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tv   Politics and Public Policy Today  CSPAN  September 20, 2016 9:00am-11:01am EDT

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they were very hospitable. i was very impressed with the them. one of two programs around the state. i think as a management consultant, i'd be less interested in creating other groups and organizations with managers and communications channels and ways to create a web of subject matter or expertise we could leverage. it has less to do with the concept and more to do with the implementation. i'll get back with the department. do you have any comments on that o particular recommendation? >> i think, you know, we've heard in terms of the response that perhaps the verk, the
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specific component of the v.a. we recommended be the center of this performance improvement work may not be the choice. that's not a -- certainly not a big issue for me. >> got you. >> but i think the focus is clearly on how to drive a performance improvement culture throughout v.a. >> absolutely. >> and focus on clinical and process improvement. >> i think that's right. in salisbury they had lean process design. i'm from north carolina. that was in my state. i see an emerging number of best practices we need to execute and proliferate but in an orderly way where we are not varying and suddenly creating a hairball of good practices and best practices. i do want to move to the board of directors one. that's probably the one where you don't have me. the reason for that is i feel like this committee is the closest thing to a board of directors as we should have. if we add that other layer, i
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think we could have v.a. leadership that get monthly floggings from two different groups. and i don't know that that is necessarily productive. i kind of enjoy our monthly floggings and wouldn't want to share that with anybody. in all seriousness, i think it is something we should look at. i'll drill down more on the recommendations. but i worry about -- if we had that layer down, it could be another layer of abstraction that could remove the members of this committee and maybe the members as a whole from some of the details that are going on. i invested last year a lot of time with the leadership and understanding the transformation. and i think the more we learn about it, the more we measure the week-to-week progress, the better off we're going to be. so i have to read more into the recommendation to make sure it's not putting us further away from the line of sight that i think is helpful. if you have any comment there. and i don't have any remaining
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time. but i will follow up on recommendation 17. let me just put it this way. on bad paper, i think no one -- and senator blumenthal has been great on this issue. i think there is no doubt that there are veterans who should probably receive care because of the nature of their separation was related to an injury or an event that occurred. their behavior was actually driven by something that was either a short -- maybe a temporary injury or a permanent injury that we just simply didn't know. we talked about it before, shellshocked, whatever we used to call them in the past. it's more about the implementation and making sure that it does not disrupt the v.a. from the things they're trying to get done with the people who are already in the system who deserve care. so i think we want to work to the same goal. it is more the means rather than the ends. thank you, mr. chair. >> thank you, senator tillis. senator boseman. >> continuing the flogging, we appreciate you all very much. i think it is very, very helpful.
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we appreciate the ideas that you put forth. miss schlicting, you talked about the undergoing leadership challenges facing the organization, including a culture of risk aversion, distrust separate from your recommendations regarding the board of directors and the undersecretary appointment process, i would like to get your thoughts on how vha can get after the risk aversion and the distrust issues. that's really a very difficult problem. and you might also as you do that comment -- we have heard a lot about the senior leadership, conferences and workshops. if you have any thoughts as to -- if those are working or not working or if we need to change those a little bit or not. also, things like the diffusion of excellence. is that getting down to the shark tank competitions, getting
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down to the local levels like it should. and, again, what other steps that we should be taking to try and improve the culture, which is so very important. >> well, it is a very important question and something the commission spent a lot of time on. and i would just say first that i think secretary mcdonald and undersecretary shulkin are making really significant progress. i think the worry we have is not so much the leadership development work that's going on, it's having continuity at the top for more than a couple of years. because it's very hard to change culture when you don't have a consistent pattern of leadership at all levels starting at the top. so our concern was how do we have more stable leadership, have oversight with expertise.
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and that was the reasoning behind the governing board, if you will, the board of directors. to have health care expertise overseeing the transformation process with stable leadership in place. that is how culture begins to really happen in a positive way. and people start to take a little bit more risk. there's a culture of safety around speaking up, which is critical i think in any transformation. those were the ideas that we really tried to move forward in our recommendations. >> and the shark tank. >> yeah. those things are great. i think they're fantastic. in fact, i know they are working with professor nltishi from the university of michigan who i know very well. in fact, i've taught in his clags and he is terrific and what he has done to engage the teams i think is fantastic. >> mr. harvey, the -- you highlighted the long-term challenges the va has had with i.t. solutions? >> yes, sir. >> particularly as it relates to scheduling. can you talk a little bit about that. you mentioned we spent many years trying to get a scheduling
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system. lots of money. what's your sense regarding the vha's future willingness to consider off-the-shelf solutions? again, how do we make progress on this front? >> let me start by saying we met with the v.a.'s chief information officer, laverne counsel. i was personally very impressed. and others i have spoken to within the v.a. who know that part of the world have been impressed by her competence or experience, and she brings a lot to this. my concern is that the va, for reasons that aren't entirely clear to me, seems to have just had a terrible time getting i.t. right. and so what we are now saying is you should do this very complex new system, commercial off-the-shelf that will do health records, it will do payment business practices with choice doctors, it will do
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coordination with the veterans benefits administration, and it will do scheduling. it will do all of these things. and proof of concept is something that i would like to see. i really honestly don't think they would be able to do all of those things right now. since in fact, they have not been able to get the scheduling, that one part right. the vista system, which is the electronic health records is an old system. and it was one of the newest when it came in. it was the best for a long time. and it has been replaced by other systems and transitioning to some other system that can do
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these other things. it is going to be a huge jump. and you want to do it right because it is going to cost lots and lots of money. >> thank you, mr. chairman. >> thank you, senator boseman. thanks to both of you for your testimony and your months of hard work on the commission. we're going to make sure this is not a dust gatherer on a shelf but as a thought provoker that results in the perfection we need to bring to the va. that you know for your service very much. we will welcome our vsos and look forward to hear from all of them.
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as our witnesses prepare to testify, let me make an observation if i can. on behalf of all the members of the committee and on behalf of the staff of the committee, i want to tell the vsos how invaluable your help and support has been over the last two years and in the work up to veterans first being developed.
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we never had an issue where vsos were not ready to come forward. we appreciate your input so much. the panel, you might think you're an afterthought. you are not an afterthought. many things we learned we should have done differently we learn from you when you correct us. we want to thank all of you for being here. we look forward to your testimony. we will hear from the following individuals. mr. jeff steele, the american legion. joy, disabled american veterans. joy, delighted to have you in atlanta, georgia for your animal convention three weeks ago. the setting and i both enjoyed being there. and the president was there as well. good attendance on the government's part anyway. lauren augustine, iraq and afghanistan veterans of america. commander renee campos, military officers association of america. mr. carlos fuentes, veterans of
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the foreign wars, and mr. richard weidman, vietnam veterans of america. we welcome all of you being here and we will start with mr. steele, you are recognized for up to five minutes. >> chairman isaacson, ranking member blumenthal and distinguished members of the committee, we thank you and your colleagues for conducting this hearing today. generally, the american legion is an agreement with many of the commission's recommendations. however, it contains a fundamental flaw which must be recognized and addressed. of the three commissioners that refused to sign it, the american region is mostly aligned with commissioner bleker. it would threaten the survival of our veterans health care system is a choice for the millions of veterans who rely on it, sentiment we have heard
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today. the american legion believes in a strong system that is designed to treat the unique needs of men and women who serve their country and we recognize in the best of circumstances there are situations where the system cannot keep up with the health care needs of the growing population requiring va services. and therefore veterans must seek care in the community. thus, we support the creation of fully integrated health care networks with the va maintaining responsibility for the care coordination. but these networks must be developed and structuref in a way that preserves v.a.'s capacity. without a critical mass of patients, v.a. cannot support the infrastructure that makes the services world class. providing veterans unfettered choice as to their provider jeopardizes this critical mass. the american legion also opposes allowing a complete option of primary care providers within their proposed v.h.a. care system because we believe the commission's analysis is faulty. the commission supports this recommendation based on a cbo
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estimate calculated using medicare rates. the commission gave no consideration how it would apply to the current quality of care through the primary care physicians. vha physicians are not restricted as to the amount of time they are able to dedicate to each patient or the number of presentations per patient. medicare, on the other hand, only provides payment based on on 10 or 15-minute consultation, which would deny the full complement and quality of care. the cost of this recommendation would be at least triple, if not more, and financially is unsustainable. a better proposal is found in v.a.'s plan to consolidate community care programs. the american legion supports tiered networks that would provide access to informed choices, access to the highest
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possible quality care by identifying the best performing providers in the community and enabling better coordination of care for better outcomes. it rests on the principle of using community resources to supplement service gaps and better align va resources. we believe it has the potential to improve and expand veterans access to health care. however, as the v.a. begins to involve more community providers, the issue of how medical malpractice claims are handled becomes increasingly important. as it stands now, if a veteran is injured by a v.a. doctor, they can file an 1151 claim. it will begin or increase the level of service and the injury would be covered by the v.a. fort veteran's lifetime. no such protection exists for contracted care. it is essential to ensure that the current processes under 38 c 1151 treats malpractice claims the same regardless of where they received their care. finally, we recognize that the cost for these reforms remain a significant concern. the plan was presented to
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congress in late 2015 and was well received on both sides of the aisle. some members of congress balked at the cost. ultimately, we strongly believe this is a cost that must be met for v.a. to meet the needs of our veteran. mr. chairman, i cannot conclude without embarking on the broken appeals process. modernizing the american legion appeals process is the number one priority. the house is voting today on chairman miller's reform bill. senator blumenthal just came from a press conference where he introduced his reform bill. senator rubio also has a bill. wide bipartisan consensus that the status quo is unacceptable and must be reformed. mr. chairman, we have worked with you personally and with the committee. what are we going to do to get this done? and with that, i am happy to answer any questions the committee may have. ms. elam.
