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tv   Politics and Public Policy Today  CSPAN  September 20, 2016 11:00am-1:01pm EDT

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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 notice. we're also doing mystery
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shopping. and we're also giving customers a one hour's notice by e-mail, or if they don't have an e-mail, by letter, to make sure we know exactly and they know exactly what they've opened. >> it seems like it took an awfully long time to impose those sort of basic controls. i see i'm out of time. thank you, mr. chairman. >> senator menendez. >> thank you, mr. chairman. first of all, thanks for your response. i know you said it's already on way, but the letter we sent asking you for this hearing, so i appreciate you holding it. mr. stumpf, let me just say, i am personally appalled by the size, the scope, the duration and the impact of the scandal, and i must say that i'm shocked and incredibly disappointed by the response of wells fargo's corporate executives. in the last week, you and your chief financial officer have taken to the press and laid the blame squarely on low-paid retail bank employees. and while i don't excuse what they did by any stretch of the imagination, i find that despicable. wells fargo touts to its
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investors and its customers that we will never put the stagecoach before the horses. well, i'll tell you what, the bank recklessly rolled over 2 million of your customers in what is no way can be viewed as anything other than a large-scale scheme to boost, you know, your growth and whatever that meant for your shares and whatever that meant to your shareholders. so, you didn't fire ten employees, right? you didn't fire 500 employees. you fired 5,300 employees, is that right? >> yes, 5,300 employees did not honor our culture. >> and they were not located in one branch or one district, is that right? >> that is correct. >> they were located across the country. is that fair to say? >> that is fair to say. >> now, shouldn't the workplace actions of employees reflect the values of the institution, no matter what part of the country that they're in? >> i absolutely agree with that. >> so, do you believe that senior executives like yourself are responsible for nurturing
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and honing a companywide culture for your employees and your employees' actions? >> absolutely. >> so, this isn't the work of 5,300 bad apples. this is the work and the result of sewing seeds that rotted the entire orchard. and whether tacitly through sales guides and employee training manuals, some of which i have reviewed, or more explicitly through demands from hard-driving managers, you and your senior executives created an environment in which this culture of deception and deceit thrive. and yet, you know, i see this as a toxic combination of low wages -- now, i know that in response to senator brown's question as what is an average banker at wells fargo made. you said between $30,000 and $60,000. you said that was good money. how much money did you make last
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year? >> $19.3 million. >> now, that's good money. now that's good money. this is a combination of low wages, punishing sales quotas, and a grossly misaligned compensation incentive throughout the bank's organizational structure, as is evidence that you've removed it. now, when you were holding these ethics sessions, did you ever specifically, seeing this information begin to blip up on your radar screen and then more insignificantly, did you ever specifically say in those sessions, we do not want to open accounts for our customers that they don't ask for? did you specifically say that? >> senator, i will get to that question, but i just want to go back for a second. when a team member opens an account that's not used, that does not help customer and does not help us. and the vast majority did the absolute right thing. >> did you specifically say -- >> and i specifically said, yes, we do not push products.
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we sit down with a customer. we have a needs-based analysis. and then based on what we hear, where the customer is in their financial journey, we match products. >> did you specifically say that, in fact, i don't want to see accounts opened for customers that they did not ask for? >> absolutely. >> when did you say that? >> i've said that many times in many town halls. >> let me ask you, ms. tolstedt made about $9 million in salary, did she not, last year? >> you know, it's in our public filings. >> salary, bonus and stock awards. according to glass door, the average wells fargo banker teller salary is $24,and the average salary for a wells fargo personal banker is $37,560. so imagine. do you know what the poverty wage is for a family of three? >> i do not have that. >> well, let me share it.
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we didn't think you would. it's $24,300. for a family of three, it's $20,160. so, imagine for a moment, you're a single parent working with two young children as a personal banker in wells fargo's branch. let's say your base salary is somewhere in the $30,000 range. you have a hard-driving boss breathing down your neck to meet rigorous sales quotas. you've got a call into a call center when you don't meet those quotas, and if you don't meet the quota the one day, it carries over to the next day so you've got an even higher quota. and you're being told, forget good about the incentive of making more money, in essence this is about losing your job. and you think that environment was the appropriate environment to protect your customers and to have the culture that you portray here that wells fargo had? >> senator menendez, i get your question. we had been reducing sales goals and bringing other goals into place even before we decided to
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get rid of the sales product goals. and the vast majority, the vast majority loved wells fargo. in fact, when we go to our regional banking, our retail banking people, 15 of our people in survey -- it's actually a census done by gallop, every year love the environment of wells fargo, and they put customers first. i can't excuse the behavior of the 1,000. i know it's too many. but the culture is a very caring and collaborative culture. >> i know my time is up, but let me just ask you a final question before hopefully the chairman will have a second round. did you or any senior executive at wells fargo suffer any financial consequence as a result of what's transpired over the years? >> the board will take -- well, first of all -- >> today. to date have you suffered any financial consequences? >> the board has gone through, and yes, people have been held accountable. >> senior executive management?
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>> senior executive management. >> i'd like you to classify for me what that is. >> okay, well, people that are in charge of risk in the retail bank, people that are in charge of sales efficacy, regional presidents who don't meet their goals around proper sales. yes, people are held accountable, and they will be held accountable. >> senator heller. >> mr. chairman, thank you for holding this hearing and for our witness for being here today. i appreciate it. for years, the people of nevada have struggled to regain what they lost in the aftermath of the housing crisis. and we all know that this housing crisis was caused by greed and excess. and for too long, nevada often has had the unfortunate distinction of having one of the highest rates of unemployment, foreclosures, underwater homes, homes sold in short sales and personal bankruptcies. so, trust to me is the center point of any relationship with a business, and i assume it's the
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same that wells fargo has broken that trust. i consistently fight to ensure nevadaans retain the protections of their personal privacy, so i was shocked to hear the reports, mr. chairman, that the employees of wells fargo opened millions of bank accounts and credit cards without customers' cons t consent. the actions of some wells fargo employees directly took money from americans' pockets in order to artificially inflate company quotas. i had a constituent, and i've had a number of constituents, call my office. this one happened to be from henderson, nevada. e-mailed me, says she was affected by wells fargo's tactics. she says she was insulted that leadership at wells fargo was unaware of these policies. and given the culture of wrongdoing that some of your employees exhibited, taking responsibility's refunding customers and conducting internal investigations should only be the first step as we plan to fix this mess.
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accountability, in reforming putting your customers' interests first should be wells fargo's top priorities. with that, mr. stumpf, just a couple questions. my constituents have a right to be insulted? i've heard a number of comments, probably more directed at you, that you'd take the sergeant schultz position, that you knew nothing as this was moving ahead, that perhaps you even took -- and i heard this from one of my constituents, the hillary clinton approach of what difference does it make attitude. and let me tell you why they're talking this way. i've got your letter to your valued customers as you tried to explain to them some of the problems. "you may have seen news recently that some wells fargo customers received products and services that they did not need." you didn't tell them you were sorry in your customer service letter. you came to this committee and told us you were sorry, but you didn't tell your customers you were sorry. do they have a right to be
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insulted? >> well, first of all, let me tell you, i had a number of media contacts last week, one broadcast and four in print. and i am sorry. i am accountable when we don't do it right 100% of the time. and i was even -- i was i think misquoted or misunderstood in one where i blamed team members. i don't like -- we don't accept behavior that's not consistent with our culture, but i do accept responsibility and i am sorry. >> this letter appears that you're downplaying some of the concerns. you said that some wells fargo customers. well, we're talking almost 2 million accounts that were opened up. let me ask you this question. was anybody on your board or yourself -- did any of you have any opened, unauthorized accounts in your names? >> you know, i don't know that.
