Lawmakers Won’t Let Wells Fargo Forget Its Scandal Anytime Soonby
Lawmakers using Wells Fargo to push agendas on disputed agency
Stumpf forgoing $41 million isn’t likely to placate Congress
Wells Fargo & Co. should prepare itself for a long stay in the Capitol Hill hot seat because it ran afoul of Elizabeth Warren’s favorite regulator.
Revelations that the giant bank may have opened 2 million accounts without customers’ consent is the type of high-profile scandal that neither Republicans nor Democrats will let go of easily, even after news this week that Chief Executive Officer John Stumpf is forgoing more than $41 million of his stock and salary.
The Wells Fargo scandal also has legs in Washington because of the leading role that the Consumer Financial Protection Bureau, Warren’s brainchild, played in the investigation. The agency has been the focus of bitter partisan fights for years. Now Republicans are eager to thoroughly examine what happened at the lender to show that the CFPB and other regulators are inept for not stopping the abuses sooner. Meanwhile, Democrats are determined to leverage the bank’s misconduct to tout the success of post-financial crisis reforms.
Stumpf will see how little Congress has been placated when he treks back to Washington Thursday to testify before the House Financial Services Committee. Federal Reserve Chair Janet Yellen even got a taste of the furor at a House hearing Wednesday when lawmakers urged her to break up the bank. Politicians said they will continue to pursue lengthy investigations into Wells Fargo and use it to push legislative proposals that could be harmful to the financial industry.
“This is not going to be something that people will forget," Representative Brad Sherman, a Democrat from California who sits on the financial services panel, said in an interview. “If that example helps bolster my point for whatever legislation I’m talking about even 10 years from now, I will use it.”
Stumpf accepts full responsibility for all unethical sales practices in the retail banking business and is fully committed to fixing this issue, Jennifer Dunn, a spokesman for Wells Fargo, said in an e-mailed statement. The CEO plans to offer the same apology to lawmakers in the House that he gave to the Senate Banking Committee last week and outline what the bank has done to remedy the situation, according to prepared remarks obtained by Bloomberg News.
There’s no shortage of angles being pursued by policy makers. Management accountability has been a recurring point, with Senator Warren accusing Stumpf of “gutless leadership.” Along with the Senate Banking Committee panel’s other Democrats, she asked Stumpf to answer dozens of questions for the record to clarify his testimony last week before the committee.
The Labor Department plans to investigate whether Wells Fargo put undue pressure on employees to meet sales quotas after Warren and other Democrats prodded the agency. Republican David Vitter, chairman of the Senate Small Business Committee, has asked the Small Business Administration for more information about enforcement actions it has taken against the bank.
Senator Pat Toomey, a Republican from Pennsylvania, has questioned whether the SEC should review Wells Fargo’s failure to disclose that it was under investigation in regulatory filings reviewed by shareholders, while Jeff Merkley, an Oregon Democrat, has asked the SEC to investigate whether the bank violated internal controls provisions of the Sarbanes-Oxley Act by not recognizing and stopping the misconduct.
But one aspect of the scandal that has especially galvanized lawmakers’ fixation with Wells Fargo has been the CFPB, an agency created under the Dodd-Frank Act to boost oversight of banks following the U.S. housing bust. Republicans have long vilified it as a regulator that has scant accountability to Congress and is led by a director with few internal checks on his power. They’ve pursued legislation that would restructure its leadership and funding.
Trying to determine why it took agencies including the CFPB so long to reach a $185 million settlement with Wells Fargo is one issue Texas Republican Jeb Hensarling, who chairs the House Financial Services Committee, said he plans to review as part of the committee’s investigation into the bank.
“We want to get to the bottom of what happened at Wells Fargo,” Hensarling said to reporters Tuesday. “Then, we will turn our attention to the regulators. Maybe they deserve a pat on the back, but maybe they also may deserve a swift kick in the pants.”
On the other side, Democrats argue that the CFPB’s Sept. 8 case against Wells Fargo is a shining success of Wall Street reforms implemented after the financial crisis. Presidential hopeful Hillary Clinton even chimed in, calling Wells Fargo’s conduct “outrageous” and using the incident to highlight that Donald Trump wants to “dismantle” the CFPB.
“The longer this goes on, the worse it gets," said Ed Mills, a financial policy analyst at FBR & Co. “Lawmakers don’t think of this as one and done, they think of this as building a foundation for a series of hearings not only with Wells Fargo but across the industry that could take up the entire year next year."
The House Financial Services Committee’s hearing on Thursday is the last one scheduled before voters head to the polls, giving lawmakers an incentive for populist attacks on Wall Street along with the wealth of Stumpf and other Wells Fargo managers. Even if Stumpf is $41 million poorer.