
    issues handled?
        Ms. Duke. The root cause was found to be that the sales
    goals were inappropriately set, that they were too high, and
    that the sales management was aggressively pursued.
        Mr. Lawson. And to restore the confidence, what was
    discussed in the board--
        Ms. Duke. The sales goals were eliminated, the employees
    were terminated, and the new incentive plan was designed to
    reward customer service and to be more team goals than
    individual goals. What we found is that while there was some of
    the behavior to get the incentive, it was more to avoid
    criticism by the managers.
        Mr. Lawson. Okay. The reason why I was concerned about
    sales goals is, I have been involved in sales for maybe 40
    years, and I know that what happened is management does set
    these sales goals, for agents and so forth, for goals for you
    to try to reach. But I didn't know until today that banks would
    have such sales goals that would trickle down to all of the
    branches, so that they would go out and they were trying to
    attract more business.
        What I can't understand is how, even though you said these
    employees were terminated, how could managers who have been in
    the organization for a long time not want to monitor all of
    these branches of the sales goals when they knew--they had to
    know that something was going wrong.
        Even though you say that they were eliminated, I am sure
    Wells Fargo still has sales goals they have to meet. How is
    that handled now through the board when they establish goals
    that they want to meet, to be the third-largest bank? And I
    understand Mr. Quigley was saying about being a bank that
    provides resources to small businesses, to minority firms, and
    so forth. How do you all handle that now, in order to make sure
    that you do the things that are good in the marketplace, but
    not allow things to happen, such as 70,000 borrowers who bought
    car insurance that they didn't need, and about 20,000 of them
    may have had their vehicle repossessed as a result? How do you
    handle that now?
        Ms. Duke. Again, with the collateral protection insurance,
    once we found that issue, we quit requiring the force-placed
    insurance, so that requirement is no longer in place.
        Mr. Lawson. Mr. Quigley, did you want to respond to that?
        Mr. Quigley. The effort was made to one customer at a time,
    identify harm, and then be able to remediate it. And Charlie
    Scharf gave an update yesterday on the progress with respect to
    remediation and the aggressive approach that he intends to take
    to accelerate the timing that is required to get that done, and
    get that done right.
        Mr. Lawson. And a question that I might not be able to get
    answered, do you think Wells Fargo is too large?
        Mr. Quigley. I do not think Wells Fargo is too large. Wells
    Fargo needs to change its culture, and that is underway under
    the new CEO that we have recruited.
        Mr. Lawson. Okay. Madam Chairwoman, I yield back.
        Chairwoman Waters. Thank you. The gentlewoman from
    Michigan, Ms. Tlaib, is recognized for 5 minutes.
        Ms. Tlaib. Thank you, Madam Chairwoman. Thank you so much
    for your leadership in creating this report. Have you all seen
    this?
        Ms. Duke. Yes, we have.
        Mr. Quigley. Yes.
        Ms. Tlaib. I know maybe you don't have it in front of you,
    but page 13 lists, kind of in a snapshot of some of the abuses,
    which you call culture, but I call criminal schemes. You all
    made money off of the backs of poor people, off of working
    people. Fake accounts. Millions of people. We are not talking
    about a short period of time of one mistake. We are talking
    about from 2011 to 2016, literally enrolling millions of
    customers in banking products and accounts without their
    knowledge or consent. You are talking about 27,000 people
    impacted by unnecessary auto insurance. I actually would differ
    with my chairwoman on one thing, which is that I wouldn't call
    it unnecessary. I would call everything fraudulent, criminal.
    Unnecessary--the fact that you enrolled--bank customers
    literally had their vehicles repossessed following default
    arising from these added insurance costs, that they didn't
    need, and they didn't want.
        Corporate greed is a disease in our country. It is so bad
    that it infiltrates, and I don't like it when corporate America
    calls it a cultural issue. It is a crime to defraud Americans.
    Let's be very clear about that. And I don't want you to see my
    passion as, oh--this is not--it is the fact that I have the
    third-poorest congressional district in the country. Literally,
    our communities are front-line communities that get targeted by
    this, not the higher-income folks, but the folks who have two
    or three jobs, the folks who are trying to survive right now,
    who are in survivor mode, are being targeted.
        Ms. Duke, you were on the board since 2015. Mr. Quigley,
    you were on the board since 2013. Correct? On page 13, it talks
    about servicemember abuse. Between 2006 and 2016, Wells Fargo
    Bank charged servicemembers higher interest rates than allowed
    under the Federal law. You would consider that a crime,
    correct, Ms. Duke?
