(Recasts, adds details on regulators' testimony and former
Wells executive, Sen. Warren quote, updates shares)
By Patrick Rucker and Dan Freed
Sept 20 U.S. Senate lawmakers excoriated Wells
Fargo & Co's chief on Tuesday for his oversight of the
bank as it opened 2 million bogus customer accounts, potentially
laying the groundwork for new rules and reviving questions of
whether banks are "too big to fail."
Chief Executive Officer John Stumpf told the Senate Banking
Committee on Tuesday that customers who had bogus accounts
opened in their name will be made whole and compensated for any
damage to their credit rating, but some Democratic senators
called for his resignation.
Under fire, Stumpf said he has told his managers to do
"whatever it takes" to make customers whole, refunding fees or
compensating them for damage to their credit ratings. But he
stood behind the former executive who ran the unit that oversaw
many of the practices, and at times downplayed the scope of the
In answer to a question, he declined to commit to setting
aside mandatory arbitration agreements that prohibit clients
from suing Wells Fargo. The Consumer Finance Protection Bureau
has proposed a ban on such clauses that prohibit class-action
Earlier this month, the lender agreed to pay $190 million in
penalties and customer payouts to settle the case involving the
creation of credit, savings and other accounts without
customers' knowledge. About $5 million will directly go to
customers, many of whom might have paid a small fee on the
The revelations are a severe hit 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 scandal also renewed debate over whether U.S. banks are
"too big to fail" and need closer government oversight to
prevent a massive collapse.
Lawmakers could use the fraud settlement as a springboard
for new rules on executive pay, including clawbacks of
compensation, and limits on forced arbitration.
Wells Fargo has said its board will assess whether to cancel
or claw back any incentive compensation paid to a now-retired
executive at the center of the scandal, Carrie Tolstedt.
Democratic Senators Jeff Merkley of Oregon and Elizabeth
Warren of Massachusetts called for Stumpf to resign, with Warren
saying Stumpf should give back his salary and be criminally
"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.
The bank's board of directors is examining what action it
should take against company executives, Stumpf told the
"I accept full responsibility for all unethical sales
practices," Stumpf said, adding later, "I apologize to all of
the American people and our customers, and I will make it
Lawmakers said the phony bank accounts might have hurt
customer credit ratings, increased the cost of a mortgage or car
loan. New credit card applications and consumer borrowing trends
can weight on an individual's credit.
"WHERE WAS MANAGEMENT?"
Wells Fargo has acknowledged 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 realized the scale of the problem early last
At that time, Stumpf said, managers came to recognize how a
pattern of creating phony accounts could be used to boost
"It never dawned on us that there could be a cycle," the CEO
"It just sort of begs the issue of where was management,"
said Senator Sherrod Brown of Ohio, the senior Democrat on the
Brown said employees were caught "forging signatures, and
stealing identities, Social Security numbers, and customers'
hard-earned cash, so as to hang on to their low-paying jobs and
make money for the high-paying executives at Wells Fargo."
Thomas Curry, the Comptroller of the Currency, said the
agency is considering action against individual Wells Fargo
executives who may have violated laws or regulations.
The U.S. Attorney's Offices in Manhattan and in San
Francisco are investigating Wells Fargo, a person familiar with
the matter said last week.
While Democratic lawmakers were the most outspoken in their
attacks, Republicans also grilled Stumpf.
Louisiana Senator David Vitter pressed the CEO on how
customer fraud could persist for years and thousands of
employees could be fired before the head of the bank got
"Why isn't this crystal clear proof that an entity as big as
Wells is not only too big to fail but it's too big to manage and
too big to regulate?" Vitter asked.
Stumpf said the widespread abuse was "a problem of focus and
not of size."
Stumpf appeared before the congressional panel with a
bandaged right hand. He suffered an injury playing with his
grandchildren, according to the bank.
Wells Fargo shares rose 2 percent to $46.94.
(Reporting by Patrick Rucker in Washington and Dan Freed in New
York; Writing by Nick Zieminski; Editing by Linda Stern and