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i've not seen a letter, you know, on mine, and i was not refunded any of the dollars. >> what would you have done if you had an unauthorized account, somebody forged your own name? what would you have done about that? >> well, i've had that before where people have forged my bank -- or stolen my identity. but of course, i would be very disappointed. and i can surely understand your c constituents' disappointment. and we have a lot of work. nevada is a wonderful, important state to us. we've been there a long time. and i apologize to all of the american people and our customers, and we'll make it right. >> can i go back to carrie tolstedt for a moment? you said you're not on the compensation board. but if the compensation board were to send you a recommendation to approve $100 million in a compensation package for her, would you support that? >> you know, i'm not on that
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board, and i think it's probably maybe -- if i could just take a second -- as i understand, and i'll get you the information about her $100 million. part of it is stock she has either purchased in the open market or exercised and owns for her 27-year career. there are some dollars that are in-the-money options that she's not yet exercised. and then finally, there is a part of a future, grants, that we'll be investing over the next several years and the board will consider all of those things. they'll consider her entire situation in their deliberations. >> would you approve that? >> you know, i -- again, senator, i want to be respectful of the committee and respectful of their process and not any way bias their decision. >> mr. chairman, my time's run out. thank you. >> senator tester. >> thank you, mr. chairman, ranking member brown, for having this hearing. i've been on this committee for
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nearly ten years now. you have done something that has never happened in the last ten years and united this committee on a major topic and not in a good way. credit card accounts were opened. folks didn't know about them. there were fees charged, potentially fines charged. and if customers were aware -- unaware that these accounts were opened up, there must have been many instances, since there were 2 million accounts opened up, that negative information was sent to credit bureaus. is that accurate? >> the part that's accurate there is there is 565,000 credit cards that were opened up that were never activated. about 400,000 of those have customers' signatures on them, and 5.7% or less than 6% of those accounts that we opened during that time were not activated, which is a pretty standard industry -- because
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people might have them. we're going to go back to each one of those customers now and find out if that was a legitimate opening and if not, we'll make it right. >> okay, but that's not what i asked. i asked was negative information turned into the credit bureaus because of these actions? >> you know, i don't know the algorithms of how credit bureaus -- but i want to answer your question. i know that when a credit bureau is requested, it has an impact on your credit score. >> well, this is a big deal. >> yes, it is. >> and i'm telling you, it is a big deal. i could ask you for the age breakdown on these 2 million accounts that were opened up, but i am telling you that if information was sent into the credit bureaus because of these falsely opened accounts, the impookts this are far, far, far more than the fees or fines that could be associated with that. what is wells fargo doing about that? >> senator -- >> or did that information not
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get reported to the credit bureaus? >> well, when we pull a credit -- >> just tell me, did the information, if there was fees and fines involved and the credit bureaus requested it, or even if they didn't, did that information get forwarded to the credit bureaus? >> i'm trying -- sir, i'm trying to work with you. >> yes or no works. >> yes, we pull the credit bureau for each one of these cards. >> okay. so, what's wells doing about fixing that problem? and be concise. >> okay. we are calling each credit card customer to find out if this truly was a card they wanted. if they want it, we don't want to take away their credit. if they did not want it, we're going to go back and make sure that it's made right by the credit bureau and made right by the customer. >> and what's the time frame for that? >> we already started that process. >> okay. so now, this took five years. it's been documented. 2011, maybe even started before
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that, but 2011 until fairly recently. now, if i had had a credit card issued in the first volley, and in the meantime, between 2011 and now, i decided to buy a house and that information was reported to the credit bureau, it could make -- you probably could know the figure, but maybe 0.5%? maybe more than that. and on a $500,000 mortgage, the difference between 3.5% and 4% is $50,000 over 30 years. what's being done about that? >> we will look at each one of those and determine what -- >> so, you're going to go back in and find out, even if they didn't do business through wells, if they bought a house and what wells did impacted their credit rating, you're going to go back and find those folks? >> i'm going to go back. we've committed to going back to all of our credit card customers and find out -- >> okay what about the ones that got -- you've refunded all their fines, you refund all their
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fees, you've went back to credit bureau and re-established their credit rating as of today. what about the folks that may have bought a house through chase and got a higher interest rate because of it? how are you going to find those folks? >> you know, we're working on that. i told our people, go back and make it right. and i can -- as we start going through those, i am happy to have our team come back and report to you how we'll work it out. >> i think it's really important that you understand that this is a big deal. i mean, it's a big deal. >> it is. >> i know you feel bad about it. we feel bad about it. but the truth is, is there's real-world implications here on young families and old families that are going to be put into a poverty situation because of this, even though we think it's just a few hundred bucks in fees. it's more than that. much more than that. so, you found out in 2013, and i don't want to beat this horse anymore, but did you find out they were actually setting up accounts with fraudulent signatures in 2013? >> you know, i learned that some of our team members were not doing the right thing and they
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were opening accounts for customers and then we truncated those. >> because it would seem to me if you guys knew about that, a simple edict would have been pretty helpful. don't do this. if you do this, you're gone. >> and that's -- we had even more than that. and what we should have done is get rid of our incentive program. >> but the last thing -- this is just a statement. but i can tell you that you've said multiple times here that 5,300 people went, and that's basically 1% of your workforce. every time you say that, you give ammunition to the folks who want to break up the big banks. 5,300 people are more people than live in most towns in montana. 2 million people is twice the population of the entire state. this is a major screw-up that went on for far, far, far, far too long. and i think you know that. but man, there's going to be a lot of work that has to be done to rectify this situation, if it ever can be rectified. thank you, mr. chairman. >> thank you. >> thank you, mr. chairman.
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and mr. stumpf, i want to follow up on the line of questioning that senator tester was just discussing with you. but first i want to ask a couple of questions about just data, basical basically. consumers expect that their private information is going to be preked at their bank and not used to open an unauthorized account. you've gone through that extensively today. did the third-party analysis that you engaged in determine if these unauthorized accounts were created uniformly across the united states, or were there areas in the united states where they were more heavily created? >> yes there was a more heavily biased towards the southwestern part of the country. >> the information i have indicates that that, even more specifically, includes california and arizona. would that be correct? >> that would be correct. >> i also have new jersey here on my list. was new jersey heavily -- more heavily impacted? >> well, i have numbers by st e state, and it typically related
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to there was some overindex or over -- people did more wrong things, but it more associated with the size of the business. we're a much larger bank in southern california and arizona, new jersey. there are places where we're larger and fit more the pattern of the size of our organization in those communities. >> so, because of that, it wasn't necessarily that the management in those communities were potentially the ones who were driving this more aggressively, but simply, the size of their business in those communities. >> senator, it was a bit of both. >> all right. thank you. obviously, one of the questions that my constituents and constituents across the country have is am i one of those who has had an unauthorized account created in my name? and you've indicated that right now wells fargo is calling every customer, is that correct? >> we are contacting all of our deposit customers and on the credit -- and incidentally, virtually all of these accounts
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came on the books and were closed within a 60-day period. and so, there is -- of the potential, again -- the 2 million accounts, there could not be eliminated. and i think i said that in my oral testimony. so, i don't know, you know, we just couldn't eliminate them -- or pwc could not. but we're calling all of our credit card customers and contacting all of our deposit customers, and we have a special call-in number. we're asking people to come into our banks and talk to our people. >> okay, that was my next question. if there's somebody who doesn't want to wait for the call, what can they do? >> they're going to get a notice and say, you know, if you have an interest, you can e-mail us, we'll call you. we'll do whatever it takes to make sure that -- and i know our study -- pwc was very comprehensive. we tried to err on the side of the customer. in fact, we're getting people coming to our bank today saying i got a $25 check, but i wanted
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this service, and i'm not saying that, but i'm just saying that we want to make sure that we don't hurt any customer and that if they want a credit, they have it. if they didn't want it, we'll try to make it right by them. >> all right. getting back to senator tester's question about the credit impact. the simple opening of an account causes an impact to a credit rating, doesn't it? >> it does on -- and again, i'm not an expert in this field, but i know on the credit card side we pull a bureau. and depending on how many bureau -- well, i know that that is a strike against -- it lowers your credit card depending on how many requests are in that time. there's also a positive impact, and i'm not here to justify or under -- we will do what's right to make that right. >> well, and that's what i wanted to get at finally in the last minute i have in my questioning. you said to senator tester and
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just said it again to me, that you're going to make it right. how do you do that? for example -- you said the calls have been being made. i assume that in the calls that the bank is making that they are finding customers, some, who have unauthorized and unwanted credit card accounts. how do you make it right with regard to the potential impact and potentially charges to that account have caused to the credit rating of that cardholder? >> senator, that is a very good question. we're just starting that process. i don't have enough to give you right now, but we'd be happy to come back to the committee and tell you more about what we learn as we do that. >> all right, thank you. in the little bit of time i have left, i want to shift topics. my understanding is that the primary regulators that you have been dealing with are the city of los angeles and the occ and the cfpb, is that correct? >> that is correct. >> can you just give ai me a
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timeline? when did each of those individuals notify you or did you notify them? in what order did they get involved and when? >> i don't know that i have precise dates, but i'll give you a general timeline. the city of l.a. lawsuit was some time in the may time frame of 2015 -- well, i -- '13 maybe it was. and -- sorry, i'm missing on dates here. and then the occ was involved. we shared with them. and when we learned of their lawsuit, we -- well, it was actually in '15, i'm sorry, 2015, may of '15. and then we shared that information with the cfpb, but the occ was involved with us prior to probably the 2013 time frame. >> so, the occ probably would have been involved first, even
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before the city of los angeles? >> they are our principal regulator, and yes. >> all right. and then the cfpb would have been the final entity that was -- the last to -- >> we noticed -- we called them. some from our legal department called them, i believe, in the may time frame of 2015. >> all right. sorry, i see my time is well over now. thank you, mr. chairman. >> senator warren? >> thank you, mr. chairman. mr. stumpf, the wells fargo vision and values statement, which you frequently cite, says, "we believe in values live, not phrases memorized." if you want to find out how strong a company's ethics are, don't listen to what its people say, watch what they do," so let's do that. since this massive, years-long scam came to light, you have said repeatedly, "i am accountable."
