by Jeff Sovern
As we noted yesterday, on Tuesday, Wells Fargo CEO John G. Stumpf testified before the Senate Banking Committee about the Wells Fargo Customer Fraud Fiasco. Video is available here and Senator Elizabeth Warren's two rounds of questioning, by themselves, here. I have now listened to Mr. Stumpf's testimony, and I learned that Wells engaged in cross-selling to "deepen" its relationships with its customers. I am somewhat embarrassed to acknowledge that I don't know what a deep relationship means to a bank (If you will forgive a personal note, I have banked at the same institution for nearly forty years, and I currently have four accounts there–and yet I don't know if our relationship counts as deep or not. I would be surprised, though, if anyone at the bank knows my name, or could recognize me). But I got a different perspective on why Wells pursued cross-selling so aggressively from Senator Warren's interrogation, during which she observed that in quarterly phone calls with stock analysts, Mr. Stumpf had repeatedly touted the number of accounts its average customer had, a number that increased over time. Wells apparently led other banks in that number. Senator Warren also reported that Wells' stock price increased during that same period, yielding Mr. Stumpf personally a profit in the hundreds of millions, if I understood correctly (though presumably the stock price also rose because of other activities as well).
Mr. Stumpf, to his credit, took responsibility for the fiasco and also promised to make things right. But he said little about what making things right means. For example, when senators asked about Wells customers who might have had their credit scores reduced because of the phony accounts (e.g., if Wells employees requested credit reports as part of the process of opening a credit card account a consumer had not requested) which might have resulted in consumers paying higher interest rates on mortgages they later applied for, say, Mr. Stumpf was unable to say more about what would be done in such cases beyond making it right. I would have expected that Wells would be prepared to say what would make things right by now. After all, this matter became public in 2013, when the Los Angeles Times reported on it, and the CFPB, OCC, and Los Angeles City Attorney have been investigating for some time, an investigation that culminated in the largest penalty in CFPB history. But Mr. Stumpf didn't know the answer to that question.
Regular readers will recall that I hoped that a senator would ask whether Wells will waive its arbitration clauses in defending civil law suits arising from the matter. In fact, Senator Sherrod Brown asked just that–but all I learned from the answer is that Mr. Stumpf is not an attorney. He didn't know the answer to that question either. But maybe the answer has come from the cross-selling cases already brought in which Wells did not waive its arbitration clause. Sigh.