        Ms. Duke. I would.
        Ms. Tlaib. How about you, Mr. Quigley?
        Mr. Quigley. I would, and I would also say that for the
    servicemember remediation that was undertaken, Betsy took the
    lead and was very assertive in moving that forward and I would
    be proud of her.
        Ms. Tlaib. Well, in the meantime, people got their cars
    repossessed. I don't know what is going on with their credit
    reports, and that is something I am working with the chairwoman
    on, but trying to get people's credit reports to get cleaned up
    from this. And that is impacting people's employment, access to
    housing, all of these opportunities they need to thrive.
        From 2013 to 2017, you were both on the board. We are not
    talking about one year, or 6 months of bad behavior, and
    criminal scheming of working-class folks. We are talking about
    over a decade for many of these criminal schemes and these
    corrupt kind of behaviors. And having your Chair come before
    this committee yesterday and not be able to really truly answer
    some of the questions for various details was troubling to me.
        I need to know, from both of you--it was courageous of you
    to come before this committee, but this needs to be read by
    every single board of directors. Every single one of them needs
    to read this, because I don't think they realize this is not
    only about numbers, but behind every single report in here is
    actually a story of a human being who was impacted by these
    criminal schemes.
        I want to talk about something that--I have a CEO pay tax,
    and I really, really want to emphasize to you all to try to
    incorporate an incentive here. If you have your CEO getting
    paid 200 times more than your own employees, and they have to
    get on public subsidy, don't you think that is unfair? Do you
    think that right now, having your bank tellers and the folks
    who work in your institution getting paid 200 times less than
    the CEO is problematic?
        Ms. Duke. I have been a bank teller, and I have been paid
    at the lowest rates, and I know how difficult it is to survive
    on that. I think we need to address both the way we compensate
    them but also career pathing, because I was able to learn and
    take advantage of industry education and opportunities--
        Ms. Tlaib. And, Ms. Duke, at the same time, right now, they
    are actually in line to get public subsidies, food assistance,
    things that we, the public, have to pay for because you are
    allowing corporate greed to continue to fester within your
    company.
        Mr. Quigley, do you agree that we should be paying your
    workers a living wage, that they shouldn't be paid close to 300
    times less than what your CEO is getting paid?
        Mr. Quigley. Charlie responded to that yesterday with
    respect to what he is doing on the minimum wage, and I have
    nothing to add.
        Ms. Tlaib. He works for you, right? Charlie works for you?
        Mr. Quigley. I am a former member of the board. I recruited
    him, and I am pleased that I was able to get him to say yes.
        Ms. Tlaib. Are you pleased with the fact that you left
    people--thank you, Madam Chairwoman.
        Chairwoman Waters. Thank you. The gentleman from South
    Carolina, Mr. Timmons, is now recognized for 5 minutes.
        Mr. Timmons. Thank you, Madam Chairwoman. Ms. Duke, can you
    explain what the normal duties and responsibilities were for
    you and other board members?
        Ms. Duke. Yes. We received materials in connection with
    meetings. We scheduled meetings. We had meetings of the board,
    meetings of the committees.
        Mr. Timmons. How often did you meet? How often were your
    meetings?
        Ms. Duke. How many meetings did you take out of your
    calendar last week?
        Mr. Quigley. When I resigned, I removed 85 meetings from my
    calendar in the next 12 months, meetings or calls.
        Mr. Timmons. So, time commitment per week, per month, what
    would you guess? What is a good estimate?
        Mr. Quigley. There were big blocks of time last year when I
    was working fundamentally full-time, because I was working to
    recruit a new CEO, and many of your colleagues asked Charlie
    Scharf yesterday, ``Why would you accept such a difficult
    job?'' How would you like to be the guy who was recruiting him,
    to get him to say, yes?
        Mr. Timmons. Sure.
        Mr. Quigley. It was time-intensive. I haven't kept track of
    it on a per-hour basis--
        Mr. Timmons. Over the course of your--
        Mr. Quigley. --but I was absolutely, many times, working
    fundamentally full-time.
        Mr. Timmons. --tenure on the board, on average, 20 to 30
    hours a week? 15 hours a week?
        Mr. Quigley. Probably in the 20- to 30-hour range.
        Mr. Timmons. Is that the same for you, Ms. Duke?
        Ms. Duke. Since I became chairman, I have been available to
    the company full-time. I don't make other commitments.
