fargo built and refined incentive compensation program and implemented sales goals to boost cross-selling of products but did so in a way that made it possible for employees to pursue unfair and abusive sales practices. i have a question for you. do we really believe that 5300 people applied with wells fargo over the years intending and expecting and wanting that they were going to go into the bank and abuse consumers' trust and open phony accounts in their name. no, it was the wells fargo culture that made that happen. it appears the bank did not monitor the program carefully allowing thousands to gain the system and inflate sales figures and claim higher bonuses under extreme pressure. rather than put its customers first wells fargo built and sustained cross-selling program where bank and many employees served themselves instead violating banking ethics of banking institution including key norm of trust. our order accomplishes several things. first, the details in the order that are the result of

our investigation expose wells fargo's illegal misconduct including its scale for all to see for themselves. it spawned vigorous public scrutiny over the past two weeks that no doubt will continue. second, many asked me time to time, what does the term abusive mean in our governing statute. we've been careful studying ramifications of that trm we did not hesitate to apply it emphatically to what we found here. in this matter wells fargo engaged in abusive conduct toward its customers and consumers. we have said so and executives, shareholders and investors throughout the financial system will now have to consider that wha that means in their own efforts to address cultures and practices going forward. third, we have ensured all consumers who suffered financial harm as a result of these practices will be fully compensated for that harm. wells fargo required to set aside $5 million to cover all of that. if it turns out to exceed $5 million and appears we're going back further years, the bank

will cover that as well. fourth, we find wells fargo $100 million, the largest fine that the consumer bureau has imposed on any financial company to date. that is a dramatic amount compared to actual financial harm to consumer but it is justified here by outrageous and abusive nature of these fraudulent practices on such an enormous scale. some have said maybe this is not enough. some said it's too much. as for whether we've done enough, the order is generating considerable consequences, market effects, shareholder activity, further lawsuits and follow-up investigations by other public officials that may be either civil or criminal in nature. fifth, the order requires independent consultants to be installed at wells fargo to ensure all consumers are fully compensated and changes in sales practices fully implemented so this does not occur. board of directors will be directly engaged in this work. if independent consultants identify further issues and keshs, and they may, we will

address those as well. let me conclude with some more general concerns. as one of the biggest and best known banks in the united states, wells fargo is in a position to lead by example in terms of how every bank should treat its customers. in the wake of this order it now must do so. much bank growth occurs by cross-selling customers and products an services. there's a right way to do that, lead bank to focus on strong customer service that produces high levels of customer satisfaction which in turn generates repeat business from existing customers and positive word of mouth to others. there's also a wrong way to do that. as we've seen here, unchecked incentives and unrealistic and uncaring culture of high pressure sales can lead to harm. incentive compensation structures common in business and can motivate positive behavior. companies need to pay close attention to compliance monitoring in order to prevent violations of the law and abusive practices. this action should serve now to the entire industry.

if they threaten harm to consumers and lead to violations of the law, then banks and other if anything companies will be held accountable. we've seen the risk such programs impose across the entire financial sector, debt collection, credit card add-on products and now here and we will continue to take action to protect consumers. thank you again to our partners here at this table. i'm proud of our team and their teams who work with us on this important enforcement action and i'm happy to answer your questions. >> mr. clark, i'll start with you. l.a. city attorney efforts very important here. >> thank you. >> i applaud your efforts on this case by, as you said, engaging in good old-fashioned detective work. i just want to clarify the facts as i understand them and from the record for your written testimony. correct me if i'm wrong. >> i will. >> a dozen or so attorneys in your office, l.a. city attorneys office, without subpoena power, conducted numerous interviews

with former wells fargo employees, met with aggrieved victims, poured over public records including voluminous court records from wrongful termination lawsuits searching for victims to uncover fraud. is that correct? >> yes, it is, mr. chair. >> other than accessing the cfpb's consumer complaint database, first capital with cfpb are occ office comptroller currency did not come until after your lawsuit was filed in may of 2015. was that correct? >> that is correct. >> mr. cordray, the cfpb's efforts, in your written testimony, sir, you state that wells fargo opened over 1.5 million deposit accounts that may not have been authorized. that's a lot of accounts. >> that's the facts we found through our investigation. >> is that number based on pwc pricewaterhousecoopers analysis? >> it's based on our

