Front-page stories in Tuesday’s New York Times, Wall Street Journal, and Los Angeles Times revealed that Wells Fargo’s board would be slashing $75 million in compensation from two former top executives whom it blamed for the bank’s scandal over fraudulent accounts. But missing from these three papers’ stories—and from similar stories in other major print and broadcast news outlets—was the feisty group of bank employees that initially exposed the wrongdoing: the Committee for Better Banks.
A report issued Monday by a four-person committee of Wells Fargo’s board determined that John G. Stumpf (the former CEO) and Carrie L. Tolstedt (the former head of community banking)—both of whom were ousted last year—were primarily responsible for pressuring low-level employees to create and foist two million unwanted bank and credit card accounts on unsuspecting customers. To penalize the two former executives, it demanded a “clawback”—the forced return of pay and stock grants—that industry watchers say is the largest in banking history and one of the biggest ever in corporate America.
The bank’s crackdown on Stump and Tolstedt was triggered by embarrassing media reports and government investigations into Wells Fargo’s sales-goal practices. Those practices first came to light in 2013, when bank employees—most of them tellers and call center employees who assist customers with their personal or business banking needs—shared their concerns with the media, government regulatory agencies, and members of Congress.
The employees were brought together by the Committee for Better Banks (CBB), an advocacy group supported by the Communication Workers of America. The CBB works in tandem with community organizing groups like the Alliance of Californians for Community Empowerment, New York Communities for Change, and Minnesotans for Fair Economy, that for over a decade have challenged Wells Fargo’s predatory lending and foreclosure practices, particularly in low-income and minority communities. By joining forces, the CBB and the other groups helped the bank’s employees and consumers find common ground.
The Los Angeles Times broke the story in 2013 after talking with Wells Fargo workers affiliated with CBB. The Times exposed widespread complaints about fake accounts and high-pressure sales quotas at Wells Fargo. It reported that low-level employees—who earned between $10 and $12 an hour—feared for their jobs if they didn’t make strict quotas for opening new customer accounts. To meet these quotas, the Times reported, the employees opened unneeded accounts for customers and forged clients’ signatures.
Wells Fargo employees called the banks’ practice “sandbagging” and a “sell or die” quota system.
After the Times exposed the bank’s practices, Los Angeles City Attorney Michael Feuer conducted his own investigation and then sued Wells Fargo, saying the bank’s sales goals had encouraged “unfair, unlawful, and fraudulent conduct.” Wells Fargo executives denied Feuer’s allegations.
At the time, the CBB activists had three demands. They wanted Wells Fargo to stop pressuring employees to meet the strict sales goals, to raise hourly wages for front-line workers and thereby share more in company profits, and to provide them with stable, secure jobs.
Instead, once the scandal hit the media, Wells Fargo fired 5,300 low-level employees for creating as many as two million unwanted bank and credit card accounts.
But CBB persisted in drawing attention to the issue. In April 2015, the group delivered a petition signed by more than 11,000 people to Stumpf, then Wells Fargo’s CEO, at the bank’s annual shareholder meeting. The group also sent Stumpf 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 CBB also launched a 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 said that these incentive programs create a system where bank workers are forced to engage in predatory practices against their professional and ethical beliefs.
With CBB’s support, bank workers, and community allies staged protests at Wells Fargo offices in Los Angeles and Minneapolis.
CBB also worked with the National Employment Law Project (NELP), a nonprofit research and policy group, to release a report, Banking on the Hard Sell, in June 2016 that revealed that while Wells Fargo provided the most flagrant example, the practice of pressuring bank employees to open unwanted accounts for customers in order to meet strict sales goals was widespread throughout the industry. The banks’ practices force low-level employees to choose between keeping their jobs and the wellbeing of their customers, the report said.
About 1.7 million people work in retail banking, the NELP report noted, and almost half are either bank tellers or customer service workers. Bank tellers, the single largest occupation within this category, have a median hourly wage of $12.44, according to the report.
One CBB member—Ruth Landaverde, a former employee at both Wells Fargo and Bank of America—told the media that pressure from her supervisors at both banks was so intense that she developed a tic in her eye and had trouble sleeping. She said 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 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,” she explained. “What’s worse, we were targeting customers in low-income communities of color much more than the customers in more affluent zip codes.”
