Wells Fargo CEO John Stumpf was on the hot seat last week when he faced US Sen. Elizabeth Warren of Massachusetts and other angry lawmakers at a Senate Banking Committee hearing designed to investigate the bank’s widespread rip-off of its customers.
Warren told Stumpf, who earns $19 million a year: “You should resign. …You should be criminally investigated.”
Warren’s verbal assault on Stumpf generated considerable publicity. But this issue wouldn’t have surfaced in the first place without the hard work of several grassroots community and labor organizations — especially the Committee for Better Banks — that first brought the scandal to the attention of the media, elected officials and regulators. Wells Fargo is the nation’s fourth largest bank by assets and its leading home lender.
The senators’ grilling of Stumpf not only highlighted Wells Fargo’s history of abusive practices but also put the debate over government regulation of the banking industry in dramatic relief. Democratic nominee Hillary Clinton touted the “forceful response” to the Wells Fargo scandal by the Consumer Financial Protection Bureau (CFPB), the federal agency created in 2010 as part of the Dodd-Frank bank reform law. Clinton said that the Wells Fargo scandal is “a stark reminder of why we need a strong consumer watchdog to safeguard against unfair and deceptive practices.” In contrast, Republican presidential nominee Donald Trump has called for dismantling nearly all of the Dodd-Frank reforms, including the CFPB.
At last week’s hearing, Warren demanded both the US Department of Justice and Securities and Exchange Commission criminally investigate Stumpf for the Well Fargo’s practice of pressuring its low-level employees to create over 2 million unwanted checking and credit-card accounts without consumers’ knowledge or permission in order to grow the bank’s stock price. She told Stumpf that during the years that Wells Fargo engaged in this “scam,” Stumpf’s own portfolio of company stock increased by $200 million.
She urged Stumpf to return the compensation he received while these practices went on.
“So, you haven’t resigned, you haven’t returned a single nickel of your personal earnings, you haven’t fired a single senior executive,” Warren told Stumpf. “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.”
“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,” Warren said. “And when it all blew up, you kept your job, you kept your multimillion-dollar bonuses and you went on television to blame thousands of $12-an-hour employees.”
Wells Fargo’s official line is that the employees were acting on their own to skim extra pay from the bogus accounts. Warren questioned Stumpf about the fraudulent accounts, asking how such an operation could have occurred without the knowledge of top management.
Although Stumpf apologized for the bogus accounts, he told the Banking Committee that the practice of “cross-selling” — selling existing customers multiple products — is a legitimate business practice. But Sen. Patrick J. Toomey, a Pennsylvania Republican, disagreed: “This isn’t cross-selling. It’s fraud.”
Wells Fargo employees have a different word for the practice. They call it “sandbagging.” They say they did it because of what they’ve called the bank’s “sell or die” quota system which put pressure on them to routinely engage in these practices in order to keep their jobs.
Activists are up in arms over Wells Fargo’s double standard in dealing with its employees. After the scandal was exposed by grassroots advocates, the media, and government regulators, the bank fired at least 5,300 employees and refunded millions of dollars to customers. But bank reform activists are skeptical that so many employees could have acted on their own without the knowledge of higher-up bank executives.
Meanwhile, in July, in the wake of the scandal, Carrie Tolstedt, Wells Fargo’s director of consumer banking, the operation that opened the fake accounts, abruptly left the bank where she worked for 27 years. She took with her a $124.5 million compensation package. After her retirement announcement, Stumpf praised Tolstedt as “a standard-bearer of our culture” and “a champion for our customers.”
Warren criticized Stumpf for failing to withdraw Tolstedt’s bonus (a practice known as a “clawback”) in light of the revelations about her division’s behavior. Stumpf said it was up to the bank’s compensation committee, comprised of board members, to decide whether to rescind Tolstedt’s bonus.
“If you have no opinions on the most massive fraud that’s hit this bank since the beginning of time, how can it be that you get to continue to collect a paycheck?” Warren asked.