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>> since the access crisis of 2014, a vigorous debate has taken place how to best provide timely high quality comprehensive and veterans focused healthcare to our nation's veterans. over the past two years, there have been dozens of congressional hearings, numerous investigations, stakeholder engagement, a comprehensive independent assessment and finally the report from the commission on care. all of these efforts were undertaken with the goal of getting to the root of the crisis and transforming the va so it can better serve our nation's veterans. the commission examined a wide range of ideas including proposals to privatize and dismantle the system but instead reached a strong consensus on a comprehensive settle of recommendations for the long term transformation of va. we support the recommendations as detailed in my written report.
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but i will focus a few in my oral remarks that we have concerns with. we support the commission's first recommendation calling for the establishment of high-performing integrated community-based were health care networks. with the v.a. acting as coordinator of care. v.a. and the independent budget vsos and the vso community, many in the vso community put forth similar plans for integrating community care into v.a. the commission plan, however, does differ in one crucial aspect as mentioned previously how it would manage the provision of care among v.a. and non va network providers.
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in order to reach consensus, the commission recommended a compromise option to let veterans choose non va doctors within an established network even in the case where they would have timely access and located options to meet their needs. this open choice option would significantly increase cost, and lessen quality and shift resources out of v.a. likely resulting in the downsizing of the health care system. the problem is that if choice is elevated as the most principle, you're likely to end up with two parallel systems and veterans will have to choose rather than an integrated system that is more likely to provide high quality care and be responsive to veterans's individual needs. estimated the open choice option would increase v.a. spending between $5 billion and billion annually. likewise, they noted there was no clear evaluation of the potential impact that this choice would have on va's role as a whole. its ability to deliver comprehensive care and specialized services or the impact on v.a.'s research, education, and other critical missions. additionally, this option, according to the commission, could shift an estimated 40% of the medical care currently provided by va into the private sector. this reduction in work volume would undoubtedly force va to cut services and close facilities providing many veterans, particularly disabled veterans, of the choice to use v.a. for most or all of their care.
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high quality and coordinated care for all the veterans, a must address the deficiencies, including modernization of the i.t. and infrastructure needs, as well as the flexibility to organize and manage the networks and the care provided. we also have concern about the recommendations to establish the board of directors to govern the veterans health care system. while we support greater continuity of the leadership to facilitate better long-range planning creating a separate and
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independent governing board for vha would hinder the ability of the secretary to coordinate inter related benefits programs. instead, we recommend v.a. adopt qiidrennial review process for improved long-term planning and budgeting purposes similar to that used by the departments of defense and homeland security. in closing, it concurs with the majority of the proposals on the commission on care report. we greatly appreciate the commissioners to find workable solution toss complex programs. we are pleased a number of recommendations are already under way as noted by the v.a. secretary in the my v.a. initiative. after two years of intense discussion and debate, there is a clear path forward. it is now time to take action and working toward creating a system our veterans need and deserve of the future. thank you, mr. chairman. thoo that completes my statement.
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>> miss augustine? >> chairman isaacson and members of this committee, on behalf of iraq and afghanistan veterans of america and 425,000 members and supporters, thank you for ca opportunity to share our view of the commission on care report. we know from our member research that our members are increasingly turning to the va for health care. in our most recent survey, 29% reported use the v.a. exclusively, up six percentage points from the previous 23%. those using the v.a. in combination with other insurance is currently 63%, up five percentage points. as more veterans return and we face physical and mental injuries we need to know the va will deliver for us. we must get this right. the commission on care report was intended to map out a path to that v.a. and in general has pointed in the right direction.
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we need to reform v.h.a. our analysis of each recommendation is detailed in our testimony submitted for the record. today's remarks will focus on the general analysis of the report as well as three of the 18 recommendations. we have six general comments on the report. one, the report is presented as a series of independent recommendations. it fails to acknowledge that the success of implementing a single recommendation likely depends on the execution of others and will also require extensive time and resources to execute effectively. two, the report fails to consider how these recommendations to vha will impact the v.a. as a whole, particularly vha's ability to coordinate with vba and nca. three, the report fails to analyze the impact of recommended vha reforms on vha's ability to conduct research and train future clinicians. four, the report does not acknowledge the challenges faced by v.a. due to the misalignment of demand, resources authorities. five, the report failed to take into account reforms and programs that the current
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v.a. secretary has already planned and/or implemented. six, the report recommendations are broad and can be left somewhat open to interpretation. as for the specifics of the recommendation, we broadly agree with most of them. and v.a.'s response to the report. but we would like to focus recommendations 1, 9, 17. specifically, iava oppose ex ternd care providers, the creation of a board of directors and supports a streamlined path to eligibility for other than honorable discharges. on recommendation one, we support a network of care that includes community reporters left by v.a. primary care providers managing the veteran's care. recommendation one is too broad, lacking critical pieces of analysis and a fatal flaw, external primary care provider. it assumes that community
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providers will be available and able to absorb the demand by integrating such a network. on recommendation nine, ivaa understanding the board of directors and degrees that confute in leadership is necessary to reform. we do not support this in an already burdensome bureaucracy. on recommendation 17, iava strongly agrees with providing a streamlined path for health care eligibility for those with other than honorable discharges. they can be among the most vulnerable. temporary eligible to these individuals will offer access to critical services without delay in health care due to the process for determining eligibility. however, it is important to stress that with this change will be a resource burden on the v.a. that will require congress to support with increased demand comes increased need for resources. to close remarks today, i would like to reiterate several key reports. reforming to a 21st century health care system will require
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significant coordination between the next president, v.a., congress, vso partners, and the veterans we all serve. two, these changes will require a significant financial investment that should not come at the expense of cutting existing benefits. three, these changes can be within themselves but part of a comprehensive plan to be effectively implemented. thank you for your time and attention. >> thank you, ms. augustine. ms. campos. >> chairman isaacson, the military officers association of america appreciates this opportunity to give our view of the commission on care report. we are particularly grateful for the open process established to receive feedback from veterans themselves as well as the vso and moa representing the constituency.
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over all moa supports most of the commission's findings. we are pleased to see many of the report recommendation incorporate the changes that secretary mcdonald and vsos have been advocating for since the implementation since the choice act. in responding to the report, moa, i would like to put right up front that we want to see the exhaustive work of the commission and the critical ing legislation proposed by the congress and legislation be enacted this year. the panels before us have already discussed that, the budget, the veterans first act and appeals modernization, those particular ones. let me focus on three specific recommendations. while v.a. alone cannot meet all the needs of veterans, the system does provide a foundational program in which to be built.
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and that's clearly stated up front in the report. moa believes in new system needs to preserve well-known programs and competencies in v.a.'s mission in the area of clinical, education, research, and national emergency response. these are intricately related to the broader v.a. mission and american medical system. moa is pleased the commission recognized the v.a. primary role in helping veterans navigate the system. that said, though, v.a. must retain responsibility for veterans health and patient information and outcome system to ensure quality and continuity of care of services. second, moa agrees with the commission's recommendation to create an integrated and sustainable culture of transformation where all the programs and activities are alone and leaders at all levels of the organization are responsible and accountability for improving organizational help and staff engagement. such transformation requires modernizing leadership and human capital management system across the enterprise.