All this got the attention of members of Congress and the Consumer Financial Protection Bureau (CFPB), the federal agency created in 2010 as part of the Dodd-Frank bank reform law. Last September, CFPB Director Richard Cordray, Comptroller of the Currency Thomas Curry, and Feurer (the LA City Attorney) announced that they had reached settlements with Wells Fargo over its “a 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. 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.
Last month, Wells Fargo also agreed to pay $110 million to settle a class-action lawsuit filed two years ago over the unauthorized accounts. But the plaintiffs’ lawyers said that their clients haven’t accepted the bank’s offer and hope to get a better one.
CBB activists pointed out that the fines being levied against Wells Fargo, and the settlements the bank has agreed to, are a drop in the bucket compared with Wells Fargo’s 2015 profits of $20 billion. It amounted to less than the more than $200 million in company stock that Stumpf owned. In 2015, Wells Fargo—the nation’s fourth-largest bank by assets and its leading home lender—paid Stumpf $19.3 million. He also served on the board of directors of Target Corporation and Chevron Corporation and, until recently, on the board of the Financial Services Roundtable, a powerful industry lobby group.
The turning point in the Wells Fargo controversy—which forced the bank’s board to do a more thorough investigation of its top executives—was Stumpf’s appearance before the Senate Banking Committee last September, where he was grilled by Senator Elizabeth Warren of Massachusetts and other angry lawmakers about the bank’s abuse of its low-level employees and its rip-off of its customers.
Warren told Stumpf, “You should resign. … You should be criminally investigated.”
Warren also demanded both the Department of Justice and Securities and Exchange Commission criminally investigate Stumpf for the bank’s high-pressure sales practices. She noted 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.
Warren questioned Stumpf about the fraudulent accounts, asking how such an operation could have occurred without the knowledge of top management.
A few weeks after that Senate hearing, the Wells Fargo board fired Stumpf and replaced him as CEO with Tim Sloan, a long-time Wells executive.
Sloan quickly acknowledged that Wells Fargo had made serious mistakes regarding the phony accounts scandal, including placing too much of the blame on branch employees. “We failed to acknowledge the role leadership played and, as a result, many felt we blamed our team members,” Sloan told an audience of 1,200 Wells Fargo employees at the Knight Theater in Charlotte last October. “That one still hurts, and I am committed to rectifying it.” He said that the bank has ended the aggressive sales goals that led its employees to create the phony accounts, and pledged to rehire some rank-and-file employees who were fired for creating those accounts, though it’s unclear how many.
But Sloan’s appointment did little to mollify critics, given his central management role during more than a decade of consumer and community complaints. In 2015, Sloan was promoted to Chief Operating Officer, a post that made him the executive responsible for Wells Fargo’s Community Bank and Consumer Lending divisions—ground zero in the scandal. Among other duties, Sloan was in charge of supervising Tolstedt, who ran Wells Fargo’s community-banking division at the center of the current firestorm.
“Getting an apology when the company is backed into a corner doesn’t fix how Wells Fargo’s predatory, high-pressure sales goals hurt millions of working people and their customers,” said Erin Mahoney, a spokesperson for CBB said after the bank put Sloan in charge. “If Sloan really wants to rebuild trust within the company, he should start paying frontline workers a fair wage and working with them to collaboratively to improve working conditions and serve the best interests of employees and customers.”
Representative Maxine Waters, the ranking Democrat on the House Financial Services Committee, agreed.
“I remain concerned that incoming CEO Tim Sloan is also culpable in the recent scandal, serving in a central role in the chain of command that ought to have stopped this misconduct from happening,” she said last year.
Paulina Gonzalez, executive director of the California Reinvestment Coalition, a consumer watchdog group, also singled Sloan out for special criticism. There are “a lot of unanswered questions as to when and what Tim Sloan knew about these fraudulent consumer accounts,” she said. Gonzalez called on the new CEO to help mend public trust by ending Wells Fargo’s practice of forcing former employees and fraud victims into arbitration to get their grievances resolved.
The ongoing controversy forced the Wells Fargo board to do a more thorough review of the company’s corporate culture and practices. It appointed a four-person committee, led by Stephen W. Sanger, the board’s chairman, that hired the law firm Shearman & Sterling to conduct an investigation. The firm interviewed 100 current and former employees and reviewed 35 million documents.
According to that 113-page report, bank executives “resisted and impeded outside scrutiny or oversight and, when forced to report, minimized the scale and nature of the problem.”