        Mr. Timmons. That was my next question. What other jobs or
    positions do you hold outside of the board, or did you hold
    outside of the board?
        Mr. Quigley. I am the chairman of the board of Hess
    Corporation. It is the only other public company where I am on
    the board.
        Mr. Timmons. Did you have any outside, other--
        Ms. Duke. I do not.
        Mr. Timmons. Okay. I appreciate that.
        I am slightly confused and don't really understand why we
    are holding this hearing today. The chairwoman called for both
    of you to resign, and you did. There is nothing either of you
    can do at this point to help right the ship that is Wells
    Fargo. So with all this going on in the world today, and in the
    financial system, why are we publicly, to some degree,
    humiliating two former board members of Wells Fargo right now?
    I don't know that this is the best use of our time. I
    appreciate you all sitting through it and showing up. I am not
    sure I would have.
        But I am not excusing the performance. Obviously, it is
    abundantly clear from the Majority and the Minority reports
    that a lot went wrong and several missteps were made, which,
    partnered with the dereliction of Obama Administration
    regulators led to a disastrous result for your bank and its
    customers. But I still don't understand what dragging you two
    in here today is accomplishing. I think it is good that you
    resigned. I think it was the right decision, given the
    circumstances. It is very unfortunate. And I am encouraged by
    your new CEO. His testimony yesterday was productive, I think.
        I hope that Wells Fargo can get back on the right track,
    and I know this committee will continue to keep a close watch,
    along with the regulators, to help regain the trust of the
    customers of this committee and of the American public.
        Thank you for coming here, and with that, I yield back.
        Chairwoman Waters. Thank you. The gentleman from Illinois,
    Mr. Garcia, is recognized for 5 minutes.
        Mr. Garcia of Illinois. Thank you, Madam Chairwoman, and
    Chairman Green, for convening this hearing, and to the two
    witnesses, thank you as well.
        Regulators have been working on Wells Fargo since 2016 to
    bring the bank into compliance when the bank's current troubles
    first came to light. The written testimony that each of you
    submitted to the committee claims that since that time, the
    board of directors has focused on changing the culture at Wells
    Fargo, but there is an important change I think you left out.
        This week, the Roosevelt Institute published that from 2016
    to 2019, Wells Fargo more than doubled the money it put towards
    dividends and stock buybacks, from $12.5 billion to $30.2
    billion. Ms. Duke and Mr. Quigley, did you vote in favor of
    these dividends and buybacks?
        Ms. Duke. We voted in favor of the capital plan that
    included those, yes.
        Mr. Garcia of Illinois. It included those? That is a yes,
    from both of you?
        Mr. Quigley. Same.
        Mr. Garcia of Illinois. Ms. Duke and Mr. Quigley, yes or
    no, did you and the rest of the board decide to direct more
    resources toward share buybacks and dividends to boost the
    company's share price? Yes or no?
        Mr. Quigley. The capital plan is very clear, and all of the
    elements in it.
        Mr. Garcia of Illinois. That is a yes?
        Mr. Quigley. Yes, we did approve the capital plan.
        Mr. Garcia of Illinois. Both of you?
        Ms. Duke. Yes.
        Mr. Garcia of Illinois. Which included that. Thank you. So,
    you decided to use more money to pay off shareholders. The
    Majority staff report found that, ``Wells Fargo's board and
    management prioritized financial and other considerations above
    fixing the issues identified by regulators.'' To me, the fact
    that Wells Fargo doubled the money it spent paying off
    shareholders during this time is a clear example of that.
        Ms. Duke and Mr. Quigley, yes or no, do you agree that
    Wells Fargo could have used those billions to invest in its
    workforce, which may have, in turn, fixed its internal culture?
    Yes or no?
        Ms. Duke. I would say that we have approved considerable
    expenses in order to fix the issues that we need to fix at
    Wells Fargo, and we have not--
        Mr. Garcia of Illinois. Could it have gone further?
        Ms. Duke. --limited those budgets.
        Mr. Garcia of Illinois. Mr. Quigley?
        Mr. Quigley. The number-one priority is absolutely
    remediating those issues, and that was made clear by Mr. Scharf
    yesterday.
        Mr. Garcia of Illinois. But doing something differently
    could have advanced the cleaning up of the culture.
        Last year, I introduced the Reward Work Act, H.R. 3355, a
    bill that bans share buybacks and allows company employees to
    directly elect one-third of their corporate board. I think it
    is fair to expect companies to invest in their people and in
    growth rather than simply lining shareholders' pockets.
