Wells Fargo executives will be called to testify before Congress, as early as next week, about what regulators have described as “the widespread illegal practice of secretly opening unauthorized deposit and credit card accounts.” In response to the scandal, the banking giant announced on Tuesday that it will eliminate product sales goals connected to retail banking.
On Sept. 8, the Consumer Financial Protection Bureau announced that Wells Fargo Bank, a subsidiary of Wells Fargo & Company, was fined $100 million, the largest penalty ever meted out by the agency. In response to the scandal, the bank fired 5,300 employees.
Wells Fargo had compensation incentive programs in place for employees that encouraged them to sign up existing clients for deposit accounts, credit cards, debit cards, and online banking. Spurred by sales targets and these compensation incentives, employees boosted sales figures by covertly opening accounts and funding them by transferring funds from consumers’ authorized accounts without their knowledge or consent, often racking up fees or other charges. According to the bank’s own analysis, employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers.
Democrats on the Senate Banking Committee—notably Bob Menendez of New Jersey, Sherrod Brown of Ohio, Jack Reed of Rhode Island, Elizabeth Warren of Massachusetts, and Jeff Merkley of Oregon—demanded immediate hearings “to fully investigate the impact of the scandal and determine if new consumer protections are needed,” in a letter to Chairman Richard Shelby (R-Ala.).
“The magnitude of this situation warrants thorough and comprehensive review,” they wrote. “Specifically, the committee should thoroughly examine this issue, including: how it is possible that more than 5,000 employees could bilk customers over the course of five years; the timing, extent, and disposition of customer complaints; whether Wells Fargo’s sales and compensation structure incentivized employees to engage in deceptive and abusive practices; and what additional safeguards may be needed to prevent this type of behavior.”
The Senators said they specifically wanted the opportunity to question Wells Fargo’s Chairman, President, and Chief Executive Officer John Stumpf.
As members of the United States Senate Committee on Banking, Housing, and Urban Affairs, we should accept nothing less than a full and transparent explanation of what went wrong, who is responsible, how to fix it, and how to prevent such fraud in the future,” the letter concludes.
A tentative date for the hearing has been set for Sept. 20.
To borrow an overused term from this year’s presidential campaign, the “optics” for Wells Fargo heading into the hearing are terrible. It was reported this week that the executive in charge of the unit responsible for the unauthorized customer accounts and credit cards will retire at the end of the year (as announced in July), netting a nearly $125 million retirement package in stocks and other compensation, just $55 million less than the latest settlements and with no hint of a clawback.
The 5,300 terminations are just a bit more than the 5,000 layoffs announced by the bank last year. That job-shedding might provide Senators additional fodder if they recall the assessment by former CEO Richard Kovacevich (who, it must be noted, left the bank in 2010, prior to the known origins of the latest brouhaha). During an interview with CNBC, he blamed the layoffs on increasing compliance demands.
“I think what’s happening today, is that they [banks in general] are getting rid of sales staff and investing in technology and so on, in order to pay for compliance,” he said. “It is staggering. In our bank there are probably close to 10,000 compliance people. At JPMorgan it is 20,000 compliance people. It is absurd that we are investing that kind of money on compliance...You have to offset those costs somewhere because revenue growth is non-existent in the banking business.”
Meanwhile, on Sept. 13, Wells Fargo announced it will eliminate all product sales goals in retail banking, effective January 1, 2017. “We are eliminating product sales goals because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers,” Stumpf. the current CEO, said in a statement.