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but what have you actually done to hold yourself accountable? have you resigned as ceo or chairman of wells fargo? >> the board -- i serve -- >> have you resigned? >> no, i have not. >> all right. have you returned one nickel of the millions of dollars that you would pay while this scam was going on? >> first of all, this was by 1% of our people and -- >> that's not my question. this is about responsibility. have you returned one nickel of the millions of dollars that you were paid while they scam was going on? >> the board will take care of that. >> have you returned one nickel of the money you earned while this scam was going on? >> and the board will do -- >> i will take that as a no then. have you fired a single senior executive? and by that, i don't mean regional manager or branch manager. i'm asking about the people who actually led your community banking division or your compliance division? >> we've made a change in our
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regional -- to lead our regional bank. >> i just said, i'm not asking about regional managers, i'm not zg branch managers. i'm asking if you have fired senior management, the people who actually led community banking division, who oversaw this fraud or the compliance division that was in charge of making sure that the bank complied with the law? >> carrie tolstedt -- >> did you fire any of those people? >> no. >> no. okay. so, you haven't resigned, you haven't returned a single nickel of your personal earnings, you haven't fired a single senior executive. instead, evidently, your definition of accountable is to push the blame to your low-level employees who don't have the money for a fancy pr firm to defend themselves. it's gutless leadership. in your time as chairman and ceo, wells has been famous for cross-selling, which is pushing existing customers to open more accounts. cross-selling is one of the main
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reasons that wells has become the most valuable bank in the world. wells measures cross-selling by the number of different accounts a customer has with wells. other big banks average fewer than three accounts per customer, but you set the target at eight accounts. every customer of wells should have eight accounts with the bank. and that's not because you ran the numbers and found that the average customer needed eight banking accounts. it is because "eight rhymes with great." this was your rationale right there in your 2010 annual report. cross-selling isn't about helping customers get what they need. if it was, you wouldn't have to squeeze your employees so hard to make it happen. no. cross-selling is all about pumping up wells' stock price, isn't it? >> no. cross-selling is shorthand for deepening relationships.
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we -- >> oh, let me stop you right there. you say no? no? here are the transcripts of 12 quarterly earnings calls that you participated in from 2012 to 2014, the three full years in which we know this scam was going on. i'd like to submit them for the record, if i may, mr. chair. thank you. these are calls where you personally made your pitch to investors and analysts about why wells fargo is a great investment. and in all 12 of these calls, you personally cited wells fargo's success at cross-selling retail accounts as one of the main reasons to buy more stock in the company. let me read you a few quotes that you had. april 2012, "we grew our retail banking cross-sell ratio to a
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reco record, 5.98 products per household." a year later, april 2013, "we achieved record retail banking cross-sell of 6.1 products per household." april 2014, "we achieved record retail banking cross-sell of 6.17 products per household." the ratio kept going up and up. and it didn't matter whether customers used those accounts or not. and guess what? wall street loved it. here is just a sample of the reports from top analysts in those years, all recommending that people buy wells fargo stock in part because of the strong cross-sell numbers. and i'd like to submit them for the record. >> no objections. >> thank you, mr. chair. so, when investors saw good
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cross-sell numbers -- they did, while this scam was going on -- that was very good for you personally, wasn't it, mr. stumpf? do you know how much money, how much value your stock holdings in wells fargo gained while they scam was under way? >> well, first of all, it was not a scam. and cross-sell is a way of deepening relationships. when customers -- >> we've been through this, mr. stumpf. i asked you a very simple question. do you know how much the value of your stock went up while this scam was going on? >> it's all of my compensation is in our public -- >> do you know how much it was? >> it's all in the public filing. >> you're right. it is all in the public records, because i looked it up. while this scam was going on, you personally held an average of 6.75 million shares of wells stock. the share price during this time period went up by about $30, which comes out to more than
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$200 million in gains all for you personally. and thanks in part to those cross-sell numbers that you talked about on every one of those calls. you know, here's what really gets me about this, mr. stumpf. if one of your tellers took a handful of $20 bills out of the crash drawer, they'd probably be looking at criminal charges for theft. they could end up in prison. but you squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket. and when it all blew up, you kept your job, you kept your mul multimillion dollar bonuses, and you went on television to blame thousands of $12-an-hour employees who were just trying
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to meet cross-sell quotas that made you rich. this is about accountability. you should resign. you should give back the money that you took while this scam was going on, and you should be criminally investigated by both the department of justice and the securities and exchange commission. this just isn't right. a cashier who steals a handful of $20s is held accountable, but wall street executives who almost never hold themselves accountable, not now and not in 2008 when they crushed the worldwide economy. the only way that wall street will change is if executives face jail time when they preside over massive frauds. we need tough, new laws to hold corporate executives personally accountable, and we need tough prosecutors who have the courage to go after people at the top.
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until then, it will be business as usual. and at giant banks like wells fargo, that seems to be cheating as many customers, investors, and employees as they possibly can. thank you, mr. chair. >> senator vitter. >> mr. stumpf, what astounds so many americans and virtually all of us is how significant this fraud was, how widespread it was, for how long a period of time. and related to that, i'm very concerned about this timeline of when top corporate leadership like yourself knew about it. you have been talking in general about 2013. is that when the issue was a focus of board discussions, or was that the first time you knew of fraudulent activity and these unwanted accounts being opened
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against customers' wills? >> as i thank you, senator vitter. as i testified before, people in our regional bank knew that not every team member would do everything right every day, and they tried to root it out at the business level with their compliance and so forth. and once -- >> when did you and folks at your level, like board members, know of this activity on any significant scale? was it 2013, which you have suggested, or was it earlier? >> 2013. >> okay. so, in 2011, about 1,000 employees were fired over this. that's about 1% of the whole retail business. so, 1% of a whole, big part of your business was fired over fraud, and you were never told about that?
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>> that was dealt with in the business unit at that time. >> is it normal for 1% of a business unit to be fired over fraud, not high turnover, not incompetence -- fraud -- and this never is mentioned to you? >> yeah. in a large retail business that has other turnovers and so forth, if i could go back, i would have, you know, spent more time on this. >> why isn't this crystal-clear proof that an entity as big as wells is not only too big to fail but it's too big to manage and it's too big to regulate? 1% of a big part of your business is fired over fraud, but that doesn't rise to your level? >> yeah, and senator, that's a good question. i've thought about that. this was a problem of focus and not of size. today -- >> let's talk about corporate culture. you've often referred to people not living up to the wells
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culture. culture is not something written in a handbook. culture, as has been suggested, is an atmosphere and what is lived. >> i agree. >> wasn't this practice, in fact, by the numbers part of the wells culture by definition because it was so widespread for so long a period of time? >> i think this is not part of our culture. this was the -- and again, it's a large number, but the vast majority of our people do it right every day and they provide great value and they live according to our culture and vision of values. >> it's been a widespread practice for many years. i'll just make a statement, that makes it part of the culture, in my opinion. so, it seems to me your challenge is to change the culture, not to enforce the culture. >> well -- >> finally, what level of competence, from 0% to 100%, do you have that this type of fraudulent activity does not exist in other wells business
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lines? >> yeah. we've looked at other things, other businesses. they're different, and i believe that this is situate in our regional bank. other areas have different levels of compliance and different volumes and different requirements. but we've looked across a number of things, and i have confidence that we had this one now solved and we've made a lot of changes. >> so, just as an example, wells is the biggest participant in the sba's 7a loan program. i happen to chair the small business committee, so i'm focused on a lot of small business issues. are you 100% confident that no fraudulent activity like this or no extreme quotas and goals exist in that 7a program? >> we don't have product goals to my knowledge in any one of our other businesses, and we have, of course because of this
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situation, we've doubled down on compliance and review in a lot of our businesses across the board. >> well, i'm writing several of those compliance folks to urge a look at anything small business related, including the 7a program, since wells is the leader in that activity. thank you, mr. chairman. >> senator donnelly? >> thank you, mr. chairman. mr. stumpf, you had previously talked to me about wells fargo values. look at the mess we are in. a community banker from my state called the office unsolicited, just sick. and he said, here we go again, where my bank, a local community bank, my bank is going to be slandered because of what these guys are doing. and he said, "if my bank had a widespread practice of opening
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unauthorized accounts and moving customer money without permission, i would be in jail, my bank would be sold, and my entire management team and board would be sued by the regulators for a lack of oversight." and he is sick to his stomach about what has happened here. and so am i. over 5,000 people from indiana, 5,000 hoosiers who every day, as everybody has talked about from their own states, every day these people work nonstop to try to pay the bills, take care of their family, make sure that they can make ends meet, and they hope that they can. over 2 million-plus across the country. but over 5,000 hoosiers who had unauthorized accounts opened. now, the second many of these credit cards are opened, these folks' credit was immediately
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dinged. and this is something senator tester was talking about. then you go to take out a mortgage and you've got a 30-year mortgage that's at half a point or a point higher because your credit rating has gone down. so, what i want to know is, one of these things, is will you pay back every single extra dime that these people are going to incur over the 30 years because of the fraudulent action of the people at wells? it wasn't sam or judy who works at the mill, who was hoping to get a payment they could afford. it was that their account had fraud committed to it, and now they have to pay more every single month for the next 30 years. how do you pay that back? >> yeah. thank you, senator. we've been thinking about that. we're starting to call, make those calls to our constituents and find out, our customers. and i don't have a final answer for you, but our intention is to make it right by every customer.
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>> so, do you promise to pay back every single extra dollar these people are going to incur over the next 30 years? >> you know, senator, i want to work with you and i'm trying to be cooperative. i just don't have all those answers for you today. but i surely get the issue. and my instructions have been to make it right by every customer. >> one of the things that rubs everybody wrong around here, but not just here, around the country -- american are fair people. and everybody in this country tries to make sure that there's a square deal done. it's not a square deal when the people that are fired are the tellers who make 15 bucks, and the senior execs walk off with $100 million. americans can smell an unfair deal a mile away. and when this teller -- these 5,300 tellers, they didn't come up with this scheme on their own. this is the only way they could keep their jobs because of what was going on.