        In 2013, we first learned, from the Los Angeles Times,
    about Wells Fargo's fake accounts and the pressure tactics that
    drove employees to open them. The Committee for Better Banks, a
    group of bank workers organizing for better conditions, helped
    bring these practices to light, and Wells Fargo responded by
    firing thousands of front-line employees.
        Ms. Duke, and Mr. Quigley, was firing front-line employees
    the correct response to credible reports of management issues
    at the bank?
        Ms. Duke. There was further action that needed to be taken
    by the managers at the banks. However, whenever an employee is
    found to have engaged in a dishonest act against a customer, we
    have no choice but to terminate them.
        Mr. Garcia of Illinois. Mr. Quigley?
        Mr. Quigley. The same.
        Mr. Garcia of Illinois. The culture of a company and
    accountability in a company always starts at the top. Yes or
    no, would you agree?
        Mr. Quigley. Yes.
        Ms. Duke. Yes.
        Mr. Garcia of Illinois. As board members, you both bear
    responsibility for what went on at Wells Fargo when you were at
    the top. Your testimony expresses regret about what happened to
    the bank's workers, but here we are--bank workers alerted the
    public to your bank's practices and they got fired. You both
    resigned before testifying today, perhaps to absolve yourselves
    of what happened on your watch.
        Do you think it might be a better idea to let employees
    elect corporate board members for themselves?
        Mr. Quigley. I'm sorry. I didn't understand your question.
        Mr. Garcia of Illinois. Do you think it might be a better
    idea to let employees elect corporate board members for
    themselves, to be represented?
        Mr. Quigley. I believe in the corporate governance model
    that shareholders elect the directors.
        Ms. Duke. I agree with Mr. Quigley.
        Mr. Garcia of Illinois. Okay. So, it is clear you are
    consistent in that.
        Madam Chairwoman, I yield back.
        Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
    Taylor, is recognized for 5 minutes.
        Mr. Taylor. Thank you, Madam Chairwoman. I appreciate you
    both being here. I served as a bank board member for 12 years
    at a community bank back in Texas, and I will say that where
    you are today is somewhere where I think not a single member of
    a bank board would ever want to be.
        And I was wondering if you could--actually, let me back up
    for one second and just say that I find some of the actions
    that were taking place at Wells Fargo to be criminal in nature.
    I certainly agree with you, Madam Chairwoman, and some of my
    colleagues, that they were criminal in nature. I am surprised
    that no one has been prosecuted. And I certainly would agree
    with bringing in either the U.S. attorney or the district
    attorney for the jurisdictions that comport with us, to ask why
    has no one been prosecuted? Because I think there is an example
    to be made here. This is unacceptable behavior, and it is
    criminal.
        And I think there is agreement in this room that it was
    criminal and therefore there should be some discussion with the
    people who prosecute. What the heck? It is not up to these
    guys. They are not on the bench. We are not on the bench. But I
    think it is worth asking that question.
        Circling back to being on a bank board, do you have any
    lessons learned that you would tell--there are 5,500 banks in
    the United States. There are 50,000 to 100,000 people who serve
    on bank boards across this country, for banks large and small.
    And I hope you don't stop here. I know this is an unpleasant
    thing, but I think you have something to teach other bank board
    members about how to run a bank.
        You have been through one of the most difficult problems
    that a bank has been through in the last decade. What do you
    have to teach, or what would you say to other bank board
    members, or prospective bank board members about when you get
    in this situation, which is thrust on you. It is nothing you
    designed, but something that was thrust upon you--what lessons
    have you learned?
        Mr. Quigley?
        Mr. Quigley. There is no question that the communications
    with regulators, who have a significant presence inside these
    enterprises, need to be robust and timely, and you have to be
    aggressive in terms of your follow-up. And when it comes to
    determining that there is a need for change to occur in a
    culture, you have to be assertive to make sure that, in fact,
    that change occurs. And that might mean that you have to make
    substantial changes in the leadership team, including at the
    top. I acknowledge that in my 6 years at the bank, I have
    worked for 4 CEOs.
        Mr. Taylor. And actually, just to quickly go into that,
    because that actually was something I wanted to ask about, is
    your relationship with the regulators. In my 12 years on a bank
    board, other than the bank examination reports that the bank
    would yield every 18 months, that was the only interaction I
    ever had with a regulator. I never got a call or an email from
    a bank regulator.