The report downplayed the role of Sloan, claiming that he had “little contact with sales practice matters,” even though he oversaw the Community Banking division.
On Monday, in the wake of the report, Sloan acknowledged: “In hindsight, I wish we would have taken more action and done things more quickly.”
Wells Fargo’s top executives ignored warning signs going back as far as 2004, the Shearman & Sterling report noted. Tolstedt, who ran bank’s extensive network of branches, set up ruthless sales goals that even she acknowledged were unreachable. Customers weren’t putting money into their new accounts, indicating that they were unaware that the accounts even existed. Wells Fargo’s regional managers implored their bosses to drop sales goals, pointing out that they were unrealistic and bad for customers. In at least two regions—Arizona and Los Angeles—bank managers told low-level employees to sell people accounts to customers even if they did not need them.
Stumpf, who was warned as early as 2012 about the many complaints about the bank’s sales practices, turned a blind eye to Tolstedt’s practices, the report said. Even after The Los Angeles Times first exposed these practices, Stumpf and other top bank executives failed to take action.
Last Friday, Institutional Shareholder Services, which advises big investment firms about corporate governance issues, recommended that Wells Fargo’s shareholders oppose the re-election of 12 of the bank’s 15 board members, including chairman Sanger, at the bank’s upcoming annual meeting.
The Shearman & Sterling report “details egregious criminal conduct and widespread knowledge of it going all the way back to 2002,” Dennis Kelleher, chief executive of banking advocacy group Better Markets, told The Los Angeles Times. He called the report a whitewash designed to protect the board and Sloan. “The level of willful blindness required for this kind of criminal practice to continue year after year is simply not credible,” Kelleher said.
In the report, Shearman & Sterling said it did not find “a pattern of retaliation” against employees who complained about the sales quotas. But that finding is contradicted by the experiences of many Wells Fargo employees, as well as by a ruling this month by the federal Occupational Safety and Health Administration that found that in 2010 the bank improperly fired a manager after he reported potential fraud to Wells Fargo’s in-house ethics hotline. OSHA ordered the bank to rehire the manager and pay him $5.4 million in back pay, damages and legal fees, according to The Los Angeles Times.
Also missing from the report was any mention of the key role that the Committee for Better Banks played in bringing Wells Fargo’s abuses to light. The next day’s news stories focused on the company’s misdeeds, and its announcement about the money that Stumpf and Tolstedt will have to surrender, but ignored the group that exposed the scandal in the first place.
“My colleagues and I at Wells Fargo joined the Committee for Better Banks and worked hard to shine a spotlight on the high-pressure sales tactics that caused a tremendous amount of stress on workers and led to two million fraudulent accounts,” Andy Guevara, a Wells Fargo employee from Texas, told me. “Yet when Wells Fargo has sought to remedy the problems brought on by high pressure cross-selling and sales goals, it has utilized the same top-down decision-making. Once again, workers are disregarded and ignored by Wells Fargo.”
So far, only 1,000 of the 5,300 employees that Wells Fargo fired have been rehired, according to the CBB.
“Wells Fargo should hire back the workers they made scapegoats for their scandal,” said CBB’s Erin Mahoney in an interview. “And they should go further to make sure all Wells workers have a voice on the job and in the sales policies now and going forward.”
The CBB also wants the Department of Justice to bring criminal charges against the banks and its top executives rather than agree to financial settlements.
On April 25, CBB and other groups will be protesting at the Wells Fargo shareholder meeting and at the bank’s local branches around the country. Since activists shut down its shareholder meeting in 2012, the bank has gone to great lengths to hold subsequent meetings in out-of-the way places. This year’s event will be at the Sawgrass Marriott Ponte Vedra Beach, a golf resort on an island off the coast of Jacksonville, Florida. But activists intend to be there. “They can run but they can’t hide,” said Saqib Bhatti, a leader of Forgo Wells, the coalition sponsoring the protests. In addition to focusing on the abuses of its employees, the activists accuse the bank of “stripping wealth from our communities,” including “engaging in discriminatory lending, profiting from private prisons and immigrant detention centers, funding payday lenders, financing the Dakota Access Pipeline, supporting police foundations, and selling predatory municipal finance deals to our cities, states, and school districts.”
Ironically, the Wells Fargo scandal is front-page news just as the Trump administration is seeking to dismantle nearly all of the Dodd-Frank bank reforms, including elimination of the Consumer Finance Protection Bureau.
This article has been updated.