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and you called them dishonest. and my question is, was carrie tolstedt, the head of all this, is she dishonest? and how do you fire someone making 15 bucks and not the person -- that's like firing the guy throwing coal in the engine and letting the captain go strolling off to $100 million new ship. how do you do that? >> i think that's an important question. first of all, most of the people were bankers who were not making $15 an hour, managers of those and managers of those. and there is something very different about violating our code of ethics and putting customers at risk and being dishonest versus someone who did not spend enough time making sure that this issue had been closed. i see a very big difference there. >> well, i think one of the things that the american people are just disgusted about is it
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seems like it all flows downhill. and the people down the hill get fired, don't even know if they can then pay their mortgage because of the job they had, they're gone, and that the people up on the top of the hill make $20 million, $10 million. you know, the fellas who started the wells fargo, stagecoach, this was not their plan. this is not what we do. and the only last question i have, and i apologize, mr. chairman, but it's this -- for five years! five years! and so, when folks say this too big to fail, for five years you were not able to end this. and you look and you go, for five years, americans were taken advantage of and were cheated, had their credit ratings ruined,
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had accounts opened that they never even knew about, and this bank -- either you didn't know or you knew and it was great for the story. you know, under any circumstance, none of the conclusions is good. >> well, i couldn't agree with you more. we did not move fast enough. we should have done better. but i also may remind you that the vast majority of people also had families to feed and they did exactly the right thing. but we are sorry and we needed to do better. thank you. >> thank you, mr. chairman. >> thank you, mr. chairman. good morning, mr. stumpf. >> good morning, mr. scott. senator scott. >> i'll tell you, as a senator, i am frustrated, angry, and really unhappy with what appears to be a toxic culture in parts of your sales organization.
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as your customer, with two or three mortgages, a couple of accounts, i'm disappointed. i'm disappointed in my financial institution that i've put so much confidence and trust in. i am, however, thankful for the real heroes that we've heard so little about this morning, the heroes, the employees who went to the press, the customers who went to the occ, bringing oxygen to a very important conversation, and hopefully, resolution. i ask myself, and perhaps rita morillo gives me the answer, why did not these employees find a safe haven up the chain? if you'll remember, i owned a couple of allstate insurance
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agencies, and so, the sales culture that was so toxic is also incredibly important for folks looking to support their families, who are working paycheck to paycheck. and anyone who suggests that folks who make just a little money must cheat the system is an inconsistent suggestion. i know a lot of folks who are poor who would find that comment quite disrespectful. lots and lots, most poor folks have strong integrity and would never put themselves in this situation. i would suggest that perhaps the higher you go in that chain, in the sales organization, the more you find the problem, not the person making the 15 bucks an hour, to be honest with you. my question, though, is why was there not a safe haven? and have you created safe havens for employees who see things
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that are just running amuck? do they have a safe place to go, and not to the "l.a. times," not to the occ, but is there a culture that is being established -- i know you're limiting some of your sales goals, which have unintended consequences, but is there a system being established where the average employee feels empowered, encouraged to come forward and speak and be heard in wells fargo? >> senator scott, i really appreciate that line of questioning because it's absolutely -- and i should have mentioned it. each team member, no matter where you are in the organization, is encouraged to raise their hand. if something is being asked of them that they think is not right, not consistent with our values and our culture, they're asked to raise their hand, they're asked to go to a manager's manager in hr. we also have an anonymous ethics
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line. they can speak up and show us and talk to us about anything going on. we want to hear from them, because we don't want this behavior. and i wish, behavior. i wish we would not have this behavior but we've also instituted some things today. you mentioned getting rid of the sales goals, but we also today have an -- an e-mail we send within an hour of opening an account, no account can get opened today on a deposit side or a credit card without a signature. and we're also doing a big mystery shopping program, by an independent third party -- >> i don't want to cut you off. this is important for me to finish my line of questions. i'm glad to hear you're making progress. mr. chairman, i would love for the record to have a bert understanding of the culture of checks and balances that were not there that are now there that will help customers, thousands of customers throughout south carolina, have more confidence in all financial
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institutions. and perhaps having done it wrong you become a model for doing it right. >> thank you. >> the second question i have goes back to the question we heard from crapo, tester and so many others. when you look at the impact on the consumer, the customer, you open an account -- i apologize now for going over my time for a minute or so. you have an account, i have a couple with the bank. >> thank you. >> i hope to keep them there. >> we agree. >> i hope to keep them there. someone opens a fraudulent account. the definition of fraudulent -- god bless black's dictionary -- if i didn't sign for it, it's fraudulent. i like simple definitions. so i open an account in my name. i don't know the account is open so there are fees attached to some of the accounts. the knees are attached aren't
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paid because i'm ignorant of those accounts. those fees that are not paid, because i don't know about them, at some point is reported to a credit agency because i didn't pay the fees because i didn't know about it because i didn't open the account. so these fees that impact my credit statement, it translates to higher interest rates or, said differently, a different way of exacting resources out of my very limited pocket. especially for folks working paycheck to paycheck without south carolina. >> correct. so when that happens, it is nearly impossible for us to figure out the actual dollar amount, as senator donnelly was looking for, of impact on all the customers it goes through and i would like for it also to be included in the questions for the record some way of helping
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me and others understand how we create a solution for those customers who will obviously be identified by you or by a group of attorneys looking to sue. so i would love to understand and appreciate that process so that i can go back to my constituents who i work for and give them a plausible path forward for actual resolution for those who are injured and a clear path forward for restoring confidence in financial institutions because my fear is that this is not going to simply be a wells fargo question. it will be a question for the fire financial footprint in our nation. >> and i -- i think it's a good point and i think -- and, again,
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i only did a check but i think we've already gone back on the deposit side and made those fixes with the credit bureau and are working to rectify that but i'll make sure we get back to you on -- work with you on that issue. thank you, sir, thank you, mr. chairman. >> senator? >> thank you, mr. chairman, thank you for calling this meeting. i know mr. stumpf there's probably many other places you'd rather be right now. this is a critical time as we look at the push we've seen for financial institutions for lower regulatory burdens and trust us is. what we've now lost has been trust between not only you and your customers but between in a very bipartisan way between this committee and large financial institutions. you have said repeatedly that one of your failures was that you did not act fast enough. today you're sitting in front of
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this committee and i'm telling you you are still not acting fast enough. you still do not have the answers that we need to say that we're moving forward. let's start with remediation. and by that i mean repairing credit ratings. looking at refunds. looking at restoring the customer to the customer what the customer lost. you have said repeatedly to the folks here, you know, we're working on it, we're working on it. we -- we start this story as far back as we don't know, but let's start at 11. at 11 there's something going on and wells fargo is addressing it. at 13 there's something going on and wells fargo is addressing it. at 15 there's something going on and wells fargo is addressing it. but yet it didn't get done and now you're coming to us and saying, trust us, we now get it.
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now we know. now we figured it out. and so we need a clear dialogue but i think that one of the failures today is you haven't come with a whole lot of remediati remediation, you haven't come with a whole lot of dialogue to us on this is what we're doing restore customer confidence and, like senator scott, i'm one of your customers. my whole family is. you aren't doing what you feed to do to restore customer confidence but you're also not doing what you need do to restore confidence with this committee and with the mesh public. i want to talk about changing culture. there is no one on this committee who believes that 5,000 people independently act with immunity and with dishonesty. no one here believes that. if they do, i've done law
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enforcement. this is a behavior that was created by the culture that was allowed. created by a whole lot of folks saying, you know, let's do it this way. this is not -- and i get what you're saying that it wasn't just the tellers, its wasn't just the lower level. but yet the one person, the one person who was responsible directly other than yourself for making sure this doesn't happen isn't in front of this committee today she's walked off with a good deal and hoping this blows over. the other thing is when you say you didn't act quickly enough, the board should have acted to claw back those salaries. if you had come here and said the board is clawing back, these the things you're doing, you would be in a better position sitting in that chair. so you have not done enough to
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restore confidence today and this dialogue will continue with this committee and with the american public. now with that said i want to turn to the 5,000 people and i want to say maybe they deserve to have their reputation restored. maybe they deserve to not be that person whose now resume says "fired" on a resume. maybe instead of just focusing on your customers, you ought to focus on the 5,000 people who i'm pretty sure did not unilaterally decide to be dishonest. so it's an issue that hasn't been raised here but it's a critical issue because when you punish the guy at the end of the line and you don't punish in any way someone at the top we end up with an attitude that, quite frankly, this is a corporate culture that doesn't care, they're just trying to get through the day and i don't
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think that your day yet has ended and so i want to thank you for appearing but it's not enough and it's not nearly what i had hoped you would come with today. >> thank you. >> senator moran? >> mr. chairman, thank you, mr. stumpf, good morning. >> good morning. >> the -- as i understand the circumstances, the factual circumstances, many of the problems, while they were system-wide, many of the problems were focussed in the los angeles area within your banking system, is that true? >> it's true that that's the largest part of our business but they were also focused there, yes. >> and is -- have you analyzed sufficiently to determine what was different about los angeles than places elsewhere in your banking system that would suggest that the number of times, the volume of fraudulent
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acts that occurred there? >> well, as senator heitkamp said, i also agree, 5,000 people don't just do 5,000 random things on their own. i'm sure there were people talking to one another within a branch and so forth but that analytical work is being done and has been done. i don't happen to have it here, i'll have our team work with your staff to make sure you have whatever you need on that. >> i would welcome that. i'm interested in knowing if you see this as a customer issue, a more vulnerable population of banking customers or, as the word culture has been used here a number of times, was there something different about los angeles which i assume, again, i think illegal behavior, immoral behavior, breaking the rules is wrong wherever it happens but our goal in management, your management of a financial institution is to diminish the chances of that happening.
