Wells Fargo CEO John Stumpf took a beating from both parties during testimony before the Senate Banking Committee about the large US bank’s scandal over unauthorized account openings. The visit provided a rare moment of bipartisan consensus as elected officials from both sides of the aisle took turns pummeling the executive for what regulators have called “widespread illegal” sales practices at one of America’s largest banks.
Earlier this month, Wells Fargo agreed to pay $185 million in fines after its employees allegedly opened some 2 million credit and bank accounts without customers knowledge, sometimes charging fees. The bank fired some 5,300 employees over such practices over the last five years.
In agreeing to pay the fines, Wells Fargo didn’t admit or deny wrongdoing. But CEO John Stumpf apologized and took responsibility for ethical failings in prepared testimony today.
Still, that wasn’t enough to either satisfy Democrats or Republicans on the panel.
“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,” said Sen. Elizabeth Warren (D., Mass.), “It’s gutless leadership.”
“You should resign,” she said. “You should give back the money you took while this scam was going on and you should be criminally investigated.”
Republicans didn’t go lightly on Stumpf either.
“Wells Fargo was rated the best at cross-selling its products. Only problem is, we discovered Wells Fargo wasn’t always cross-selling, signing up customers for products when you know the customer doesn’t want the product, failing to notify customers about these sham accounts — and this isn’t cross-selling, this is fraud,” said Sen. Pat Toomey (R., Penn.).
Beyond the public flaying, Wells Fargo’s scandal really does matter.
Wells Fargo sidestepped some of the worst lending practices that emerged before and eventually set off the US financial crisis and Great Recession.
As a result, the bank became something of an industry golden child, viewed as proof that large banks can be both sensibly run and incredibly profitable, without having to resort to reckless and risky practices in order to boost sales.
Revelations about Wells Fargo’s sales practices severely undermine argument, especially the fact that the company fired more than 5,000 workers. The sheer number suggests this wasn’t the case of just a couple bad apples, rather it was a fundamental problem with the way sales incentives at the heart of Wells Fargo’s business were structured.
And that should revive questions about whether it is even possible to effectively manage giant banks without putting consumers and—sometimes the entire economy—at risk.