Maxine Waters, Chairwoman of the Financial Services Committee, called Wells Fargo a “lawless organization” that has caused harm to millions of consumers during Tuesday’s hearing.
Wells Fargo CEO Charlie Scharf testified before the committee during the hearing titled “Holding Wells Fargo Accountable: CEO Perspectives on Next Steps for the Bank that Broke America’s Trust.”
Waters said Scharf is the third Wells Fargo CEO to speak to the committee over the past three years. She noted that each Wells Fargo executive that spoke to the committee resigned shortly after.
The Securities and Exchange Commission (SEC) announced in February that the bank will pay a $3 billion settlement over its account scandal dating back to 2016. Wells Fargo’s penalties include a $500 million fine to the SEC.
According to the SEC’s order, between 2012 and 2016, Wells Fargo publicly touted to investors the success of its Community Bank’s “cross-sell” strategy, which it characterized as a key component of its financial success. According to the order, from 2002 to 2016, Wells Fargo opened millions of accounts of financial products that were unauthorized or fraudulent.
Waters said the bank opened 3.5 million accounts, costing consumers more than $6 million. She added that the Office of the Comptroller of the Currency is aware of cases that the number of consumer accounts needing remediation for abuse exceeds 50,000 and the amount of harm exceeds $10 million.
“I’m very concerned that the banks’ pattern of harming its consumers appears to persist,” Water said.
Waters referenced a staff report from a 2019 Federal Reserve meeting and a senior executive at Wells Fargo said the bank should not bring in any new customers due to the bank’s actions.
“Based on the findings of the majority staff report, I agree with the sentiment that Wells Fargo isn’t ready to be America’s bank again,” Waters said.
Committee member and Chair of Oversight and Investigations Al Green said, “My constituents would like to know how is it that Wells Fargo can pay a $3B fine, commit fraud, open accounts with knowledge of customers, and not one person goes to jail.”
He added that of all the top banks, there has never been a CEO go to jail.
“It seems that they are not only too big to fail, they’re also too big to jail. This issue has to be resolved and it cannot be resolved by simply paying off the government,” Green said. “Wells Fargo has to do more to atone for its transgressions.”
Green said Wells Fargo cannot continue to run what appears to be a “criminal enterprise.”
Fellow committee member Patrick McHenry, however, noted that his colleagues on the other side of the aisle “made up their minds about Wells Fargo long ago.”
He said that before the committee received any evidence in 2016, Waters said she had come to the conclusion that “Wells Fargo should be broken up. It’s too big to manage.”
McHenry said that after reviewing nearly half a million documents and countless testimony, that breaking up the bank is not the answer.
“Wells Fargo isn’t too big to manage. The findings of this document show it was grossly mismanaged,” he said.
He said evidence shows the source of issues was its structure and leadership team. McHenry also dismissed the hearings set for Wednesday, as the committee will hear testimony from two prior board members with “the sole purpose of embarrassing them.”
McHenry called the hearings “politically motivated” and not sure what the committee hopes to accomplish by speaking to people who are no longer with the company, especially given the current economic challenges taking place.
“Investors fear over the spread of coronavirus has had widespread consequences for the financial services industry, the economy, and the markets,” McHenry said. “Our constituents have real concerns and they expect us to put aside politics and focus on the urgent matters at hand.”
Committee member Andy Barr said the scandals surrounding Wells Fargo breached the public trust. He said the committee is not here to re-litigate the bank, but instead wants to know what the bank is doing to fix its mistakes.
“Wells Fargo’s individualized mistakes and misconduct sparked unfair anti-bank rhetoric that has been applied to all banks of all sizes … but labeling all banks as the villains of capitalism makes it easier for some on the far left to justify their quest to impose socialism on our free-market economy and politicize access to capital,” Barr said.
Scharf said during the hearing that prior actions reported by the Department of Justice, the SEC, and the OCC show “deeply disturbing conduct.”
“We had a flawed business model and how the company was managed. Our structure and culture were problematic, and the company's leadership failed its stakeholders,” Scharf said.
Scharf said he is confident the company can move in the right direction and that transformation has already begun. He added there will be an assessment of external and internal shortcomings and what needs to be done to address them.
Work outlined by government regulators will be prioritized, Scharf said.
Scharf said he has brought in three new members to the leadership team and expects to add two more—all from outside the bank. He also said 75% of the leadership team will be new since 2018.
“Hiring experienced people with proven track records in the issues we face is necessary to bring about the change required,” Scharf said.
Wells Fargo’s new CEO said the bank will offer greater transparency in how the business works, risks it faces, and the way it treats customers. He added the company is altering its evaluation and compensation practices to ensure higher accountability.
“The guiding principle in how we make business decisions must be that everything starts and ends with our customers. We must put them first in our decision making in all we do,” Scharf said.
Just 24 hours before Wells Fargo and Scharf appeared before the Financial Services Committee, the bank announced that Chair of the Board of Directors Elizabeth Duke resigned from her post.
Duke was elected Chair in January 2018 and previously served as Vice Chair from October 2016 to December 2017. Board member James Quigley also resigned.
Both resignations were effective on March 8.
Charles Noski will serve as Chair of the Board of Directors. He joined the board in June 2019 and is a retired Vice Chairman and former CFO of Bank of America.
“On behalf of Wells Fargo and all of its employees, I would like to thank [Elizabeth] and Jim for the contributions they have made over the past several years,” Scharf said in a release. “They have helped the Board navigate significant challenges relating to the sales practices issues, and they began the hard work of instituting necessary changes in leadership, governance, compensation programs and our business model that form the foundation on which we are continuing to rebuild the trust we’ve lost. We wish them the best.”
Duke and Quigley released a joint statement saying: “Since we were made aware of the egregious harms suffered by Wells Fargo’s customers, we were and remain fiercely determined to do right by them and to strengthen the bank’s culture and controls. We have made these our top priorities. In addition, we hired new external leadership with the ability to be an effective change-agent, which we found with our CEO, Charlie Scharf. As the markets face increasing volatility, a strong Wells Fargo is needed now more than ever.”
They added that out of “continued loyalty and ongoing commitment” to Wells Fargo’s customers and employees, they recommended leaving their positions.
“We believe that our decision will facilitate the bank’s and the new CEO’s ability to turn the page and avoid distraction that could impede the bank’s future progress,” they said.