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>> correct. >> so you never condone bad behavior but we want to make sure the circumstances in which -- it is discouraged and never encouraged and i don't have a feel for that circumstance. i don't know what really is the facts within the banking leadership that may have encouraged this behavior. we've seen this before. i serve with a number of my colleagues, including senator brown, on the veterans committee where we saw the consequences of a system that rewarded appointments for veterans who needed medical care. >> correct. >> we saw a scandal across the country in which veterans were put on a list suggesting they had an appointment, they didn't. and the circumstances in which those individuals, those individuals were listed as having an appointment, the allegations certainly exist there was death at the result of the failure of a v.a. system to provide necessary health care. >> correct. >> i think point senator
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heitkamp makes i would make to you again. there's a number of us on in committee who try to find the right regulatory balance for nnl institutions and just to stress with you the importance of then having our financial institutions behave, their behavior conduct be a certain level otherwise it undermines the efforts for that attempt to change the regulatory environment for financial success and we particularly focused that on community banks but we care about those financial institutions that have a relationship with their customers and one of the arguments that has been made is those relationship bankers can rely upon the relationship and what we're hearing from the circumstance that we find at as well as fargo is that relationship was taken advantage of, it didn't accrue to the
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benefit of the customer. >> and senator you are right for that portion and what hurts so much is that we send so much time trying to do the right thing and when a customer gets a product that's not used or not benefitting them, that hurts them and it hurts us. we have no interest -- and if i could just take one second. i want to correct, mr. chairman, or share something that i wasn't as clear on. on deposit account fees, none of those were reported to credit bureaus. so the credit bureau impact relates exclusively to credit cards and we'll run each one of those down. >> thank you. >> mr. stumpf, let me ask you a final question. i don't think you've provided by us a precise time frame in which regulators were notified but i'd
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be interested to know when, who, and what steps they took as regulators in response to the information they had. >> okay, and, again, my recollection is that our prudential regulator -- the occ was involved and notified and active in the 2013 time frame at about the time of the lawsuit from the city of los angeles we informed the cfpb. so i can tell you what we did and i know you'll have a panel later with them. >> none of these actions at wells fargo came to light as a result of the regulators finding that behavior. it was reported to them subsequent, is that true? >> you know, again, i -- i don't want to speak for them and i don't know what part of this is confidential supervisory information but my recollection of what we did was deal with this issue, terminate people, inform our prudential regulator
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and after the city of l.a. informed the cfpb. >> finally, i would say my experience in dealing with the department of veterans affairs and their circumstance, in way too many instances in my view the employees became the scapegoat for what i saw as sections or encouragement behavior by their supervisors and i would encourage your circumstance -- in your circumstance to make certain that the employees are not the scapegoat for behavior at higher levels. >> i think that's a great point, senator and i am -- the 268,000 that come to work everyday of our team members, they're the most fabulous people and i just love them and what they do but i -- the 5,300 for whatever reason they were dishonest and i'm not scapegoating but that is not part of our culture and some
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of those jobs, many of those jobs, most of them, were very good american jobs. >> thank you, mr. chairman. >> senator merkley? >> thank you, mr. stumpf, did wells fargo create a pressure cooker sales culture that put personal bankers and tellers in an impossible situation, between a rock and a hard place? >> i do not believe that. because 98 -- the vast majority -- >> let me continue. i got your answer, thank you. so rita morrilla, a branch manager says "regional bosses required hourly conferences toward daily quotas for opening accounts and selling customers extra such as overdraft protection, an issue that hasn't been addressed yet. employees who lagged behind had to stay late and work weekends. then came the threats. anyone falling short after two months would be fired. we were constantly told we'd be working for mcdonald's. if we didn't make the sales quotas, we had to stay for afterschool detention, it felt like, or report the a call session on saturdays."
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is that a pressure culture situation? putting tellers and personal bankers in an impossible situation? >> senator, that has no place in our culture. i read that and it hurt to hear those words and people like that do not belong here. >> eric estrada, a former wells personal banker said managers coached workers on how to inflate numbers, employees opened duplicate accounts, they used a database of customers who had been pre-approved for credit cards and ordered them. they were coached on it is. that a setting in which a pressure culture -- pressure cooker culture puts the personal bankers in an impossible situation? >> that has no place in wells fargo. there's nothing we did to encourage that. >> nothing you did but bank managers were being coached on how to coach their employees on how to do this? how about a branch manager in the pacific northwest, where i come from, she was very upset, an employer talked a homeless
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woman into opening six checking accounts. she said "it's all manipulation, we are taught how to sell multiple accounts. it sounds good but in reality it doesn't benefit most customers." let's talk about yasenia guitron who in 2008 after being hired for two months found this was happening, these false accounts were happening, she went to her trainer, then her manager and she was basically found -- she was pushed very hard to shut up in all kinds of different ways. so you say well, the employee could have gone to somebody. she did and eventually she filed a whistle-blower suit. and why did wells fargo say that that was not legitimate? i'll save you the time, the answer is because wells fargo said "we fired her because she didn't meet her quotas." so here we have a situation where employees are written up,
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they have to stay late, they have to come in on weekends to be coached, they are at risk of being fired. that sounds like a systemic management strategy for cross selling but you refuse to take any responsibility, blaming it on the personal ethics of individual employees who are at risk of losing their job if they didn't meet their "daily solutions target." can you even conceivably place yourself in the position of an ordinary working person, has a child in day care, they're told they'll be fired if they don't meet these solutions, they're being coached on how to do it by their manager and say that there was no culture established that caused these problems? >> senator, i am very sorry that that happened. that was not what we wanted to have happen. when those things happened i wish we would have rooted all of it out and the vast majority of our people did the right way. >> sheriff kellog said the
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branch pmanagers were always asking "how many solutions did you sell today?" they wanted three or four today. "in my mind that was crazy, that's not how people's financial lives work. i was always getting written up for failing to bump up my solutions numbers. some employees would ask local business owners they knew well to open additional accounts as favors to them." it seems as though you would have to be ignorant to feel these goals are achievable through any other means. cross-selling is a major pride point for the management of wells fargo, including your reports to -- annual reports to customers. it was so high because you created a culture across selling that pushed everyone to the maximum and the casualties are these folks who will be fired because they lose their jobs if they didn't meet it yet you can only sit here and say there was no coaching, there was no management strategy? cost selling was at the heart of
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wells fargo's program and you were at the top of this for a very long time. let's go back to 2005, 2007, 2010, you had one major position in promotion after another, cross selling was at the heart of it and you sit here and blame the little person who was pressured into an impossible situation. isn't that really kind of -- for wont of another word a failure to accept responsibility? >> senator, i started out today by accepting full responsibility. we like the -- >> accepting full responsibility for establishing a culture that put people in impossible situations would be to resign, as my colleague suggested. it would be to return your funds and help fund assistance for these people fired because of the dull which you are you established and that you personally benefit enormous amount from. you say i accept responsibility and it's the fault of those 5,000 people who just wrreren't
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ethical enough. that's not accepting responsibility. this was a systemic problem that you benefited from enormously. theback benefited from enormously and you are scapegoating the people at the very bottom. >> senator, i just need -- i don't want to be confrontational but i want to just tell you that the vast majority did the right thing. we love the idea of having deep mutually beneficial relationships with our customers. having a product that a customer does not use, does not need or does not want does not help the customer, it does not help me and it does not help the shareholders. >> you signed the sarbanes-oxley reports. did you ever deal with the fraudulent credit accounts any time towards two million fraudulent accounts? did you ever disclose that to your investors? >> well, let me say --
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>> it's a simple question. yes or no. >> there was two million accounts that we could not rule out as a possibility that they weren't authorized. >> i'm so glad you crossed that "t" and dotted that "i." did you ever disclose the systemic problem of fraudulent accounts to your investors? >> it was not a materiel event. >> so you bragged on the one end about the intensive ability to get cross selling and how that would be beneficial but the problems that came from that strategy, the very problems that dozens and dozens of people have shared their stories about how it was on the ground and you can only blame them for ethical lapses, you never disclosed you had a systemic problem. do you sign those reports personally. that's what sarbanes-oxley was. did you think that was material when you're saying this is our big -- this is our big win is our cross selling strategy, not to disclose that it also had a
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dark side? >> there was a lot of things our customers do and businesses that we have. this is one ratio and most of this business -- first of all, all of the deposit accounts are off the books. most of them went on and off within the same quarter in which they happened. having a customer have a product they don't need is not helpful, it's not what we want. >> i want to close by saying i would like to hear about the amount of slamming that went on on overdraft protection since that's come up and a number of employees talked about how they were pressured to adding that. do you have details? >> i do not. >> can you get details? i don't know of that issue off the top of my head but i'll have my staff -- instruct them work where your team as quickly as they can. >> can you get the information for the full committee? >> i will have my team work with your team. i don't know what we're talking about. >> you don't know what overdraft protection is? >> i know what overdraft protection is. i know we had a credit card product for an overdraft
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protection but i'll have my team work with your team. >> and please get the information to the full committee. thank you. >> senator brown, do you have another question? >> thank you, mr. chairman, thank you for starting a second round. there's so much more to discuss. i ask unanimous consent to enter into the record the testimony in the house by colleague taha and julie miller, two people who worked at wells fargo. >> without objection. >> thank you, mr. chairman. a couple of clarification of points and then two or three questions, mr. stumpf. we've discussed who was fired, whether the employees were fired. understand that -- just for those watching and listening and frorp for the record, 90% of the people fired were not manages, that means they were tellers, $12 to $15 an hour personal bankers, $16, to $18 or $19 or $20 but most people fired were not branch managers or regional managers. second there's a mention only credit cards would affect credit
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scores in the answer to one of these questions but if funds were moved out of a checking account and someone bounce add check for a car payment that could end up affecting credit scores so while it may narrowly be only credit cards it reallin't? that definition. a couple questions, senator scott asked about where employees can go with ethics concerns, mr. stumpf. it sounded in whistle-blower lawsuits that an ethics complaint resulted in confronting the very managers condoning this behavior, is that true? >> i don't believe that is true i don't know. i can get back to you. >> well, how do you register an ethics complaint other than calling cfpb or the l.a. county attorney or the "l.a. times." >> as i understand how our et c ethics line works, you call, it's an anonymous call, it's handled by a third party outside of the company who does work and reports it to the company.