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such improvements will require the necessary funding and authorities to make that happen. as with many of our vso partners, moa supports a longer term appointment for the undersecretary of health. we, however, are not supportive of establishing a board of directors. moa believes congress's role of oversight is essential and adequate in holding va accountability and congress must continue to be the veterans's strongest advocate. finally, moa agrees to establish an expert body to develop recommendations for va care, eligibility and benefits design. the commission recommends that v.a. revises regulations to provide tentative health care eligibility for those with other than honorable discharge. the commission believes eva's
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determination process and characterization of discharges takes far too long and is very strictly interpreted, preventing veterans from getting the care they need sooner rather than later. instead, moa recommends that congress direct v.a. to provide more information on on the current scope of the problem, what the process is, what the potential costs and what the impact would be if this was implemented. moa appreciates the senate and the house exhibits unwavering leadership and focus on improving health care for our veterans. in closing, i would like to share a quote from one of our veterans in the field who articulates what moa's perspective is on v.a. health care. i quote, "i will tell you that our v.a. has a very solid reputation and despite what is heard in the national press, i know from both personal experiences and from experiences i've heard from others who use the v.a. in durham, we are very fortunate.
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the v.a. medical center works well and the staff is committed to its mission. when i walk through the v.a. medical center in durham, i'm struck with two things. the first is how complex it must be to manage such a facility. the second is what i see are the faces where nowhere -- faces of people who have nowhere else to go. the v.a. is there for them. moa believes this v.a. medical center is the rule rather than the exception in vha. it is our view that we must leverage these best practices and invest in this type of culture across the system. and our veterans and their families deserve no less. i thank you for this opportunity and look forward to your questions. >> thank you, ms. campos. mr. fuentes, welcome back. >> thank you, mr. chairman. on behalf of the men and the women of the vfw and our auxiliary, i would like to thank you for the opportunity to present our
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views on the commission on care's final report. the vfw thanks the commission. i would like to echo a friend, renee, here on their willingness to involve us in the process. the vfw believes that the commission has made some meaningful suggestions on how to improve the health care that v.a. provides veterans. the vfw urges congress and v.a. to consider the recommendations we have supported and alternatives to the ones that we oppose. we strongly support the commission's recommendations to improve the v.a. clinical appeals process due to the lack of system wide processes veterans have experienced vast differences when appealing clinical decisions, often delaying the care they have earned and deserved. the vfw members have firsthand experience with the pitfalls of
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the fragmented v.a. clinical appeals process and believe it must be reformed to ensure veterans receive an appropriate response to their grievances. this includes the ability to provide evidence to support their appeals which many do not permit. the vfw also supports a mending va's current health care eligibility recommendations to make that they have access to the life-saving care they need and deserve. the vfw also supports the commission's recommendation to establish high performing, integrated, community-based networks which leverage the capabilities of the private sector and the public sector to meet the needs of veterans in each community. the vfw is glad to see the commission also agrees that v.a. must remain the coordinator of care for veterans and must develop systems and processes to help veterans make informed health care decisions.
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doing is vital to insuring veterans receive high quality and coordinated care rather than fragmented care which leads to lower quality and threatens patient safety. that is why the vfw opposes the commission's proposal to give veterans a list of primary care providers and hope they are able to find one willing to see them. veterans in need of primary care must be offered the opportunity to discuss their preferences and health care conditions with a nurse navigator who can help them find a provider who fits their preferences and clinical needs. the vfw also opposes the commission's recommendation to to determine when and where of political appoint tees to determine when and where
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veterans receive their health care. v.a. needs strong leadership, not more bureaucracy. however, we do agree that an exemplary undersecretary of heating regardless of political changes in congress and in the white house. but instead of precluding the president from replacing an undersecretary for health, congress and v.a. must evaluate ways to make the position more attractive to executives with experience running successful health care systems. that is why we are pleased when dr. shulkin accepted the nomination. but he is not the typical person who has occupied that rule. he is the first noncareer va employee to be confirmed as undersecretary of health since dr. ken kaiser who led the largest and most successful health care transformation in va's history.
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congress and v.a. must insure that the position of undersecretary for health attracts more candidates like dr. kaiser and dr. shulkin, not employees who seek to protect the status quo. we agree that waiving budgetary rules and improving va's enhanced use authority will enable v.a. to expand access. however, the vfw cannot support a brock position. the v.a.'s skip process already addresses the issues of unused property. it is congress who has failed to remove these properties. the reason congress has failed to act is the same reason it would fail to act under a brock style process. local pressure from the veterans community. the solution is to develop the better communication plan with the impacted veterans and develop a replacement plan that
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insures veterans do not experience a lapse in access to care. veterans fear losing va care drives congress in action and no commission or board will fix that. mr. chairman, thank you for the opportunity to testify. i'm happy to answer any questions you may have. >> vietnam veterans association mr. weidman. >> thank you, very much, mr. chairman for allowing us to be here. much of the material that i might have covered has already been covered by my distinguished colleagues to my right. so i will concentrate on just a couple things we consider to be important. the first has to do with recommendation number 17. and the administration's nonconcurrence with it. we understand their position. but it is really up to the congress at the first opportunity to get emergency appropriation so we can move ahead to those people who have
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an o.t.h., other than honorable, discharge. most of them as a result of administrative procedures, never had access to counsel, never had a full record of court-martial but rather were pushed out as they were deemed no longer to be useful. vietnam veterans, we have a long history with that. that happened to many people at the end of the vietnam war. even as it was going on for kids, i say kids who enlisted at 18 and get sent to vietnam at 18 1/2, 19, and came home, they were on a three-year enlistment. and the military service didn't want them when they came home. and they didn't want to be there. and they copped an attitude because of the experience in vietnam. so they got in trouble. sign here, son, and you can go home. and so they did. and so that has ruined many of their lives. and that, unfortunately, that pattern is still going on today
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from fort carson to bases in texas to right here at fort belfor where people are being unfairly pushed out and labeled as other than honorable police because there he is somebody in either nco court or officer court who has taken an active dislike to them. vva has been very concerned about this ever since our inception. many of us have been active in discharge upgrade services before vva was founded. and we continue to be concerned with this thing. and it's become more difficult over the years to get discharges upgraded if and when an objective person agrees absolutely that that discharge should be upgraded and they should have their benefits restored.
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we have filed several class action suits against d.o.d. and we were assisted by sect of defense chuck hagel's memo. and that has opened the door. with the lawsuit pressing, instead of a success rate of 4%, it's the gone up to 45% before the army board. and the -- in terms of separation, the secretary of the navy has issued a directive that helped dramatically in having eligibility for the marines as well as navy people. we need secretary fanning and secretary of the air force to do the same thing. but what is needed is to make sure we have the money that is added into the budget as these things take hold. this is a group of people who
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are most at risk for suicide, particularly the younger ones. the older ones have already done so. so it is something that the passage of the final dbaa to make sure the fairness to veterans act is included. but the leadership of this community which on so many issues we greatly appreciate, mr. chairman, you and your colleagues and ranking members' efforts needs to be turned to getting emergency preparations appropriations so v.a. can be ready to handle it. so v.a. can be age to handle it.
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the last is a merit thing i just touched on instead of going into detail because of limited time is the whole procurement recommendation. given that 8-0 supreme court decision handed out in june, it is -- everybody in this room knows how rare it is to have an 8-0 supreme court decision. and they were absolutely clear about what must be done. the question is whether v.a. does it. and instead of concentrating on rearranging the structure, we need to look at what they're doing and how they're doing, including the excessive reliance on the delegated authority for the federal supply schedule. i'll close it there, mr. chairman. i deeply appreciate on behalf all of us at vva the sound leadership from this committee for both you and senator blumenthal. thank you. >> thank you, very much, mr. weidman. we appreciate your input and your time. mr. steele, with emphasis added at the end of your testimony, you said what do we do?