investigation and internal documents wells fargo provided that confirmed and were consistent with what we found through our investigation. >> in your written testimony you stated wells fargo initiated applications for over 500,000 credit card accounts that may not have been authorized. does that come from internal analysis. >> staggering numbers we found in our investigation included civil investigative demands, amounts of documents from wells fargo, investigative testimony and working with our partners here and their staffs to uncover as much as we could. >> also in your prynne testimony you describe your engagement with los angeles city attorneys office and you just a few minutes ago did as partnership. prior to filing the city lawsuit in may 2015, did cfpb personnel accompany mr. clark's investigators as they did the following, conducted numerous

interviews with wells fargo employees, met with aggrieved victims, poured over public records including court records from wrongful termination lawsuits by wells fargo. did they? >> these investigations merged over time what work we were doing, work the occ was doing. >> they initiated the investigation, did they not? >> they investigated -- they initiated their investigation. we initiated our own efforts. >> after they -- >> no, we first heard about these problems in mid 2013 through whistleblower tips. "l. a. times" investigative series confirmed there were issues in this industry. there were different kinds of issues and we were looking at financial incentive programs on a number of front. we were dealing with credit card add on deceptive marketing,s which got back billions for kurmts. we were looking at debt collection, largest enforcement action by debt sellers. >> wells fargo and other banks. >> we've been looking at these

problems in all of the banks and nonbank financial companies. believe me, there has been a lot of problems to look at and deal with. this is a fairly major one. credit card add on led to billions in relief for consumers. >> anything that the bureau has learned from working -- the work the l.a. city attorneys office did? have you learned anything there? >> i think we learned from their investigation and they learned from our investigation. they were able to take -- i don't want to speak too much what other people did, and i don't know it matters. we don't sit around as partners and think about what percentage we should allocate, we're looking for what's best for consumers. we did that here. occ conducted parts of the a investigation. we conducted various parts of the investigation. we've been able to take this and turn it into nationwide relief for consumers which the l.a. city attorneys office is unable

to do under california law. and we and the occ going forward will be active and working to clean it up here and across the industry. let me say something specific here about whistleblower tips. we are getting a large and increasing number of whistleblower tips all the time. when a bank like wells fargo here does not come forward quickly with the problem they recognize as occurring at their bank, they should not assume we're not hearing about it from employees or customers or others. we probably are. it makes sense for them to come forward more quickly and to self-report. that was not done here. it was late contact for wells fargo on this problem as i see it. >> thank you. senator brown. >> thank you, mr. chairman. thank you all for being here and public service all of you. following up on the self-report, mr. cordray, are banks required to report to you when they uncover fraud against customers in their own banks? >> we think it is by far the

best practice and i know the comp controller would see eye to eye. we shouldn't expe-- they have t to do that themselves. >> no legal requirement. >> no legal requirement for them to report a crime but they are in more trouble when they don't. >> for all three of you, mr. curry your testimony states your company started to receive complaints about improper sales practices in early 2012. mr. cordray, your letter says your agency first learned about this whistleblowers in mid 2013. you both heard mr. stumpf's answer to my question, i assume you were watching. you both heard mr. stumpf's answer to my question about when he learned. what does that say about the bank's governance and priorities plrks curry, if you would start

with that. >> sure. our supervisory activity really has focused historically and this goes back to 2012 really on the adequacy of operational risk and compliance risk management systems. there have been -- as our win testimony indicates there have been issues with sufficiency of those systems and those controls. this has been an ongoing issue. i think sales practice issues under covered by agencies represented at this table are a manifestation of overall weaknesses in risk management, particularly in the compliance area. >> i remember a discussion we had soon, i believe, after you took this position about the importance of a risk officer in a bank and the role they should play. you pointed out some do it better than others. mr. curry as part of occ supervisory activities began in 2013, you would have been

meeting with executives and my understanding meet regularly with the bank's board. correct? >> our teams meet regularly with management and boards of director, particularly independent members of the board. >> those, not mr. stump. >> independent employees. >> we just checked, employee compensation ranges from high 290s up into the 400,000 a year, again, looking -- making the contrast of the 90% of the employees who lost their jobs through various reasons but acts they committed were not managers, were making under 35 or $40,000 a year. does it strain credibility that neither the board nor mr. stumpf really knew this was going on as