        Your earlier testimony that you were talking almost daily
    to regulators honestly was a surprise to me. Was that typical
    prior to the problems at Wells Fargo? What was your
    interaction? What led to, ``almost daily interaction with
    regulators?''
        Mr. Quigley. During that period of time, I was chairing the
    CEO search committee, and so I was interacting with them on a
    regular basis because of the requirement for me to be able to
    obtain a supervisory non-objection for the individual whom I
    was recommending.
        But prior to the sales practices issue being made public,
    and for the board to be informed and aware, I think a quarterly
    kind of touch would have been much more expected. But with the
    issues that we were dealing with, and the aggressive approach
    to remediation, that interaction with the regulators then
    simply became much more frequent and of much greater substance.
        Mr. Taylor. What was the standard practice--and I guess
    this would be for all banks of your size--for regulator-board
    interaction? Because again, my experience was 18 months, have a
    meeting, and then that is it. But yours clearly was very
    different.
        Ms. Duke. If I could, most of my career was as a community
    banker, and so my board did not interact with the regulators.
    In the community bank, they didn't even come in for the annual
    review of the annual activities. When there was a close-out
    conference with the regulators, I think my audit committee
    would come in and meet with the examiners, but they didn't meet
    with the board.
        When I joined the board at Wells Fargo for the first few
    years, maybe 3 years, the regulators would come in and present
    annually their reports of their examinations, but that was
    really the extent of the contact.
        The other piece, though, was that each of the consent
    orders that we signed had a requirement for an oversight
    committee of the board. Soon after I got there, they asked me
    to serve on that committee, and then later to Chair it, and
    that did involve the reporting that was on the consent orders.
    And so, I had regular contact with the examiners then about
    those consent orders and the progress on the work under the
    consent orders.
        Mr. Taylor. Thank you. I yield back.
        Chairwoman Waters. Thank you. The gentlewoman from New
    York, Mrs. Maloney, is now recognized for 5 minutes.
        Mrs. Maloney. I thank the Chair for yielding.
        Mr. Quigley, I want to ask you about an email exchange you
    had with the former CEO of Wells Fargo, Allen Parker. That is
    in Appendix 3 of our Majority staff report. You and Mr. Parker
    were discussing a series of conversations that he had with a
    political appointee at the CFPB, Eric Blankenstein, about
    resolving the bank's regulatory issues with the CFPB.
        Let me read what Mr. Parker wrote to you on May 17, 2019.
    He said, ``Eric also assured me that there would continue to be
    political oversight of the engagement with us.''
        Mr. Quigley, are you familiar with this email? Yes or no?
        Mr. Quigley. Yes.
        Mrs. Maloney. Okay. What did you think Mr. Parker meant by
    political oversight of the relationship with Wells Fargo? Did
    you understand that he meant Mr. Blankenstein was promising a
    softball approach to Wells Fargo?
        Mr. Quigley. I did not interpret it that way, nor do I
    think that is, in fact, what occurred.
        Mrs. Maloney. Then, what do you think occurred? Do you
    think it is appropriate for a political appointee at the CFPB
    to promise a bank softer treatment than the career staff is
    recommending? Do you understand that provides an appearance of
    possible corruption?
        Mr. Quigley. Let me just provide a little bit of context in
    terms of my meetings with Mr. Blankenstein. He came to the
    board in July of, I believe it was 2018. No, no. It might have
    been 2017. I am not sure which year. But he spoke on behalf of
    the CFPB at the board meeting in July, and I started trying to
    have a quarterly meeting with him when I was in Washington. At
    each of those meetings, I was accompanied by someone from Wells
    Fargo, and he was accompanied by others from the CFPB.
        Mrs. Maloney. Well, let me ask you a different question. Do
    you think it is appropriate for a political appointee, a
    political appointee at the CFPB to come to a meeting with a
    bank and promise a bank softer treatment than the career staff
    is recommending?
        Mr. Quigley. No, I don't think that is appropriate, and I
    am not even sure that it occurred.
        Mrs. Maloney. Well, what do you think he meant when he said
    that he would continue, ``political oversight of the
    engagement?''
        Mr. Quigley. I think he was talking about his departure
    from the CFPB and that his successor, who was going to be a
    political appointee, might have continued touch with the bank.
        Mrs. Maloney. Well, it doesn't read that way to me. And I
    have no further questions.