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addressing the appeals process and appeals reform in terms of the veteran's administration. i'll answer that question for you. my good friend senator blumenthal, as i understand it, has introduced a version of his veterans appeal bill sometime today. chairman miller. the house has introduce one. we had one by senator sullivan. and the obama administration, dennis mcdonough and his people at the administration, have been working about three months on an appeals reform bill. am i correct? >> yes, sir. >> my question is what do we do? everybody who has an interest in getting this done getting their heads together and getting out of pride of authorship. let's get it done. that's how it is going to get done. and i'm going to make a suggestion here. the 445,000 pending appeals that we have right now in backlog, we
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shouldn't do anything to reform the appeals process in the future until we tell these people how in the world we're going to give them an answer in the past. i'm as serious as a heart attack about that. i think one of the things we need to do is we need to make sure we're reforming so it doesn't happen again. but we don't need them being in a black hole and never getting an appeal and they have gone long past the time she should have gotten it. i don't have a dog in this fight. my desire is to fix it. but i'm not squiring a bill saying it's my way for the highway. but i'll be glad to work with the ranking member, with the secretary, dennis mcdonough, all of your vso organizations, chairman miller in the house, and let's find a way to find the 80% we agree on and make a deal rather than always working about worrying about the 20% we don't
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find agreement on. the 20% we don't find agreement on. when we do it, we have to make sure the people who have already been left behind in the appeals process get an answer to the question they ask, which is the same one you do, when? so i think that's the answer to your question. >> thank you. >> something augustine, did i correctly hear you say you were opposed to recommendations 1, 9, 17? >> we are opposed to the external primary care provider in 1 and 9 and we support recommendations 17, which offers a streamlined path for other than honorable discharges. >> i got two out of three right. that's pretty good. what is your organization's position on the veterans first bill? >> sir, we support many of the provisions within the veterans first bill but strongly oppose the pay for as we publicly state indeed our 30,000 messages from our members to congress have also echoed. >> let me offer -- i heard that in the testimony, the reference to the don't take away any benefits. i'd like to make a suggestion to
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all of you. when we're trying to address the concerns that all of you bring to us to improve the benefits to our veterans and make the v.a. work better, we have to find ways to pay for improvements in the future. that doesn't mean we want to take money out of richard blumenthal's pocket as a veteran or as my pocket as a veteran or anybody. but it may mean from time to time as we will have to do with social security in terms of entitlements, we have to reform eligibility in the future to pay for eligibility in the present. it is very difficult for us to move forward if out of right field we get an objection that doesn't give us fair warning and a chance to explain ourselves, which is what happened on veterans first and that particular situation. i just want to memorialize for the public and the record, i sit here as chairman and richard as ranking member, we are welcome any time, any place, anywhere any time anybody thinks we're
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taking something away to hurt a veteran. we want to take a holistic approach and look at where we are putting money away from the future. is that fair to say? >> mr. chairman, i think as long as we're memorializing, i should state for the record my own view that there really should be no requirement as to a pay-for when we are talking about benefits for veterans. that is simply a matter of principle for me. i recognize that the majority has somewhat different position. but there is no requirement in law or policy so far as i know that we could not go to the floor and ask for a budget point of order. and i think it would pass. and i am prepared to support that effort. and i will continue looking for other pay-fors if that's a requirement outside of veterans programs because i believe that the veterans first bill is a dramatic step forward and any additional funds required to
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support it should come from nonveterans programs. and you and i have worked together very collegially in formulating this bill, and i hope we can continue to do it so before it passes we will find alternatives. and i really do appreciate your leadership, mr. chairman. you and i have spent many, many hours in seeking to address this dilemma. and i know you have done it in good faith. and this bill hopefully will pass in an even better form than what we have right now. >> and i appreciate those comments and subscribe to them. my point is this. my point i'm trying to take to
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the vso is this, if you see us doing something that you have an objection to or perceive there may be a benefit challenge to, come to us first. talking about us being senator blumenthal and myself. let's see if we first of all can't understand what change we're making and work together to get it changed. a lot of times one little cog in the machine can step everything else from happening because we didn't address it and talk about. that's the main point. and i agree with everything he said. who is in charge requires us to put a pay-for on the floor. since we have the requirement, we ought to try and first see if we can't find a way to meet the requirement before we decide we have a battle appointment. >> and hopefully meet that requirement outside the v.a. programs, the v.a. mission, and the v.a. budget. >> precisely. i'm sorry to have taken so much time. i think both those points needed to be addressed in terms of lets get this appeals done, let's get it worked out and don't leave
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behind 445,000 waiting. let's make sure in the future if we have difference on benefits, we talk about them first before we declare war on each other sz. >> thanks, mr. chairman. i want to ask about the board of directors. i want to apologize. i wasn't in the room for some of that testimony but i have read it. in some of that testimony there seemed to be broad reservatios s i should say for merited reasons. you've made a point it's an additional beaurocracy and
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diminishes accountability. i think, mr. fuentes, this point has been made by many of you. ktsds. have i correctly interpreted your views? >> yes, sir. >> and in terms of the other recommendations, if each of you could just give me what you regard as the most important recommendations that you have supported. in other words, not that i understand that you've opposed some, but in terms of your finding merit in these recommendations. and i don't want to put you on the spot here. but just to kind of cut through
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the really excellent testimony that you've offered, it's very complete. excellent. but just in terms of what you regard as the most important of the recommendations you've supported. >> i'll go ahead and take that. go first on that one. i think modernization, recommendation number seven of v.a.'s i.t. system is so inclusive of everything regarding the disparities that exist and have been well documented with the schedules system. and so many other parts of what today has modernized health care. and without that there can't be, within the integrated networks that clear seamless access between the community provider and va. i think that one probably is the largest one that impacts on so many other things. and if that were resolved, and really try to tackle that one first and foremost, many of the other issues would be automatically resolved within that one.
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>> thank you. >> and i'd like to add that, in terms of i think this report, it's been clear to us that the report has been provided in whole. and if you start taking and piecemealing it, you're not going to get the results of the recommendations going forward. but for the sake of answering your question, i think from our perspective, that nothing can really happen, real cultural change, transformation, will not occur without an investment in leadership and the human capital management system. >> senator, i'd like to echo, you know, the points of some of these recommendations that have already been mentioned. but i do want to say that recommendation number one, although we don't support exactly how it's written, the need to reform the way that va purchases care and how you
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integrate the private sector into the delivery of care model is vitally important and was discussed when the secretary was testifying, you know, va, the choice program is due to expire, you know. there's an urgent need in reforming how they reimburse emergency room care. so that is certainly vitally important but also how va expands and develops capital intrafracture is also very important, number 6, no matter how many va providers are able to hire, you really need somewhere to put them. and the way it is done now really needs to be reformed. >> i would echo the comments from my partner from dav, that recommendation 7 is vitally important to every other recommendation and modernization impact on the va as we look at
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integrating a network of care that expands beyond v.a., better human capital management that ties back to i.t. ensuring i.t. infrastructure can handle those and meet the needs of v.a. is vitally important to the success of v.a. >> thank you. i'll conclude by stable leadership. that the va needs to find a way, we need to find a way to incentivize top performers like some schulka for leadership. to serve our veterans. stable leadership. >> do you have anything? >> the continuity of leadership is a problem whether through statute or practice, which, in fact, could be done. particularly the under-secretary level on up is something that is really very difficult,
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because when people come in for a relatively short period of time, and i believe appointees across the board serve on average one year and nine months, historically, whether it's a democratic or republican administration. that continuity lack hurts all of the agency's effectiveness. and frankly, we cannot afford to have those kinds of lapses in the va particularly, delivery system. >> well, i appreciate your comments. i know that this session is not the last. we will have on these issues. i would note that the recommendations that i believe you have identified are all either under way or seen as feasible by the v.a. so i think we have a lot of
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consensus here. and one of the criticisms made of the commission's report, i'm not sure who made it. i think it may have been the iava, is that it fails to take account of the actions already under way in the va. reforms already ongoing. so i think that your support that you've indicated, and the commission's support for the work that's under way really indicates that we're all putting our shoulder to the same wheel here. and again, i thank you for your leadership. i want to just finish by saying thank you for your support. for the appeals process reform bill that i introduced earlier today. we can disagree on the details, but there is absolutely no question -- >> we're going to leave the last few minutes and take you live to the senate banking committee.
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c-span3 live this morning for a hearing involving wells fargo and illegal opening of accounts without customer consent. it's called examination of wells fargo's unauthorized accounts and regulatory response. first witness up this morning is john stump, chairman and ceo of wells fargo company. here is a look from our producer on capitol hill, craig kaplan. he's tweeting about the line outside of senate banking committee. more than 100 people in the hall, down the hall where the ceo is already sitting at the table and ready to testify.
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senate banking committee right seat 3-d just a moment ago you saw on your screen the chair of wells fargo bank john stumpf. he'll be testifying this morning on illegal opening of accounts in customer's names.