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>> i would like more because my understanding is at least initially you have to confront your supervisor who has much to say about it. now that we know what we do, will wells fargo continue to take the position in court that contractual agreements on mandatory arbitration -- this is a question about mandatory arbitration, the fine print so many of these contracts, if you will. will fells fargo take the position in court that contractual agreements on mandatory arbitration covering real accounts will apply to fraudulent ones adds well and that customers will be forced into arbitration rather than having access to the courts? >> i instructed our team to do whatever it takes within reason to take care of these customers. i would have to talk to my legal team and we can get back to you on that. >> understanding what has happened in the past, these mandatory arbitration clauses which many of us i know in this committee don't think fair generally and most consumers
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don't understand that they are part of a mandatory, even know what it is, part of a mandatory arrangement, that that's been applied to these fraudulent accounts in addition to the ones that were not fraudulent understand that's what's happened and i hope your answer is specifically in response to that. >> again, i'll talk to our team and we'll get back to you. i'm not an expert in that. >> ms. tollstad reported directly to you. how frequently did you talk to one another? >> we had at least weekly meetings. >> and from 2007 when you both took your respective roles until the end of 2013 did none of this firing for fraudulent accounts and all, did none of this ever come up in your weekly or more than weekly meetings? >> i remember being -- at least making an impression upon me in
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2013. >> but from 2007 when you had your respective roles. so for six years, regular meetings was one of your most important managers this discussion of a thousand people a year beginning in '11 but we may go earlier than that, we think, those discussions, you have no recall that that ever came up? >> not in the way it had in 201 2013. >> okay. over the past ten years, your bank has had approximately 39 enforcement actions, just a few of which have come up today, many related to failure to serve or abusive conduct towards customers and investors. you talked much about wells' culture, how proud you are of it and its ethics. what does this say if you've had 39 enforcement action what is does it say about wells culture and compliance programs? >> we have more work to do and
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we're trying very, very hard to build out all the compliance that we need to be -- to treat customers fairly and to make sure that we do things right everyday. >> last question, mr. chairman, appreciate your indulgence. >> senator menendez -- >> i'm sorry, can i just do this question, mr. chairman? we know about the 5,300 employees who you say committed some -- many people have said the pressure was on them, was so great that they did things they shouldn't have or maybe apparently you said they all -- i think you said they deserve to be fired. what about the people who got -- understanding, too, that's 5,300, then there were at least hundreds more who refused to cheat or quit just because they didn't want to be part of this and they saw what happened to others but what about the people who got fired for not meeting goals that you now are saying
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were ill-advised. so there was a significant number of people fired for not meeting their goals. no you say the goals were ill advised. how do you identify those employees? what do you do to make those employees whole? >> i don't know about those numbers. i don't know how significant or widespread that is and i can get back to you on that. >> well, more precisely -- i understand i expected you not to know that number but if there is one, that's one. if there are a hundred or a thousand. for those fired for not meeting those goals that you say are now ill-advised, do you have plans to make them whole? >> i have to talk to our team. i don't know the numbers and i just frankly haven't worked closely. >> i didn't expect you to know the numbers in your mind and
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conscience does it say those people were fired because they didn't reach goal, the goals were ill advised, shouldn't you make it up to them. >> again, i know where you're going with your line of questioning. i'm trying to be cooperative. i haven't talked to our hr team. i don't know the numbers, i don't know the situations, i don't know if there are other things involved. >> i'm less concerned about the numbers than the morality of it. i would at least like to ask you two this, then. once you've made the determination of how many there are i would like you to make them whole and if you're not willing i'd like a written response about why you have made the decision not to make them whole. >> i'll talk to our team and we'll get back to you. >> thank you. >> senator mendez? >> mr. stumpf, let me give you a real life example talking about people whose credit scores were hurt. linda edwards and her caught thor are -- caught thor are wells fargo customers from new
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jersey. accounts were opened in their name without theiring a we see yens, including credit cards. her daughter, just starting college, she has a negative consequence on her credit score which hadn't been resolved by wells fargo. you got the wrong person when you did it to this lady because she happened to be a former staffer after the new jersey division of banking and insurance and when she called your company and asked for the fraud division, they said "call customer service." so too this date that question of her daughter's credit score, who's starting college and obviously wants a good credit score, is affected, so there's real life people here who wells fargo has not responded to. let me ask you this, is cross selling unique to wells fargo or industry wide? >> i don't know what other companies do. i know we view it as an important metric as it relates to depth of relationship. >> you don't know if other banks do this?
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>> i do not know. >> you don't review what your competition is doing to figure out whether there's something you should be doing? you don't have any idea if they do cross selling. >> i do not know that. >> we'll ask the regulators. let me ask you this, he said it was -- you said it was not a materiel event to senator merkley. >> materiel financial event. >> how about material for the s.e.c. disclosure which you said you never made.al financial eve >> how about material for the s.e.c. disclosure which you said you never made. >> i'm not a lawyer and -- >> based upon the stock and what happened your shareholders it was a material event that should have come forward. let me ask you this, in response to one of the questions that you said you and the c.o.o. met and said you wanted to move in a different direction and she decided to leave that sounds like "you can either leave or you're going to be fired." maybe, but is it that you create add situation to give her the
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option to leave because you were concerned about what she might say about practices of the bank and higher ups? >> in fact, when tim talked -- tim sloan, our chief operating officer and president talked with her, we said we want to go in a different direction, there were a number of things he was thinking about doing different in the business and we had not made enough, along with my consultation, enough progress here and she was retirement eligible, she decided to retire. it never went beyond that. >> you had no concerns what she might say if brought before the senate and put under oath about what was known or not known? >> that didn't even come into the -- >> let me ask you this. how -- twharp repercussions of not meeting sales quotas besides not getting the bonus. can you tell me how many workers faced discipline over the same five-year period for failing to meet sales goals? how many workers that failed to meet those sales goals were terminated? >> i do not have those numbers but i will tell you this senator --
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>> i think it's important to know those numbers. you don't know how many people you terminated? you know how many people you terminated who you said did the wrong thing but you don't know how many people you terminated because they didn't meet the overwhelming cooker boiler that you put them under. >> i don't have those numbers. >> i'd like you to get those numbers to the committee. >> i'll talk with our team and i'll -- >> let me -- >> -- as far as i can. >> you said to senator scott that of course there were opportunities about safe harbor, you could raise your hand, there's an anonymous ethics line, no pressure cooker. do you read your e-mail, mr. stumpf? >> i read my e-mails. >> i'd like to read to you an excerpt from an e-mail one of my constituents sent to you in 2011. she was a branch manager at wells fargo and i spoke to her yesterday about her experiences at wells fargo. in 2011 she wrote to you "i'm currently an assistant vice president manager at a --" and
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i'll leave the location out. "in northern new jersey. i have been an employee of wachovia for over 22 years of which wells fargo awired. i'm writing because as a team member i feel hurt and disappointed in this company. there are challenges team members are faced with but those should not be the reason to move money from one account to another and to fool the motivator --" the person who you had to go to who was constantly badgering you about whether or not you had opened enough accounts "that we have new accounts. these funds moved to new accounts to show growth when in actuality there is no net gain to the company's deposit base is wrong. in the past months i was placed on warning for not meeting these goals and the reason the bankers underneath me do not is because i will not tolerate the movement of existing money just because we need checking account solutions and profit proxy to move the motivator. these accounts make no sense for
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the customer." did you read that e-mail? >> i don't remember that one. >> okay, well she was fired. . so so much for the safe haven. so much coming forth. she went to the president and ceo of the company, that's about as good as it gets and she found no safe haven there. finally let me ask you this, in 2012, wells fargo then and now the largest mortgage lender in the country agreed to pay $175 million to settle accusations that the bank discriminated against african-americans and hispanic borrowers in their mortgage lending from 2004 to 2009. an investigation by the department of justice's civil rights division found wells fargo discriminated by steering approximately 4,000 african-american and hispanic borrowers into subprime mortgages when non-hispanic white borrowers with similar credit profiles received prime loans. when i look at this history, i
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get concerned with what's going on here. do you have demographics of those customers who were hurt in this process and can you share it with the committee? >> let me just go back to that particular case. i regret that that was done through a wholesale business. we were -- other people outside of our company originated those mortgages and we were closing them and we shut down that division. ? this case we don't -- when we take applications or when we do business for deposits and credit card we capture age and there was no -- in fact, it skewed towards younger to middle age americans. >> well, i'd suggest you read page 36-d, item 36-d on page nine of the los angeles city attorney's 2015 complaint filed against wells fargo describing a wells fargo gaming practice of targeting individuals holding
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mexican consulate cards. >> i'll look at that, yes. >> thank you, and i apologize to the witness, it's been a busy morning. first i want to just say and i know other people have spoken about that, in terms of rescinding the bonus, to the average american it just seems appalling that somebody who could make such large mistakes should be rewarded to almost an obscene amount of money, $120 million and so i would simply -- i'm not going to -- i know this has been discussed, i would say your bank has overall a good reputation. for the reputation of your bank, for the value of your shares as well as relationships with customer, i would urgently urge you to not allow those bonuses to occur and urge the