Moreover, activists say that the problem goes well beyond Wells Fargo and is an industrywide scandal.
Ruth Landaverde, a former employee at both Wells Fargo and Bank of America, said the pressure from her supervisors at both banks was so intense that she developed a tic in her eye and had trouble sleeping. She told The Associated Press that in order to keep her job she was required to sell four credit cards and four auto loans each week in addition to three home mortgages or refinances.
“I wasn’t going to do something unethical, but the sales pressure was very real,” she said. “I can see why some employees did what they did.”
Landaverde is now a member of the Alliance of Californians for Community Empowerment (ACCE), a statewide advocacy group that works on housing and banking issues and is a member of the Committee for Better Banks, a coalition of community and labor groups. In an email last week to ACCE members and supporters, she wrote:
“When I worked for Bank of America, I felt uncomfortable when I was given a list of bank customers and told to call them and push new accounts and credit cards that could end up sticking them with unnecessary fees and debt. What’s worse, we were targeting customers in low-income communities of color much more than the customers in more affluent zip codes.”
Landaverde explained that “there are still many more banks that have not committed to stop requiring their employees to push unnecessary products in order to keep their jobs. And now, Wells Fargo CEO John Stumpf is throwing his own employees under the bus rather than accepting responsibility for the outrageous high-pressure sales culture that he and other Wall Street executives are creating!”
“I know firsthand that predatory sales exist across the US banking industry,” said Cassaundra Plummer, a former teller at TD Bank and member of the Committee for Better Banks. “At TD Bank, sales goals made it impossible for front-line bank workers to help customers find the financial products best suited to them. My manager would encourage customers to take out home equity lines to go on vacation which is the worst financial advice I’ve ever heard! We need to end predatory sales goals across the industry not just Wells Fargo.”
Last year the Committee for Better Banks delivered a petition signed by more than 11,000 people to Stumpf, along with a letter noting that workers faced “pressures to meet sales quotas under strict monitoring and threat of losing their jobs, often forcing them to push unnecessary products and fees on to their customers, causing them stress and financial hardship,” and that loan servicing departments have been using similar tactics to push consumers toward riskier products they can ill afford.
The group has now launched another petition asking elected leaders in Los Angeles and other cities around the country to ban all city business with banks that force their employees to meet sales goals for high-fee products such as credit cards, new accounts and home refinance loans. They say that these incentive programs create a system where bank workers are forced to engage in predatory practices against their professional and ethical beliefs.
“Wells Fargo’s action to eliminate sales quotas is a hard-won victory for front-line bank workers who have been denouncing abusive sales goals for over two years,” said Reuben Traite, an organizer with the Committee for Better Banks. “The fact that Wells Fargo turned a blind eye is appalling. But these high-pressure sales goals are rampant across big banks and we need to end it across the industry.”
Activists with the Los Angeles chapter of ACCE brought the issue to the attention of the Los Angeles Times, which broke the story in 2013. Once it made the papers, Los Angeles City Attorney Michael Feuer conducted his own investigation and then sued Wells Fargo. All that got the attention of the federal Consumer Financial Protection Bureau (CFPB).
Two weeks ago, CFPB Director Richard Cordray, Comptroller of the Currency Thomas Curry, and Feuer announced that they had reached settlements with Wells Fargo over its “major breach of trust.” Wells Fargo agreed to pay the CFPB $100 million (the largest fine the agency has ever imposed) in addition to $50 million to the city and county of Los Angeles, and $35 million to the Office of the Comptroller of the Currency (OCC). Wells Fargo did not admit any wrongdoing in the settlements, although it issued an apology to its customers, promised to revise its sales practices, and agreed to pay consumers refunds for fees assessed on checking and credit cards accounts they didn’t authorize.
