John Stumpf, Wells Fargo chief executive, has been asked to resign after being grilled on Capitol Hill following a massive bogus accounts scandal that involved the bank opening up two million bogus customer accounts.
Tuesday’s grilling of Stumpf, for his oversight of the bank’s actions, potentially laid the groundwork for new rules and reviving questions of whether banks are “too big to fail”.
Wells Fargo has acknowledged that bank employees “inappropriately opened” the customer accounts and that about 5,300 employees were fired over five years.
Former bank employees say they were under intense pressure to add accounts for each customer.
Abuses were found as early as 2011, Stumpf said, but bank executives only realised the scale of the problem early last year.
Stumpf told the Senate Banking Committee that customers who had bogus accounts opened in their name will be compensated for any damage to their credit rating.
He said that he told his managers to do “whatever it takes” to make customers whole, refunding fees or compensating them for damage to their credit ratings.
But customers aiming to sue the bank over bogus accounts opened in their names may be in for an unpleasant surprise: the fine print requires them to take their claims to an arbitrator instead of a court.
Mandatory arbitration rules inserted into account-opening agreements prohibit customers from joining class actions or suing the third-largest US bank in court. Instead, the agreements require individual, closed-door arbitration.
— Elizabeth Warren (@SenWarren) September 21, 2016
Democratic Senators Jeff Merkley of Oregon and Elizabeth Warren of Massachusetts called for Stumpf to quit, with Warren saying Stumpf should give back his salary and be investigated.
“You should resign. You should give back the money you took while this scam was going on, and you should be criminally investigated,” Warren said.
Earlier this month, the lender agreed to pay $190m in penalties and customer payouts to settle the case involving the creation of credit, savings and other accounts without customers’ knowledge.
About $5m will directly go to customers, many of whom might have paid a small fee on the unwanted accounts.
Criminal charges possible
The revelations are a severe blow to Wells Fargo’s reputation. During the financial crisis, the bank trumpeted itself as conservative, in contrast to its rivals.
Besides potential criminal charges against the company and its executives, Wells Fargo may face pressure from shareholders to change its practices on executive pay and governance.
The bank’s board of directors is examining what action it should take against company executives, Stumpf told the committee.
“I accept full responsibility for all unethical sales practices,” Stumpf said.
“I apologise to all of the American people and our customers, and I will make it right.”
Regulators fined Wells Fargo $185m last September for opening some two million customer deposit and credit card accounts without customer approval.