it sounded like for the it will today? >> i don't know. i have personal knowledge what they knew or didn't know, but i think our focus is making sure they have structures in place that facilitate the flow of important information about deficiencies and complaint processing structure or in term of escalating issues that arise in compliance function or ordinary business of the bank. >> i think i found it particularly telling, and mr. clark i'd like your comments on this whole area, telling that mr. stumpf said he met pretty much weekly, sometimes more often, with miss tolstedt and these issues apparently never came up until he learned about them in 2013, in part from three regulators. mr. clark, your thoughts? or three government agencies. mr. clark. >> we don't know precisely senator brown what they knew and when they knew it.

i think as a longtime trial lawyer one can draw inferences like courts and lawyers do. it's difficult to believe based on the information we developed in our investigation both before and after we filed our complaint that their knowledge of this debate extend far beyond ree regional manager level. >> two more questions, mr. curry and cordray. your agencies have authority to make criminal referrals. you've done so in this case. is there anything you can tell us about your actions this way? both answer that and then i have another question. >> basically we cooperate with criminal law enforcement. our supervisory duties, look at civil enforcement remedies we have at our disposal, personal cease and desist, civil money penalties against individuals or removal of prohibition from banking which would prohibit someone from serving in any capacity at the bank. that process is ongoing now.

>> mr. cordray. >> i've been told i should not publicly acknowledge whether we've made criminal referrals or not. i think about this question. there's something i think i can do without getting in trouble, statute 12 usc 6566. if the bureau obtains evidence that any person domestic or foreign is engaged in conduct that may violate federal criminal law shall transmit to federal attorney general of the united states. we follow that statute to the letter. >> mr. cordray, last question. i mentioned a group of wells fargo customers sought compensation for fraudulent accounts in 2013 even before "l. a. times" series was published. rather than accepting responsibility, wells fargo forced them into arbitration effectively preventing them from being made hole. how would cfpb's arbitration rule helped wells customers in that case? >> you know, i'm not familiar

with all the lawsuits but my understanding is that these financial products did carry an arbitration clause. when that happens, as happened here, when there's massive wrongdoing on a wide scale but small amounts of harm to individual consumers, it would be very difficult to get any relief other than through a class action. yet i believe in arbitration clause here which might defeat a class action. i think that's going to be litigated here and courts will decide it. they have often decided it bars relief on an individual scale through a class action mechanism. >> thank you. >> senator reid. >> thank you very much, mr. trump. thank you, gentlemen. mr. clark, you and your colleague, looking back when you filed your complaint were you anticipating extended litigation or was wells fargo cooperate in the very beginning without recognizing this problem and

settling. >> it was interesting, senator, the initial response we filed, they said something to the effect we don't give our customers any accounts or services or products they don't need. they didn't say in response to our complaint we didn't give wells fargo customers anything they didn't ask for. it was pretty telling to us. we negotiated with wells over a period of time, ultimately joined by our partners here as far as negotiations complaint. but at the end i think they cooperated -- in the sense we ended up with what we believed to be a robust series of reforms. the largest penalty in the history of our office. and because of the cooperation and working together with the other agencies here, those are forms and practices nationwide. >> with respect to the negotiations, would you -- is your view that the added weight of occ and cfpb made a decisive difference in terms of the outcome as well as the speed? >> i can't be sure of that,

senator, but i really believe that to be the case. >> thank you. one other aspect of your testimony. you said wells fargo made it difficult if not impossible for customer toss receive accurate and clear information as to how accounts had been opened up and a consent which suggests to me at least it wasn't just the individual, quote, bad apple but it was larger than that. was it your sense there was some type of either deliberate or negligent sort of treatment of customers that contributed to this and is liable at the company level? >> yes, i do, senator, in this sense. customers go into wells fargo branches but ask about accounts, got their statements either electronically or in paper, couldn't figure out what was doing on and couldn't get clear answers. because the practices were improper in our view, most employees in the experience of our witnesses were not willing to come forward and they didn't