Activists point out that the fines being levied against Wells Fargo are a drop in the bucket compared with Wells Fargo’s 2015 profits of $20 billion. It is even less than the more than $200 million in company stock that Stumpf owns. Stumpf is not only CEO of Wells Fargo but also one of the nation’s most well-connected and influential business leaders. He serves on the board of directors of Target Corp. and Chevron Corp. and, until recently, on the board of the Financial Services Roundtable, a powerful industry lobby group.
Since she arrived in the Senate in 2013, Warren has consistently criticized the US Department of Justice for failing to prosecute the top executives of major banks that engaged in reckless and risky lending practices which, in 2008, triggered the nation’s worst economic downturn since the Great Depression. So far, no CEO of a major bank has gone to prison. Instead, the Justice Department and the banks accused of wrongdoing typically agree to resolve the issues by requiring the banks to pay multimillion-dollar settlements. But these settlements — like the $185 million that Wells Fargo paid in fines to the city of Los Angeles, the CFPB and the OCC — don’t come out of the pockets of executives like Stumpf, but are instead paid by the stockholders.
The bank’s apology and refunds won’t make the issue go away. Many consumers are suing the banks, as are former employees who say they were fired (or forced to resign) when they refused to engage in the fraudulent practices in order to meet the bank’s unrealistic sales quotas.
The issue first emerged three years ago when the LA Times uncovered Wells Fargo’s illegal practices, based on interviews with current and former employees in nine states. In response to the Times story, LA City Attorney Feuer initiated his own investigation and sued the bank, alleging that it had “victimized their customers by using pernicious and often illegal sales tactics,” including unattainable quotas that pressured bank employees to “engage in fraudulent behavior.”
The CFPB — the federal agency created by the 2010 Dodd-Frank bank reform law — undertook its own investigation. It discovered that Wells Fargo employees opened as many as 1.5 million checking and savings accounts, and more than 500,000 credit cards, without consumers’ knowledge or permission.
The LA and CFPB investigations, the resulting media coverage, and Wells Fargo’s attempt to blame its lower-rung employees for the scandal led five Democrats on the Senate Banking Committee — Sherrod Brown (Ohio) Jack Reed (Rhode Island), Robert Menendez (New Jersey), Jeff Merkley (Oregon) and Warren — to push its Republican chairman, Richard Shelby of Alabama, to hold last week’s hearings. They sent Strump a letter expressing concern that consumers and low-level employees will bear the burden of the bank’s misconduct “while senior executives walk away with multimillion-dollar awards based on what the company later finds out are fraudulent practices.”
The San Francisco-based Wells Fargo has long been a target of bank reform activists for its troublesome track record of risky and reckless behavior. For more than a decade, grassroots groups have challenged Wells Fargo’s racially discriminatory lending practices and aggressive foreclosures. They have sued the bank for violating laws against racist mortgage lending; testified before Congress, state legislatures and city councils demanding that they investigate and rein in Wells Fargo’s troublesome practices; and picketed at the offices and homes of the bank’s top executives.
In 2012, for example, ACCE members protested outside the $5 million San Marino mansion of Wells Fargo’s Chief Financial Officer Tim Sloan to draw attention to the bank’s efforts to evict Ana Wilson — a wheelchair-bound woman with cerebral palsy and breast cancer who missed several mortgage payments while she was in the hospital — from her tiny home in blue-collar South Gate. Last year, ACCE members occupied Wells Fargo branches in both Whittier and Studio City to protest the bank’s abusive foreclosure and eviction practices.
A 2012 report by ACCE and the California Reinvestment Coalition (see “The Wall Street Wrecking Ball: What Foreclosures Are Costing Los Angeles Neighborhoods”) found that banks had targeted minorities for predatory mortgages and aggressive foreclosures. Homeowners in Los Angeles lost about $78.8 billion in home value as the result of 200,000 foreclosures from 2008 through 2012, while the city lost property tax revenues of $481 million. In response to that report, LA City Attorney Feuer sued Wells Fargo, Bank of America, and JP Morgan Chase.