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compensation committee -- which you sit on -- to do that. that's just for the record. now i'd like to talk about the cfpb because they have done incredible work over the past five years. but this case exemplifies why the cppb was create. the consumer financial protection bureau was formed to ensure financial institutions that harm consumer through unfair deceptive or abusive practices are held accountable and that the consumers are made whole gale. today's hearing reminds us why the cfpb was formed. we needed a cop on the beat. the incentives and practices that cross selling goals promoted at wells fargo were wrong and bad ooze i'm sure you've said. they infected the work environment at branchs in the country and including in new
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york. ful beyond the financial damage wells fargo's action violated consumer trust. wells will have to work long and hard to regain the trust of millions of americans but those americans can rest assured now more than ever knowing there's a cfpb out there. so i would just ask you, mr. stumpf, given what you've been through, and i know it's not been a pleasant experience, do you agree federal regulators like cfpb and occ serve a valuable role in promoting safety and stability as well as necessary consumer protections? i'm saying this because a lot of our friends on the other side of the aisle want to either get rid of or greatly reduce the power of the cfpb. >> we share the mission of all of our regulators created by congress including the cfpb and we're working with all of them. >> so you think the cfpb is a necessary thing? >> well, again, it's created by congress and we agree to work with all of them and we've
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worked closely in this matter with them. >> okay. and do you believe that the reform reforms -- i'll let the answer speak for itself. i would -- we think the cfpb has done an outstanding job and what's happened at the bank whether -- however it happened shows the need for it. okay. do you believe the reforms wells committed to and goals consigned with the consent decree will allow wells to put consumers first? >> yes, we believe we have a lot of work to do. >> as per the terms of the consent agreement, will you work with the cfpb to ensure that wells' customers that were negatively impacted are made whole? >> yes. >> good. okay, were you aware that the cfpb was aware of the cross selling and looking into
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concerns about cross selling as early as 2013. >> i only know what we did. i don't know what the cfpb did. >> they were. they were on this case i think before at least your top management discovered this, which is to their credit. >> i don't know that. >> okay. okay, well director corddry will be here in a little bit so we'll ask him and see if that was the case, i believe it to be the case. and finally do you believe the actions taken by the cfpb here will lead to other financial institutions to re-evaluate and reconsider their own cross-selling practices? >> i have no idea on that. >> i think they will. i think they will and i think the cfpb has had a very salutary influence and i hope you come around to the view that it's a necessary part of our system of banking and governing. >> thank you. mr. chairman if i might make one comment, thank you, senator
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schumer, for your questions. you made a comment that i'm on the human resources and compensation committee, i am not. i want to make sure that's part of the record. >> oh, is that the committee in charge of the bonuses? >> that's the one that makes the recommendation to the full board and i'm not part of the full board and those decisions. >> i can, i would urge you to urge everybody on these committees to do just what we had asked. >> okay, thank you. >> thank you. >> senator warren? >> thank you, mr. chairman, and i want to say again thank you very much for being so responsive to us, for holding this hearing when we sent you a letter to ask you to do it and thank you for the time. >> i hope responsive to the american people, not just to you. >> thank you very much. i really appreciate you holding this hearing. mr. strum -- strum, some of my colleagues sent you a letter. wells far with gopro ride issed
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us with a response. i noticed that when we sent the letter to you that the response came from somebody else in the company which i guess is another example of holding yourself accountable. i want to focus now on the mysterious circumstances surrounding carry stitull said the's retirement in july. she ran the banking division for the entire time. she was in charge of all the 5,300 employees fired and she oversaw the creation of two million fake accounts. in july of this year, two months before the settlement was announced and before the facts became public ms. toll said the retired at age 56.
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"fortune" magazine says she walks away with $125 million. and according to "fortune," if ms. tolstedt had been fired instead of retiring she would have had to forfeit as much as $45 million of that award mr. stumpf, the response to our letter confirms that you knew of this scandal before ms. tolstedt retired, it said -- and this is from your letter -- "senior management and the board were aware of the pending litigation, investigation and discussions with our regulators relating to sales practices when ms. tolstedt indicated her decision to retire." is that accurate, mr. stumpf, what this letter says? were you personally aware of the massive probe that occurred under ms. tolstedt's watch in july when she announced her retirement? >> i was aware that we were
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involved in discussions with the city attorney, the occ and the cfpb, yes. >> so you had some indication there was a massive problem? >> we had some indication that we had 1% of our people doing the wrong thing. >> also known as a massive problem. if you knew this, did you consider firing ms. tolstedt before she retired? >> well, at the time she was reporting to our president and chief operating officer and -- >> it's a simple question. you knew there was a problem, did you consider firing her? >> no, because of her full -- >> seriously? you found out that one of your divisions had created two million fake accounts, had fired thousands of employees for improper behavior and had cheated thousands of your own customers and you didn't even once consider firing her ahead of her retirement? >> in fact, when i look at her full body of work and i look at the customer loyalty improvement
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and the customer service improvement -- >> are you sure those were not fake? >> all the work that was done, she chose to retire and i'd like to make one other comment because you made -- >> no, on this. you never considered firing her. so now ms. tolstedt has apparently retired but is also staying with the firm through the end of the year. and in the response to our letter, or the person writing it states "ms. tolstedt is eligible to be considered for a 2016 annual incentive award." an incentive award for doing a great job in 2016? mr. chairman stumpf, that is unbelievable. you are the chairman of the board and the ceo, in those roles, do you think it would be appropriate for ms. tolstedt to get another bonus on top of the millions that she has already
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gotten as a reward for her role in this massive scam? >> the board will consider that and i don't want to prejudice the board but i also want to make one comment. >> i don't understand that answer. you know, you and your board somewhere already made changes, you've made changes to the compensation scheme for thousands of employees, you've sat here today and talked about that, you've removed sales quotas, i think you told us, you reformed incentives. why can that be done quick as a wink across the entire bank but a question about cutting compensation for a highly-placed executive who oversaw a massive fraud takes lon deliberation? why is that? >> because there's a board governance process and we want to that to work properly and whether carrie was retired or was fire there had would be no difference with respect to how the board can deal with that. >> i'm sorry.
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if she was fired it is my understanding she would not be entitled to large parts of her compensation. it's not just a clawback issue, we're talking about she doesn't get them to begin with if she gets fire bud you let her walk out of the door with a retirement. i don't quite understand. how do you explain this to your own shareholders? >> there is a process that the board goes through and they will do that, they've already -- >> mr. stumpf, i don't understand. you keep saying "the board," "the board" as if these are strangers you net a dark alley. under the bylaws of wells fargo, and i'm quoting here "the chairman shall preside at all meetings of the board." you were able to make changes. why are can now you not make a change here? >> i'm not on the human resources committee of the board. they have their own governance and structure. we want that to proceed in the
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process? which we have. >> all right, we'll do this your way. our letter asked a number of questions about clawbacks of ms. tolstedt's pay and other executives, yours. the answer to the letter was basically you punted, the decision would be up to the board, the same punt you've given here. you're the chairman of the board. let me ask it this will, will you personally support clawing back all or part of ms. tolstedt's pay? >> i'm not going to in my way try to influence or prejudice the board as they do their deliberations. >> so you have no opinion on this? >> i'm not going opine on that. >> you're not going to opine. you're going say "get out there, defraud, cheat, lie, steal and i have nothing to say about whether or not you should get your bonus"? >> we never say our company go out there and do those things. we try to do the right thing. >> but you say if you do them you can count on chairman stumpf
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not to stand up and say you shouldn't get your incentive bonus? >> the board has a process. >> i think you started this whole thing by saying "don't tell me what you say, tell me what your actions are." your actions are people do this and you're not going to take a single step to shut it down so i guess i can can ask this question again. will you personally support clawing back any or all of the pay for the person in charge of compliance? someone we haven't talked about much today. the person who is supposed to be responsible to make sure that the bank is following the law. will you have any recommendation about thattern? >> i'm going to have the board do their process. >> you are going to have no recommendation at all ever at any point in this process? >> whatever the board accept, whatever they do i will accept and support. you are not passive here. if you have nothing to do, what are you doing serving as chairman of the board? if you have no opinions on the most massive fraud that's hit this bank since the beginning of
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time how can it be that you get to continue to collect a paycheck for being chairman of the board? >> well, i disagree with the fact this is a massive fwraud, but secondly the board will do their work and i'm not going to prejudice their work. >> and i'll accept whatever they come up with. >> you accepted all along as this fraud builtup, this massive fraud, you accepted the performance bonuses based on the cross selling that is at the heart of this. you watched your own stock go up by more than $200 million based in part on exactly this massive fraud. you got out and pumped it to wall street and you said to wall street hey, we are doing such a great job cross selling. you should tell everybody. now you tush around and say "i
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shall remain passive and accept what wells fargo wants to do." in 2008 wall street said they would change but it looks like business as usual. mr. stumpf, you make it clear that wall street won't change until we make it change. thank you, mr. stumpf. >> mr. stumpf, thank you for appearing today. we have some questions for the record. we have another panel i hope you will answer these questions for the record. our next panel we'll hear from mr. jim clark, the chief deputy from the los angeles city attorney's office who bought the 2015 case against wells fargo. next we will hear from mr.