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i want to take a look at an article from the insider. hillary clinton said there's no place for wells fargo's outrageous behavior in america. this is after the candidate and former secretary of state published an open letter to wells fargo customers after it was discovered the bank opened accounts and collected fees in customer's names without their knowledge or consent. again, live this morning here on c-span3, a look inside senate banking committee room. we'll be hearing first from the ceo of wells fargo and then later on from the consumer financial protection bureau director richard cordray. >> the committee will come to
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order. today we'll learn more about the events and circumstances that led to the enforcement action by wells fargo by the los angeles city attorney, occ and cfpb. but first today we will receive testimony from john stumpf. he's wells fargo's ceo and chairman who is with us today. welcome, mr. stumpf. we will hear from department chief whose office was the first to issue an action against wells fargo on this issue. final from occ and cfpb. we look forward to hearing from both panels because much remains unclear about what transpired at wells fargo and the regulators' response. it appears that wells fargo own analysis concluded that thousands offist employees open more than 2 million accounts that may not have been authorized. subsequently wells fargo terminated approximately 5,300
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employees and agreed to pay $185 million in fines and $5 million in customer remediation. sales data show that wells fargo has been an industry leader in its ability to cross-sale products such as credit cards, checking accounts, and home account loans. a number of former wells fargo employees described a work environment cashingized by intense pressure to meet aggressive and unrealistic sales goals. in a 2010 letter to shareholders mr. stumpf wrote that wells fargo's goal was eight products per customer because eight reimold with great. the result was a corporate culture that drove company team members to fraudulently open millions of accounts using their customer's funds and personal information without their permission.
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i've often said banking was built on trust and that trust was broken at wells fargo. while much has been written about these events, i believe there's several questions that warrant answers. first when did this conduct start at wells fargo and why would the regulators unaware of this growing problem. second, when did mr. stumpf and his senior management become aware of these activities and how did they respond? third, have all the appropriate wells fargo been held account able and to what extent? finally, where were the federal regulators while certain wells fargo employees were taken advantage of unsuspecting customers over a period of many years. here is what we do know. wells fargo's internal review only covers unauthorized accounts dating back to 2011. news reports and court documents suggest these problems might
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have existed long before then. the 2013 "los angeles times" articles led to l.a. city attorneys office investigation into wells fargo sales practices. thousands of man-hours by a dozen dedicated l.a. city attorneys culminated in a lawsuit filed against wells fargo in may of 2015. this time line begs the question, where were the federal regulators during those years. if the occ and cfpb were aware of these issues before the l.a. city attorney's lawsuit, why did they wait until 2016 to bring the enforcement action. why did it take an "l. a. times" reporter to uncover what should have been uncovered by wells fargo's regulators. if there were ever a textbook case where consumers needed protection, this was it. how many millions of
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unauthorized accounts does it take before the cfpb notices. while the bureau is billing this as the largest settlement in history, it's unclear whether it had any significant role in discovering our investigating the bank's conduct. fair to ask mr. stumpf what he knew, when he learned it and what he did about it, it's also fair to ask those same questions of wells fargo regulators. the simple -- their simple facts and circumstances questions occ and cfpb should be able to answer without violating any confidentiality restrictions. i look forward to today's hearing as both congress and american people especially the aggrieved consumers have been kept in the dark for far too long. senator brown. >> mr. chairman, thank you for calling this hearing. i want to commend the city of los angeles. occ and cfpb for their actions
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and "l. a. times" for bringing this to light. i was stunned when i learned that the breadth and duration of the fraud committed by wells fargo. i hope today we can begin to understand what went wrong and what needs to be done. i call it fraud because i got tired of the euphemisms a long time ago. i think the american people did, too. this is not a matter of customers who received products and services they did not want or need as wells fargo puts it. that makes it sound like there was a mix-up under the christmas tree and i got the right-handed baseball glove meant for my brother charlie. this is 5400 employees, wells fargo calls them team members, 5400 team maebs forging signatures, stealing identities, social security numbers an customers' hard earned cash, so as to hang onto their low paying jobs and make money for high paid executives at wells fargo.
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and they did it for at least five years. wells fargo's reaction has been remarkable. i did not treat this as a big problem until it appeared in the newspapers. did not begin to make customers whole until this year. we're not sure whether the bank chose to do so or were told to do so. wells fargo taking out full page ads saying it's responsible. it has not admitted responsibility for a misdeed with the city of los angeles and federal government. wells fargo claims to have made things right with its customers but its efforts have been incomplete. for example, it's not clear pwc calculated the cost of a lower credit score which might be paid every month for 30 years. at times the bank has been down right hostile to aggrieved customers. rather than letting fraud victims have their day in court, wells fargo forced customers to
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abide by mandatory arbitration clauses in their real accounts. you heard that right. the bank invoked the fine print on a real account to block redress on a fake one which wells fargo had created. wells fargo team members many struggling to support a family on $12 or $15 an hour, my understanding is wells fargo tellers make about $11.80 an hour. wells fargo team members struggling to support a family of $12 to $15 an hour followed their manager's guidance to do whatever it took to make their quotas. some may have worked off the clock. others cut corners to avoid being fired, for missing goals, goals that we will now admits were too high. they have been accountable, these low incoworkers. they lost their jobs with no parachute of any color. not just 1500 team members many
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more were fired when they couldn't meet the quotas, others chose to quit rather than cheat. by contrast, miss carrie all stead, senior vice president for community banking has done quite well. she knew of this problem at least five years ago and is retiring with a package that may be worth more than the cfpb record fine of $100 million. so 5300 team members earning perhaps 25,000, 30,000, $30,000 a year have lost their jobs while miss toll stead walks away with $120 million dollar. despite firing thousands of team members, miss tolstead decided it was not important enough to alert board of directors or anyone else for two years even though you both sat on the bank's board. senior management and board of directors apparently agreed once
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the scandal became public remedial actions stepped up against frontline team members but praise and performance bonuses continued to be lavished on miss tolstead until three months ago. you would think the financial crisis which came at such a high cost to our country would change the way they do business. to be fair many banks did take it to heart but for the largest banks in this country every week we hear of a new lawsuit or enforcement action against one of them. week after week after week. what are some of these lessons of first, the culture of these banks needs to change. that starts at the top. second, there must be a reliable way for legitimate complaints end up in c suite rather than circular file. third, in the wake of robo signing fraud we saw at wells fargo and other places banks need better control. fourth, if you pay people on the
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basis of how many products they sell, that's what they will do whether north texas interest of customers or not. base pay needs to be increased. finally change the pay structure or at least make incentives deferred so it's clear customer and company interests are aligned. >> last year settled with occ, 11 years of deception deceptive practices and identity theft. think about this, at the same time the bank was stealing customer identities, it was charging for protecting them. if the wells id theft product that they sold didn't discover the fraudulent wells accounts, perhaps some refunds are due. this april false claim acts suit settled in part because it used
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bonus toss to get staff to churn out and improve ever increasing quantity of fha loans. it applied pressure on loan officers and underwriters to originate and approve for fha loans as quickly as possible, unquote. thousands of americans we know so well, although unfortunately all too few of us know them personally, thousands lost their home through mortgage foreclosures as a result. i hope, mr. stumpf, you will level with the committee and public, words that come like a san francisco fog on little cat feet won't cut it. these were not magically delivered unwanted product. this was fraud, fraud that you did not find or fraud you did not fix quickly enough. instead of focusing on damage control, you need to admit to the problems and fix them and treat your customers in real life like you do in your vision statement. that would be the best damage control of all for your
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customers, your bank, for your industry and for our country. thank you. >> mr. stumpf, will you rise and be sworn. raise your right-hand. do you swear or affirm that the testimony you are about to give is the truth, the whole truth, and nothing but the truth so help you god? you may be seated. mr. stumpf, your written statement will be made a part of the hearing record. you proceed as you wish. welcome to the committee. >> chairman shelby, ranking member brown and members of the committee, thank you for inviting me to be with you today. i am chairman and chief executive officer of wells fargo where i have worked 35 years. it is my privilege to lead this country, which was founded 164 years ago. wrve and has played a vital role in financial history and development of our country.ells
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vital role in financial history and development of our country. we employed 168,000 team members, 90% of whom are in the united states. one in every 600 working adults is a member of the wells fargo family and we have a presence in all 50 states. i am deeply sorry we failed to fulfill our responsibility to our customers, to our team members, and to the american public. i have been through many challenges as wells fargo but none of which pains me more than the one we will discuss this morning. wrongful sales practice behavior in our retail banking business goes against everything regarding our core principles, our ethics and our culture. it runs counter to our vision of helping our customer succeed
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financially and it is not representative of wells fargo as an institution. i'm here to discuss the situation today, tell you about the actions we have taken and our commitment on how to move forward. our entire culture is centered on serving our customers. in this case we let our customers down. our retail banking practice issues, sales issues, are not a reflection of our hardworking and talented team members who deserve thanks for helping our customers with their financial needs. i want to make very clear we never directed or wanted our team members to provide products and service toss customers they did not want. that is not good for our
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customers and not good for our business. it is against everything we stand for as a company. that said, i accept full responsibility for all unethical sales practices in our retail banking business and i'm fully committed to fixing this issue, strengthening our culture and taking necessary action tos to restore our customers' trust. senators, let me tell you today, the wells fargo board is actively engaged in this issue. the board has the tools to hold senior management accountable including me and carrie tolstedt, former head of retail banking business. any board actions taken with our named executive officers will be appropriately disclosed. i want to be clear on this, i
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will respect and accept the decision of the board. under new leadership, we've already began taking steps to ensure that the sales culture in our retail banking business is wholly aligned with our customer's interest. on september 13, 2016, we announced a major decision that we will end product sales goals for everyone in our retail banking business, because we want to make certain that nothing gets in the way of doing what's right by our customers. the new leadership team's primary mission will be to provide the best possible service to our customers. i'm also announcing today three new initiatives that will reinforce our commitment to our customers.