really give them honest answers. sometimes as i said in my oral testimony here, accounts were asked to be closed. they were supposed to be closed and they weren't closed. >> thank you. mr. curry, you point out that, you know, culture is key in any organization. i think that's obvious. it seems that for years the culture at wells fargo was profit rather than customer satisfaction and customer service. do you think that's changed, or is that an accurate view of what's happening recently? >> i think this episode indicates how important it is, uncomfortable. i think what we're looking for as a supervisor is to make sure that the institutions have a full understanding of the importance of culture, the reputational risks and financial consequences that can flow when you lose that reputation or engage in activity that calls

into question the culture of the institution. again, our focus is making sure that they have the appropriate oversight structure incentives, incentive programs, compensation programs are something we look at closely in our heightened standards program because it does guide and dictate the culture of the institution. >> one of the impressions that emerges, i think, not just myself but across a wide spectrum of opinion is that the company might have been whispering about ethical standards and treating the customer right but they were shouting about this is the way you make money, sell more of these. is that fair? >> possible, yes. >> director cordray, the cfpb has been engaged in this effort. again, with your partnership i think done an outstanding job.

protection of consumer wars are something you are expert in. working with the comptroller, working with the city of los angeles, you brought special expertise. can you describe the special expertise you brought to the issue? >> yeah. i think we all bring a different expertise to this. the los angeles city attorneys office is working purely from an enforcement perspective. they brought a lawsuit. they are familiar with local conditions, which is tremendously valuable as we partner across the country off with state attorneys general or state banking regulators, in some cases with local officials who are forward on consumer leaning issues like l.a. city attorneys office. the occ brings knowledge of safety and soundness. under this comptroller i will say continuing focus on consumer appliance and how safety and

soundness effects consumer, which has been a point of collaboration with the bureau. i think what we bring is unique ability to engage in not only supervisory but also enforcement activity and we do both frequently. the fact we have separate laws we can enforce here including identifying abusive practices, which is a loan and authority granted to this agency. also bring a consumer focus perspective and market analysis and expertise and the ability to use our cid power aggressively even outside the scope of a lawsuit in order to get information and process that information. i think we brought those tools to the table, each of these other teams brought their tools to the table. together it makes for a strong result. if you look back at enforcement over five years, many of them have been done with partners. many of them i can tell you almost all of them have been

more effective for doing that. sometimes it takes a little longer because working back and forth with other offices takes certain procedures and other things to get into place, but it is always the best answer if we can do it well and people did it well here. >> thank you very much. >> thank you all for your service and the work you've done here. director cordray, the subject of today's hearing is in my mind the ultimate affirmation of your agency and its employees. in the wake of the 2008/2009 financial crisis when unfair and abusive practices ran rampant in the industry, i know as a member of the committee at the time, one of the things i wanted to ensure we did in wall street reform legislation and to fight tooth and nail to get it is to empower a cop on the beat. so that would be on the side of consumers fl i must say you as a director and your bureau and

agency have lived up to every bit of those expectation frs my point of view. now, i hope to use this as a teaching moment for some of my colleagues that aren't aware of bureau's latest list of accomplishments. i point out since 2011 the bureau has recovered and sent back nearly $12 billion to 27 million consumers harmed by illegal practices of credit card companies, banks, debt collectors, mortgage lenders and others. $12 billion to 27 million consumers. it's amazing despite all of those accomplishments my republican colleagues are hell bent on killing this agency, just three legislative days after the announcement of the settlement of wells fargo one of my republican colleagues introduced and the majority leader, senator mcconnell fast

tracked a bill that would fundamentally alter the funding mechanism for the bureau and subject it to the annual appropriation process. so in view of that, can you tell me, director, what would it mean to be subject to annual appropriation process vis-a-vis the work you do. >> let me start in a general sense. what we can see here is a big job to be done, the culture of the banks. it doesn't happen overnight, robo mortgage scandal, mortgage origination scandals that led to the financial crisis. it will take considerable time for us to root out all of these things in the financial institutions, banks as well as nonbanks. if we can remain on the job, continue to exert our authorities in matters like this, continue to work with our partners across the country we will continue to make progress.