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curry, the comptroller of the currency, wells fargo's prudential regulator and then we will hear from director cordray of the consumer financial protection bureau. [ indistinct conversation ]
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[ indistinct conversation ] >> gentlemen, we appreciate your patience today. we've had a very important and lengthy hearing. mr. clark, we will start with you but all of your written testimony will be made part of the in order its entirety. you can start. hit the mike. >> sorry about that. chairman shelby, ranking member brown, esteemed members of the
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committee, i'm jim clark, the chief deputy city attorney with the city of los angeles. i'm appearing on behalf of our city attorney who submitted written testimony but could not be with us today. i would like to tell you briefly what our office did and why, what we discovered and the relief for consumers we sought and obtained. on a sunday morning in december of 2013, we opened the los angeles angels of anaheim -- los angeles times about wells fargo. it the story read in part that employees opened unneeded account for customers, opened credit cards without customers permission, forged client's signatures on paperwork. some employees begged family members to open ghost accounts. our city attorney, like thousands of other california consumers, was appall bid what he read. he convened a key meeting of lawyers within our office to
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begin an investigation into the allegations of the story and determine if it could be brought to our office under the laws designed to protect california's consumers. california's consumer protection laws don't afford our office pre-litigation subpoena powers so an investigation essentially consisted of good old-fashioned detective work. we conducted dozens of interviews with current and former wells fargo employees and customers, pored over public documents, including court documents that were records of wrong termination suits and we went to the consumer financial protection bureau and ftc consumer complaint databases. we found the bank had victimized consumers by opening customer accounts issuing credit cards and other products without the customers' knowledge or authorization. our investigation revealed that the bank failed to notify consumers once these unauthorized accounts had been open and had not funded fees for those unwanted products and services once the misconduct had been detected.
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we found instances in which the bank made it difficult if not impossible for customers to receive accurate information as to what exactly it happened to them. many consumers were told that h them. many consumers told unauthorized accounts closed. however, often that wasn't the case. often told business models posed unrealistic pressure on sales people, highly aggressive sales tactics, perfect storm for unlawful activities we uncovered. investigation 16 months, culminated 2014, civil enforcement action in the name of the people of state of colorado. south relief for consumers harmed by wells fargo's conduct continuing to put a stop to illegal practices wells fargo employed. days following our office received cars, letter e-mails from wells fargo customers and
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current and former employees. they described a veritable litany of experiences. money through authorized accounts to pay fees assessed by wells fargo to unauthorized accounts. they complained their unauthorized accounts sent to debt collection agencies and derogatory notes were placed in the credit reports. for wells employees, learned of the status wells used and extreme pressure placed on employees for unrealistic sales quotas. in short, what we learned before and after we filed our case was not only wells fargo's conduct inexcusable but seemed to be systemic and widespread. early this month we reached a settlement with wells fargo, conjunction with the federal agencies represented today, provides for comprehensive remediation and corrective actions and sends a strong message to wells an customers by imposeing a $50 million penalty, the largest in the history of our office.
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our agreement first establishes a complaint mediation system for california consumers harmed by the bank's practices and requires wells to continue a restitution program for those customers negatively affected by practices. wells fargo also must alert all of its california customers, consumer business checking or savings account, credit cards, unsecured lines of credit to visit the local bank or call wells fargo to review accounts, close k, discontinue services they adopt westminster abbey to resolve any remak problems. crucially for the next two years, every six months wells fargo must provide our office with audit reports signed by officer or director under penalty of perjury assessing bank's compliance with our agreement. critical to know it was enforcement effort of federal partners, office of comptroller currency. as a result remediation and corrective action now extends nationwide. we'd like to thank both agencies
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for outstanding work. in our view robust government crucial protecting kurmt, forcing to collaborate and coordinate efforts protections consumers need entitled to and much more likely to be affected. there's a sacred trust people put in financial institutions, faith their money will be safe and secure and bank's actions will be highest standard. wells fargo broke that trust. it cannot be allowed to happen again. thank you. >> thank you. chairman shelby, ranking member brown and members of the committee, thank you for holding this hearing related to unsafe and unsound sales practices at wells fargo. let me begin by stating clearly sales practices at wells fargo involving employees opening unwanted accounts and making
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unauthorized transfers of customer funds even temporarily are outrageous. these practices driven by misplaced incentives and weak management and controls undermine the fundamental trust that goes to the heart of the bank customer relationship. they are unacceptable and have no place in the federal banking system. occ's september 8th environment action builds on examination that identified weakness and compliance risk management and consumer protection and subsequently focused on sales practices beginning in january 2014 the action requires wells fargo to pay a $35 million penalty to the united states treasury, orders the bank to reimburse affected customers and directs comprehensive corrective action to prevent such practices in the future. occ managers closely monitoring corrective action and reimbursement of harmed
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customers. our work on this matter continues. i've ordered agency staff to review individual misconduct and culpability in this case. i've also directed examiners to review sales practices at all the large and mid-sized banks we super advised and assess sufficiency of controls with respect to sales practices. as we ten to review this matter, more facts may come to light. my written testimony provides further details about the occ's supervision of wells fargo leading to our environment action. actions occ took together with consumer financial protection bureau and los angeles city attorney rightfully hold the bank accountable and require necessary corrective action. however, i believe the occ can and must do better. to that end, i've asked my senior deputy comptroller for enterprise governance to conduct a postmortem to identify potential gaps in our supervision and i will address
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any identified gaps. enforcement action such as these require thousands of hours of examination and investigation work. i want to express my appreciation for occ staff to work tirelessly on this issue as well as our colleagues at the cfpb and l.a. city attorney's office. the coordination in this case allowed us to take collective action that addressed safety and soundness and the consumer protection aspects of the bank's deficiencies. together the orders demonstrate such practices will not be tolerated. since i became comptroller, i have worked to strengthen our supervisory effectiveness including through 2014 adoption and implementation of heightened risk governance standards for our largest institutions. these enforceable guidelines emphasize the importance of three line of defense in the detection and mitigation of risk. frontline business units,
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independent risk management, and internal audit as well as the vital role of the board in providing a credible challenge to management actions. had these structure elements been functioning properly, they would have prevented the type of abuses we have witnessed at wells fargo. the continued application of occ's heightened standards for large banks will help ensure they have governance and controls necessary to prevent these sorts of practices in the future. the practices that the bank also demonstrate, importance of lining and sentence behavior highlights the need to highlight interagency compensation rule sooner rather than later. as proposed, the rule would provide clear direction regarding the application of sound incentive compensation programs including clawbacks, forfeiture and other mechanisms to hold senior executives and other employees with significant
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responsibilities accountable. for those reasons, i support prompt completion of the final rule. again, thank you for holding this important hearing today and i look forward to answering your questions. >> mr. cordray. >> thank you, chairman shelby, ranking member browns and ranking members of the committee. i will briefly discuss what our investigations found about the sales practices at wells fargo. two, what we're seeking to achieve by our order. three, further steps to improve the culture and practices of the banking industry. on september 8th, consumer bureau together with our partners at this table took an enforcement action against wells fargo bank. our investigations found in order to meet sales goals and correct bonuses for themselves, bank employee created unauthorized deposits in credit card accounts, enrolled consumer in online banking services and ordered debit cards for consumers without consent or knowledge. some of these practices involved
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fake e-mail accounts and phony pin numbers. fraudulent conduct kuoccurred o massive scale. wells fargo a million and a half accounts that may not have been authorized including without knowledge or consent. wells fargo initiated applications from half million credit card accounts that may not have been authorized by using consumer information without their knowledge or consent. these activities caused some consumers to incur fees. even apart from that they represent a staggering breach of trust in conduct that should never occur at any bank. wells fargo has demonstrated epic scope of its failure terminating 5300 people thus far including branch managers and managers of managers. the gravity and breadth at wells fargo cannot be pushed aside as stray conduct of a few bad apps. one former prosecutor noted stunning nature and skill of practices reflects consequences of a diseased orchard.
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as our order identifies wells fargo built and refined incentive compensation program and implemented sales goals to boost cross-selling of products but did so in a way that made it possible for employees to pursue unfair and abusive sales practices. i have a question for you. do we really believe that 5300 people applied with wells fargo over the years intending and expecting and wanting that they were going to go into the bank and abuse consumers' trust and open phony accounts in their name. no, it was the wells fargo culture that made that happen. it appears the bank did not monitor the program carefully allowing thousands to gain the system and inflate sales figures and claim higher bonuses under extreme pressure. rather than put its customers first wells fargo built and sustained cross-selling program where bank and many employees served themselves instead violating banking ethics of banking institution including key norm of trust. our order accomplishes several things. first, the det

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