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first we're expanding this scope of our account review and remediation to include both 2009 and 2010. second, we will be contacting every single one of our deposit customers across the country using the same process that we agreed to with the city of los angeles for our california customers. and third, we have begun contacting hundreds of thousands of our customers with open credit cards including those for whom we've already refunded fees to confirm whether they need or want their credit card. in addition, we've recently started sending customers a confirmation e-mail with one hour -- within one hour of opening any new deposit account,
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an acknowledgement letter before submitting a credit card application. we recognize now that we should have done more sooner to eliminate unethical conduct or incentives that may have unintentionally encouraged that conduct. we took many incremental steps over the past five years in an attempt to address these situations, but we now know those steps were not enough. in 2011 a dedicated team began to engage in pro active monitoring of data analytics, specifically for the purpose of rooting out sales practice violations. in 2012, we began reducing sales goals that team members would need to qualify for incentive compensation. in 2013 we created a new corporate wide enterprise oversight for sales practices. in 2014 we further revised our
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incentive compensation plans to align pay with ethical performance. in 2015, we added more enhancements to our training materials, further lowered goals, and began a series of town hall meetings to reinforce the importance of ethical leadership and always putting our customers first. throughout this five-year period, we identified potential inappropriate sales practices. we investigated those, and we took disciplinary actions that included terminations of managers and team members for sales policy violations. the 5300 terminations over the five years have been widely reported. despite all of these efforts, we did not get it right. we should have realized much sooner that the best way to solve the problems in the retail banking business was to
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completely eliminate retail bank product sales goals. and one of the areas we missed was the possibility a customer could be charged fees in connection with accounts opened with other authorization. because deposit counts that are not used are automatically closed. we assumed this could not happen. we were wrong. we took steps to refund fees that were charged and made changes so this could not happen again. in august 2015, we began working with a third party consulting firm, pricewaterhousecoopers, which conducted extensive large scale data analysis of all 82 million accounts, deposit accounts and nearly 11 million credit card accounts that we had opened from 2011 through 2015.
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of the 93 million accounts reviewed, approximately 2%, 1.5 million deposit accounts and 565,000 consumer credit card accounts were identified as accounts that may have been unauthorized. to be clear, pwc did not find these accounts had been unauthorized, but because it could not rule out the possibility, these accounts were further reviewed to determine if any fees had been charged. pwc calculated that approximately 115,000 of these accounts had in occurred 2.6 million of fees, which had been refunded to those customers. even one unauthorized account is one too many. this type of activity has no place in our culture. we are committed to getting it
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right 100% of the time. when we fall short, we accept responsibility and we'll do everything we can to make it right by our customers. i will close by saying again, i'm deeply sorry that we have not lived up to our values in this way. i also want to take the opportunity to thank our 268,000 team members who come to work every day to serve our customers. today i am making a personal commitment to rebuilding our customers and investors trust, the faith of our team members, and the confidence of the american people. i'm happy now to address your questions. thank you. >> thank you, mr. stumpf. mr. tustumpf, according to your testimony, wells fargo began making internal changes in 2011 to address the opening of
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unauthorized accounts. did these problems start in 2011 or could there have been unauthorized activity before then? why 2011? >> i think we all know that not every team member will do everything right every day of every minute. and we do a lot of training of our team members, coaching. they each sign an annual ethics statement. and i can't guarantee it did not happen before that time. we are trying to manage it within the business and that's why i announced today that we're going back to 2010 and 2009, because at that time you might recall we were putting wachovia
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and wells fargo teams together and we don't want to leave any stone unturned. wells fargo fired 5,300 employees in connection with these practices. what were the criteria for termination, and were any personnel actions taken short of termination and, if so, what were they? in other words, i'm sure you didn't fire everybody. did you discipline them and why and so forth? >> sir, thank you for that question, and it's a good one. we have a number of triangulations around how to understand when there might be improper behavior. if some customer, for example, all of a sudden shows up with three savings accounts, they probably don't need that. or we have ethics line. we have a culture, if you see something, tell someone. some were perfectly legitimate.
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for those who broke our trust, dishonest, put customers at risk, we drew a bright line. we're a regulated institution. we have a fidelity bond. people who behave in this way simply can't work here. >> mr. stumpf, your testimony also does not address when the violations were brought to the attention of senior management, specifically when did you find out that thousands of your employees were opening unauthorized accounts or fraudulent accounts? did it take that long? when did you find out? >> thank you again, senator. the business has their own audit and investigations and sales practices, efficacy and so forth contained within the regional bank or retail bank. after they had been working on this issue for a couple of years, and again, this was way
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too many people but it was 1% of our people. at any one time there's 100,000 team members in our banks. and after we noticed after the business was dealing with this for a couple of years, it was then brought to the holding company and corporate assets, corporate audit, corporate compliance, the so-called second line of defense got very active. that's when i became much more aware of the issue. >> does it bother you as ceo of such a large bank that systemic fraud was not brought to your attention sooner by your employees? >> if i could turn the clock back, and i thought about this 1,000 times, of course i wish i would have done -- we all wish we would have done something more earlier. we didn't get on this fast enough. again, recognizing this was --
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the vast job of people were doing the right thing. >> when, let's go back to the question a minute ago. i don't believe you answered it specifically. when did the senior management, you and others you deemed senior management, learn about this fraud? >> i can speak for myself. i know that other corporate executives at the corporate area outside of the business -- i can speak to myself and i believe others, it was 2013. before that it was being dealt with with the audit and compliance within the business unit. >> mr. stumpf, the board of directors of wells fargo has awarded the then head of the community bank carrie tolstedt millions of dollars, could be $100 million senator brown says or more in incentive compensation for, quote, success
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in furthering the company's objective of cross-selling products and, quote, reinforcing a strong risk culture according to 2015 proxy statement issued by your bank. explain to the american public today here what accountability at a large bank looks like when an executive did he parts with millions of dollars in compensation after thousands of employees defrauded customers. this question was raised by senator brown. >> i'll try to get to all of those. if i don't, please -- it's a good question. carrie tolstedt is leader of the community banking business had a lot of requirements and things that her performance was measured on. the putting wachovia and wells business together, doing common branding, making sure customers were treated properly.
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throughout that entire period from 2011 until 2016, customer loyalty scores continued to improve. today they are top of class even by independent studies of large banks. our team member engagement, we do a study every year. today we have 15 people who are engaged in that business, everyone disengaged. balances and customers had grown. now, in this particular area, she did not do enough. and we decided -- the chief operating officer she was reporting to decided we would go in a different direction. i also want to be clear, carrie was eligible to retire when she was told that we're going in a different direction, she chose to retire and she got no retirement severance benefits. her compensation that she
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received in the past, some of it which has not -- which has been granted but not yet vested and other compensation will be considered by the board of directors in an independent process that they have. i will respect and accept whatever decision they make. >> that would be -- you have ability at the bank to go back. >> i'm not an expert in compensation. >> you're the chairman, ceo of the company. are you the chairman of the board? >> i'm the chairman of the bo d board. >> the buck stops here. >> i'm the senior officer. >> are you going to look into seriously what this person did, her responsibility and the big reward she's getting that happened under a watch?