        Chairwoman Waters. Ms. Porter, we will again give you an
    opportunity to question the witnesses. I started into the
    close, but we will rescind that and we will go forward.
        Ms. Porter. Thank you very much, Madam Chairwoman and Mr.
    Ranking Member. I really appreciate the accommodation.
        I wanted to ask Ms. Duke and Mr. Quigley about your board
    compensation. Ms. Duke, how much did you make last year on the
    board?
        Ms. Duke. $630,000.
        Ms. Porter. And Mr. Quigley?
        Mr. Quigley. $417,000.
        Ms. Porter. Okay. About how many times last year did the
    board convene in person, did you convene a full board meeting
    in person?
        Mr. Quigley. Full board in person, I am guessing, but
    perhaps 12. I had probably 90 meetings in relation to my
    committee meetings and my calls--
        Ms. Porter. The full board met only 12 times.
        Mr. Quigley. A big chunk of last year, I was working full-
    time.
        Ms. Porter. Well, what about the other company you served
    on the board of? Were you not working full-time for them?
        Mr. Quigley. Not full-time, no.
        Ms. Porter. So if you were working full-time for Wells
    Fargo on the board--
        Mr. Quigley. Portions of that time, while I was doing the
    CEO search, it required my involvement every single day. That
    was the point I was trying to make.
        Ms. Porter. Got it. My question is about your thoughts as
    long-term board members of Wells Fargo, about the remaining
    board, because the folks who are sitting on the board today--
    and I have their bios here--these are folks who oversaw data
    breaches: Staples; a health marketing scandal at Kellogg; a
    massive data breach of $110 million at Target; the auditor for
    AIG--these are not exactly Eagle Scouts.
        I would like to have you go on record with what your
    opinion is about the capacity of the current board in light of
    the number of them who have come from scandal-ridden or
    consumer harm situations, to steer Wells Fargo in the right
    direction going forward?
        Mr. Quigley. I have confidence in the capability and the
    integrity of the members of the board with whom I once served.
        Ms. Porter. Ms. Duke?
        Ms. Duke. I do, and I think the expertise of those
    directors is excellent. As we have repopulated our board,
    reconstituted our board, we have added a number of new
    directors. When I joined the board, I was the only director on
    the board who had banking experience. There are now, even
    without me, I believe four directors who have banking
    experience.
        Ms. Porter. Is the board actively seeking additional--
    seeking replacements for you two, and in the past in changing
    board members? Is Wells Fargo seeking people who have presided
    over major corporate or consumer scandals to populate its
    board, or is that just a coincidence? Is that a qualification
    these days, to be on the Wells Fargo board?
        Ms. Duke. That is not what we are actively seeking.
    However, I would say that particularly in the case of Celeste
    Clark, who is an executive at Kellogg, her experience in
    dealing with and remediating that crisis, that health crisis,
    and also as a public policy--she was their public policy
    officer, I believe, for a time, and her experience in that
    situation has been invaluable to our board.
        Ms. Porter. Do you think that the compensation of board
    members is in line with the number of hours that they work?
        Ms. Duke. It is in line with the level of responsibility
    that they take in and with the compensation for other directors
    of other similar institutions.
        Ms. Porter. Well, let's talk about that responsibility.
    What are the consequences or personal responsibility that you
    or Mr. Quigley have suffered as a result of presiding over the
    board during these scandals?
        Ms. Duke. We are subject to liability for our actions as a
    director.
        Ms. Porter. Does Wells Fargo have directors' and officers'
    liability insurance--
        Ms. Duke. They do.
        Ms. Porter. --that would cover those claims?
        Ms. Duke. They have directors and officers liability
    insurance that covers those.
        Ms. Porter. So for the rounding, between the two of you,
    half a million dollars a year. What are the responsibilities
    for which you deserve such tremendous compensation? What are
    the consequences? What are the risks that you are personally
    exposed to as a result of serving on the board?
        Mr. Quigley. The board's role is to oversee the company's
    management and business strategies, to evaluate the performance
    of its CEO, to monitor the performance of that CEO, and to work
    through the succession plan and selection of the CEO. That was
    the point I was trying to make earlier, where I was spending
    full time.
        Ms. Porter. Thank you.
        Chairwoman Waters. I would like to thank the witnesses for
    their testimony today.
        The Chair notes that some Members may have additional
    questions for this panel, 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 these witnesses and to place their 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.
        This hearing is now adjourned.
        [Whereupon, at 12:51 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                 March 11, 2020

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