The activists who have challenged Wells Fargo have primarily been bank consumers and residents of neighborhoods harmed by Wells Fargo’s redlining and other practices. But the 2-year-old Committee for Better Banks (CBB) is comprised of bank employees as well as consumers, representing a new and potentially powerful coalition. Not surprisingly, the Committee for Better Banks is now part of the broader movement to raise wages for service-sector employees like bank tellers to $15 an hour.
The CBB is aligned with the Center for Popular Democracy (CPD), a national network of local activist groups that work on housing, banking, and workers’ rights issues. CPD helped set the stage for the current campaign with its study of bank workers. The CPD report revealed that some of the nation’s largest banks, including Wells Fargo and Citigroup, pressure its front-line employees to engage in fraudulent practices to keep their jobs. According to the report, these bank employees try to serve customers responsibly, but feel pressure from higher-ups to meet the quotas in order to keep their jobs.
A report last year by the National Employment Law Center on banking industry wages found that almost three quarters (74.1 percent) of US bank tellers and almost half (44.2 percent) of bank customer service representatives earn less than $15 an hour. The median hourly wage for bank tellers is $12.44. A study by the UC Berkeley Center for Labor Research and Education found that nearly one-third of the families of all tellers are on public assistance. In New York City — the capital of the nation’s banking industry — 39 percent of tellers and their family members are on some form of public assistance program.
Other groups involved in the better banking campaign include Move On, the Communication Workers of America, New York Communities for Change, ACCE, Jobs with Justice, Make the Road, and Americans for Financial Reform, a DC-based watchdog group.
The idea for the CFPB was first proposed by Warren when she was still a professor at Harvard Law School. Before she was elected to the Senate in 2012, she helped shepherd the plan for the agency through Congress in the wake of the Wall Street crisis and nationwide mortgage meltdown that began in 2008. President Obama supported the idea and, along with then-Congressman Barney Frank (D-Massachusetts), helped get it incorporated into the Dodd-Frank reform bill which was enacted over heavy opposition from the bank industry lobby.
Since 2010, banking and business lobby groups, with the help of Republican allies in Congress, have sought to undermine the agency by reducing its budget and authority.
Writing in The New Yorker, Adam Davidson pointed out that the CFPB’s entire budget is little more than $600 million. In contrast, he wrote, “Wells Fargo’s revenues are more than $80 billion. And Wells is just one of thousands of banks, insurance companies, and other institutions that the CFPB is mandated to monitor.”
Senate Banking Committee chair Shelby, an Alabama Republican, is one of many GOP members of Congress who complain that the CFPB is too powerful and that its tough regulations lead banks to offer fewer consumer products. But a recent article in American Banker, an industry publication, suggested that Wells’ settlement would make it difficult for bank lobbyists and Republicans in Congress to attack the CFPB.
Lisa Donner, executive director of Americans for Financial Reform, a DC-based watchdog group that has played an important part in defending the CFPB from its opponents, said, “The current Wells Fargo scandal reveals why we need a strong regulatory agency that has the backs of bank consumers as well as employees.”
“Wells Fargo’s action to eliminate sales quotas is a hard-won victory for front-line bank workers like me who have been coming together in the Committee for Better Banks and working to end high-pressure sales goals that hurt our families and communities,” said Julie Miller, a former Wells Fargo branch manager and a member of the Committee for Better Banks.
“Wells Fargo got into this scandal because it turned a deaf ear to the alarms sounded by consumers and its own workers, and its experience proves that these sales goals have no place in the consumer banking industry,” Miller observed. “Predatory sales goals are rampant at big banks across the country, and we will keep on working and organizing to make sure Wells Fargo makes good on its word and that other banks follow suit by implementing fair business practices for workers and customers.”
A version of this story first appeared at truthdig.org.
Peter Dreier is professor of politics and chair of the Urban & Environmental Policy Department at Occidental College. His most recent book is “The 100 Greatest Americans of the 20th Century: A Social Justice Hall of Fame.”