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>> senator, the board of directors, the compensation committee and they will refer to the board, i'm not part of that process. i want to make sure that's a very independent process. nothing that i say would prejudice their deliberative process but that is their decision and they have all the tools available to them. whether she would have retired or been fired. >> mr. stumpf, isn't a lot of banking based on integrity or trust by your customers in the bank it's self? they have business with you, put their money there. they trust you. what's happened to the banking system? not everywhere but what happened to the banking system? >> senator, you think about it exactly the way i think about it. trust is the core element of any relationship. surely in the financial services business. we know we have work to do in that area. i intend to do all i can to help
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in that area? >> do you believe you violated that trust? >> there is no question with some of our customers, we have violated trust and we have to work hard to reearn that. >> senator brown. >> thank you, mr. chairman. mr. stumpf, i'll make my questions short and ask you to be as concise as possible. thank you. to start with your response to senator shelby, you became aware of the widespread fraud in 2013. could you be more precise than that sneh. >> i became aware that the problems the local business was working on in rooting out this behavior by 1% of our team members, give or take, i don't want to minimize that, we were not making enough progress. >> when did you become aware more precisely? the "l. a. times" article? >> yes, later in 2013. >> i had -- actually, i don't
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remember the exact timeframe, ki get back to you. it was sometime in 2013. >> thank you for that. you suggest, mention the wachovia merger that you're willing to go back before 2011, 2009, 2010 because of the wachovia merger, the interest in cross-selling dates back at least to the norwest merger, right? this has been a wells fargo business plan for a number of years. what year was norwest merger? >> it was announced -- >> norwest merger with wells. >> that was 1998. >> and so this wachovia merger, clearly you're going back to 2009 and '10, you're offering to do that. why stop at 2009? we hear from people that it's gone on longer than that with the cross-selling and the
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pressure and the sales goals. why are you only willing to go to 2009? >> well, senator, i would tell you this, we want to make it right by any customer. we agreed with our regulators in our agreements to go back to 2011. we made a decision to go back to 2010 and 2009 and we want to make it right by any customer. >> does that mean you're willing to go back earlier than 2009? >> i can't tell you that today. i have to talk to our folks. i don't know about records and so forth but i want to make sure any customer who has had harm of any kind, that we will do right by them. >> you have records before 2009. is that a pledge from you to go back earlier than that if, in fact, there were customers harmed by unauthorized accounts? >> senator, i will take that under advisement and i'll get back to you. >> i accept your good intendings you're going back to 2009 to
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give restitution -- provide restitution to those customers but why stop there if you say you know you have to go back and talk to staff. if you really do want to make sure these customers are made whole, you should go back as long as you possibly can. >> and senator, again, i think that's -- you know, we've considered that. we'll take that under advisement. >> i hope you more than consider it. thank you. talk about senator shelby's discussion on the clawback. understanding i think you minimize your influence to us at least, minimize your influence to the board. you're the chairman of the board. i understand the board goes through a process, and i respect that. but, as the chairman, are you going to recommend to the board -- back up. you, i would assume, are more familiar with both the pros and the cons of performance from miss tolstedt. you're aware she is getting -- she is slated to get some news reports say up to $120 million.
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you're also aware that most of the 5300 people, team members that were fired, were low incoworkers as low as $11 something an hour, maybe up to $16 or $17 an hour but generally low incoworkers. you're probably more familiar with that. would you make a recommendation to this board they should clawback a significant amount of her compensation? >> senator, i'll answer that question. i just want to put something in perspective. the lowest paid worker we have, our entry level in our least cost area is $12 an hour. our lowest paid worker in our high cost area is $16.50 an hour. in addition to that, about $6 also, that doesn't include the benefits around health care,
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which we pay virtually all of it for low paid people. most of the people lost their jobs because they violated code of ethics, were dishonest, those were good paying jobs. people lost their jobs who were bankers, bank managers, managers of managers and even an area president. these were good paying jobs. jobs that the averages were, i think, in the 35 to $60,000 area, if you just want to take an average. but with respect to your question specifically. i'm not on the human resources committee. it's an independent committee. they will take that under their deliberation. i don't want any way to prejudice their activity. i'm going to accept and respect any decision that they make on anything. >> thank you for saying that. so you are not willing to make a
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recommendation based on how this looks to the public, call them good paying jobs at $16 or $1 7 an hour or not, compared to what. i'll put that aside. whatever these workers were making, they were in the bottom some percentage of the workforce, whatever. they make mistakes. they were honest, apparently deserve to be fired. i won't dispute that. you're not willing as ceo of this bank to make a public recommendation -- to make a public statement that you think mrs. stumpf -- i'm sorry, miss tolstedt, carrie tolstedt, you're not willing to say publicly toblg committee or to anyone that some of her compensation, over $100 million when she announced retirement in the last several weeks, that any of it should be clawed back. >> i'm going to let the process
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proceed. the board has already met and i've made an affirmative comment in my testimony. >> that's unfortunate. you said in your testimony in august 2015, your words we began working with pwc, unquote, to locate and reimburse customers fees. was that your decision or was that the regulators? >> that was in consultation with regulators and city attorney's office. >> you did not on your own after finding out in late 2013 of these problems, you through the rest of 2013, 2013, all of 2014 and then into the first seven months of 2015, it never occurred to you you should bring in somebody without the regulator suggesting it or in consultation, never occurred to
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bring in somebody to really find out who was hurt, what kinds of issues going on. how do we find these customers to reimburse them? >> senator, that's a good question. i thought about that, about why. it was early in 2015, about the time that we were considering or talking of who we would bring in that we finally connected a dot. there's no excuse why we didn't connect it before. what happens when an account is open that is not funded, the system eliminates it within a couple months. if it doesn't get funded, it's not used, it's not started, it's truncated or closed. it never dawned on us -- again, no excuses. it never dawned there could be a cycle where a 30-day cycle would
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have been completed an there could have been a fee associated with that. it was the first time that light bulb went on? >> i appreciate your candor about this. in 2011, 1,000 employees fired, 2012, 2013 was the peak number. 2014. 2013 "l. a. times" article. 2015 throughout the year nothing happened. it seemed to never occur to management to do any of this when it just -- then today, i don't question your integrity, then today you come in and make all these announcements. it's been five years since -- at least five years since all of this has been happening. today you make announcements you're doing -- you apologized, we appreciate that. you make announcements you're doing the right things. we appreciate that. it just sort of begs the issue of where was management when these so many thousands of people were fired, stories were
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written, regulators were starting to come in. i understand this is a huge profit center for wells, the retail banking at large in terms of unauthorized accounts and everything else, but it doesn't seem quite right. it didn't occur to anybody on the board, apparently, or at least had your ear, didn't occur to ceo, didn't occur to top management they should do something more affirmatively until that august 2015 date when the regulators sort of help you suggest and come to that conclusion? thank you, mr. chairman. >> senator corker. >> thank you, mr. chairman. mr. stumpf, thank you for being here. just as an observation, i know that you have a whole host of people here with you. i'm sure one of those people is a communications person. i would just make the observation, look, i know you talked daily with board members and been on boards before myself. i would suggest just again as an observation to not invoke some degree of clawback for your self
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and others involved would be committing malpractice from the standpoint of just public relations. so at a minimum, i'm sure that is going to take place. i would be surprised if it doesn't. let me just -- you found out about this through reading the "l. a. times." is that correct? >> i don't recall back in '13 exactly the timeframe, but i learned about it later in 2013. remember -- i'm sorry. >> it sounds like it really was brought to your attention after a story in a newspaper. that's when the focus really began. i'm not criticizing that, i'm just asking. >> only thing i want to make, senator corker, is we had dismissed a number of people. that's what caused the "l. a. times." >> the story.
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y'all this taken some actions and caused the story. >> yes. >> the board, intense scrutiny, all kind of committees that are set up. when did the board realize that you had a unit that was committing fraud? it seems to me that's one of those things you flag pretty quickly or at least a committee of the board. >> yes. i just want to say, these team members, you're absolutely right. they did not do us right. >> i didn't ask that. i'm asking you when the board became aware you had a unit involved in committing fraud? >> it would have been later 2013 and 2014 and on. >> so they weren't aware of the "l. a. times" story. >> i think that was later in 2013. i'd have to go back and check my records, the best i remember, it was sometime later '13, surely in '14. >> i read a story about miss tolstedt. i don't know her. sounds like she was an incredibly hard worker. got to work early, rode a bus,
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micromanaged, signed leases herself. i don't know if any of this was true. how do you -- when you have somebody that involved in sort of micro details, is this a case of not raising their head up to 5,000 or 10,000 feet and understanding the kind of culture that was being created like slogans like eight is great and those kinds of things? it's just hard to -- it seems to me within a bank with all the data you used to contact customers, you can -- with algorithms, you guys can pick this stuff up so quickly, it's hard to believe there isn't some report within the bank that would cause this to jump out at people and say something really bad is happening here. >> senator corker, i think that's a good question. in a retail business, where you
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have 100,000 people in seats at any one time in 200 branches, there is a lot of turnover. i'm not justifying. >> no, there's an officer, a compliance officer. >> absolutely. >> all banks have these. y'all are regulated to death. that's their job. this is something that you would think would be flagged and jump out at someone in that job. >> thank you. that's what i was trying to explain. in her business, surely she was, i believe, reporting situations where there was ethical breakdowns. >> but not to the board. >> it got to the board level. it got to the corporate level in 2013 because progress was not being made in the board level in '13 as corporate research started to. we have been seeing improvements in that time.
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>> doesn't seem like, in fairness, does seem like a big disconnect there. so she left after 27 years. i think it would be good for the audience at some point, not during my time, to explain compensation. i think it's a little different based on what people think based on comments made. but i assume her departure after 27 years was based on this issue. is that correct? >> it was based on a number of issues. this is one of them. we wanted to take the business in a different direction. >> she, in essence, was terminated over this issue. >> no, carrie chose to retire. tim sloan, our chief operating officer, with my consultation had discussion with her. it was sometime in june or july, and said we want to go in a different direction. we want to put more focus on the issue. it was a variety of things. she was eligible for retirement and she decided to retire.
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>> my time is up. out of respect to other members i will stop. i have numbers of other questions. we thank you for being here. >> thank you. >> senator reid. >> thank you very much, mr. chairman. mr. stumpf, thank you for being here. let me clarify your position with respect to going forward with not just mrs. tolstedt but your consideration. will you recuse your self from board discussions. >> i'm not involved with anything the arc does in respect to me and as the board. i'm happy to do that but i'm not involved in that. >> it will ultimately come up to the board involving compensation, is that correct? >> that's done in executive session without me. it's always done that way. >> in 2013 when you learned of
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this. what did you do? this has been asked several different ways. did you inform the regulators or instruct someone to inform regulators of a growing problem? >> thank you, our primary regulatory was informed at that time. >> did you inform the board at that time? >> yes. i can't recall the exact meeting, but i can -- but it was sometime in '13. and i know in 2014 various committees of the board were made aware of this -- the risk committee, the audit and examination, the corporate responsibility. >> did you take any steps to internally notify your employees of this type of behavior, which going back was you know, 11,000 people are gone, 12, 13, including an area manager. did you communicate that or did you keep these discussions internal to the board?
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>> i do a team member town hall every quarter where i go to one of our various cities, and there will be a couple thousand people in the audience, and then we webcast that broadly across our company. and i, you know, typically talk about ethics and doing what's right for customers. and in the case, the vast majority do it. but i was trying to really bring home this fact. >> but there was given specific evidence of techniques used to essentially, the words of some of my colleagues, defraud customers. those specific practices were not focused upon and made very clear that they were not tolerated? or it would seem to be a generic discussion of follow the rules. >> again, senator reed, at the
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time that the escalation happened in 2013, there were many different meetings and things happening. as i mentioned in my oral testimony, about reducing goals, talking about sales efficacy, having manager meetings, talking with leaders, putting more controls in place. and again, not fast enough, not far enough, and i apologize for that. >> well, it seems, you know, and i would suspect looking back that the emphasis on meeting sales objectives, cross-selling was unremitting. and yet, you had examples here, specific examples of things that you knew were happening and should not be happening. and yet, what i'm hearing is more or less a generic make those sales. oh, and by the way, you know, we have these ethical rules in place, too.
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again, i think you've said it, and it's obvious that the tone, emphasis, what the leader does, what the leader says, is sometimes more important than anything else. for a period there, this was recognized, but there was no specific stop, you know, stop this stuff. >> well, i can tell you, we said stop this stuff. and the thing about cross-sell is i'd rather have a customer with two products that they use and they need and they want and they value than four products that are not used and valued. in the first case, customer wins, we win, we all do well. in the second case, everybody loses. we lose money. it does not help us. so, we've been -- we tried very hard. and again, we were not as effective as we could have been in talking about -- you know, the goal here is not, you know,
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products. the goal here is deep relationships. we had the wrong tool for too long to make that happen. >> it just seems that it took too many months, years, literally, for some simple steps which should have been taken to be taken, and it was only, i think, as a result of what ultimately los angeles county and the regulators and others did that forced the issue. thank you. >> thank you. >> senator toomey? >> thank you, mr. chairman. thank you for calling this hearing. i have to say, what we've been learning is so deeply disturbing at so many levels. first we discover that wells fargo had a sales culture that was blatantly antithetical to what's best for customers. we discover the management had far too few common-sense controls in place to prevent the
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kind of abuse that customers were subject to. we discover wells fargo executives completely out of touch. in a 2011 "forbes" article, wells fargo was rated the best at cross-selling its products. only problem is we discovered wells fargo wasn't always cross-selling, signing up customers for products when you know the customer doesn't want the product, failing to notify customers about these sham accounts -- and this isn't cross-selling, this is fraud. that's what this is. and then we discover way too little done to prevent it from continuing, even after it was discovered. so, wells fargo employees continued for years to literally forge customers' signatures, including my constituents, on documents to open up accounts. and then the case of carrie tolstedt, my understanding is that something on the order of over $20 million in bonuses for her between 2010 and 2015 were
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awarded because of strong cross-sell ratios. yet, we know in some cases, she was hitting numbers by these fraudulent accounts. so, this is unbelievable. let me begin, mr. stumpf. do you acknowledge that the employees who engaged in this activity were committing fraud? >> yeah, i'm not a criminal, you know, officer, and i don't know -- i'm not a lawyer. i don't know the legal term. i know this, they broke our code of ethics, they were dishonest, and we did everything we can to support law enforcement, police -- >> i'm not a lawyer either. neither are most adults in america. but i think most people understand the meaning of the word fraud. black laws dictionary does provide a useful definition. it says fraud is "a knowing misrepresentation or knowing concealment of a material fact made to induce another to act to his or her detriment."
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how does falsely signing a customer up for an account they don't want, how does it not meet that definition? >> well, and again, if that's the definition that -- you know, i can tell you this, it is absolutely wrong. we found this out. we got rid of those people, and they have no place. that behavior has no place in our culture. if that means fraud, that means fraud. >> at what point did you alert your regulators and law enforcement that you had probably criminal activity happening on a large scale? >> yeah, well, again, it was 1% of our people, senator. and i know -- >> but 5,000's a big number. >> it's bigger than my hometown. i do know that. and it was -- but we also had the vast majority who did the right thing. but let's talk about those. every time -- and we made a very bright line. if it happened one time it was one time -- >> i have only five minutes
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here. >> to answer your question. i'm sorry, we sent it. we did everything we needed to do -- >> did you refer it to law enforcement? >> when it was required, we did. we did everything according to the rules. >> when did you begin to disclose in s.e.c. filings that you had this potentially material adverse set of circumstances that could certainly have huge damage to your reputational value? >> well, i don't -- i can't answer that. i'd have to get to our legal team. i don't have that in front of me. but this was not a -- i'd just have to get back to you on that. i don't know. >> well, we haven't been able to discover such a disclosure, and the s.e.c. very clearly requires disclosure of material adverse circumstances. and i don't know how this could not be deemed material. i think the market cap lost 9% over the last couple of weeks. that's pretty material. >> yeah, well, from a financial perspective, you know, $2.6
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million. and it's $2.6 million too much. and $185 million was not deemed -- >> i get that those dollar amounts may not qualify as material to a bank the size of wells fargo, but the reputational damage done to the bank clearly is material, and that has been manifested by this huge, adverse movement in stock prices. let me raise one other issue. you mentioned in your testimony, and you state unequivocally that there are no orchestrated effort or scheme, as some have called it, by the company. but when thousands of people conduct the same kind of fraudulent activity, it's a stretch to believe that every one of them independently conjured up this idea of how they would commit this fraud. isn't it very probable that there was some orchestration that happened at some level, if not -- i'm not suggesting it was you personally by any means, but doesn't it defy common sense to
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think that there wasn't some orchestration of this? >> senator, i don't know how -- what motivated or why people did this, but we did fire managers and managers of managers, and in the case, an area president. so again, you know, this 1% is way too many. i don't want to minimize it, but i also want to make sure that we recognize that the vast majority of the people did exactly the things we wanted them to do to help deepen customer relationships, help them succeed financially. and also, we have put a number of other controls in place, besides taking sales goals off the table. we now have -- we don't open any deposit account today or any credit card without a signature. and while there's a couple of cases where ada, where they can't, we'll have a dual


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