>> i appreciate that. >> the annual appropriation process. >> it would compromise our independence and make it harder for us to do our job. >> if the bill were to become law, and trust me when i tell you we won't let it, how might it undermine bureau's efforts to protect consumers from unfair and deceptive and abusive practices. >> again, anything attempting or seeking, and some of these efforts are, to compromise our independence will make it harder to do our job. >> let me ask all three of you, do any of you disagree -- and if so, please explain to me why -- in essence at wells fargo what we had was a pressure cooker environment with perverse incentives and a culture that ultimately led to the type of wrongdoing that took place. does anybody disagree with that? >> not at all. they sent mixed messages at best if they counter veiled that culture at all. >> mr. curry, let me ask you, do

you believe that you, meaning the controllers office, should have been notified earlier than what you were notified by wells fargo? >> i think it's critically important that the open and frank disclosure of relevant information by a bank with our examiners, it's not entirely clear at what point that occurred here. >> is it fair to say this is a material -- what happened here is a material event as it relates to -- >> there's always difficulty when you try to define a term like material, depending on the context. i would say from the occ standpoint on the facts of this particular case, the fact that 5 5,300 employees were terminated was material and 2 million accounts involved, that would be material. >> let me ask you, did you.

>> go ahead. >> there was something in the earlier testimony that bothered me, acknowledgement the bank alerted occ in 2013 but did not alert ofcb until 2013. we had known about these types of problems from our own sources. but if any institution feels they can divide and conquer among the regulators, they should know that is a mistake. >> let me ask you this, how widespread is cross-selling at least in the perverse way it took place at wells fargo. do you have a sense it's a one off or industrywide concern. >> i think our view is and i mentioned this in my testimony, what we generally look at incentive compensation at an institution in general with what we've seen here at wells fargo, i've directed to do horizontal reviews, so we will be looking specifically at sales practices at our largest banks.

>> agree with the comptroller on that doing action with that. incentive compensation we've seen across marketa broad issue. cross-selling wells fargo bank was the industry leader in aggressively cross-selling products which led in part to the extreme circumstances we find here. but to the extent others are engaged in it, you should be focused on customer satisfaction not bare numbers and monitoring systems should be put in place. one thing i agree with the comptroller we're all going back on this to make sure what we can do to make sure the culture is changing at these banks. we need to do some rethinking our selves and, as always, learn from new events. >> lastly to mr. curry and they be mr. clark, in reading the occ's consent order, i'm struck by the group of orders attempting to remedy what appears to be a lock standing

gross deficiency in the bank's risk management governance and oversight protocols. for an institution with $1.85 trillion in total consolidated assets i'm incredibly concerned about the bank's ability to identify and manage risks across its various lines of business. at what point do you think wells fargo executives should have been aware of these deficiencies. how far back do you think these risk management deficiencies go? separately for you and mr. clark. i'd like to hear your answer. i read with interest the complaint your office filed where you said -- the complaint said managers consistently hound, did he mean,by rate employees to reach unreachable quotas. where you talked about wells fargo gaming targeting officials holding cards, i assume when you

made those assertions they were based on factual evidence you discovered in the course of your investigation. mr. curry, could you speak to what i asked you? and mr. clark, could you? >> i think our testimony which discusses our supervisory history demonstrates there has been a significant period where we've identified weaknesses and their operational risk and compliance risk management. what we've attempted to do with wells fargo is really to address those weaknesses that have been identified through matters requiring attention. that was escalated after we conducted our heightened standards review, the compliance plan, enforceable requirement under our safety guidelines. and ultimately the weaknesses we saw in their safety and soundness program resulted in the enforcement order that we

had. that is a significant, major tool at our disposal for institutional weaknesses and their programs. >> senator menendez, let me answer your second question first. we based our allegations on 16 months worth of work, public documents, witness interviews, former employees, every source we could come to lacking preindictment -- prefiling subpoena power. as to how we could have known, some of the documents we looked at were wrongful termination lawsuits. they described this kind of conduct, for example, in st. helena, part of our napa valley wine country as early as 2009. >> senator warren. >> thank you, mr. chairman. so buried in the fine print of wells fargo's checking and credit card contracts is a forced arbitration clause. it says if a customer has any dispute with a bank about anything related to that checking account or that credit card, then they have to -- they

cannot go to court and they cannot join with other customers who have the same problem. instead they have to go one by one through arbitration. now, a feature of arbitration that the banks particularly love is that it's nearly always all secret. filings and documents aren't available. even if the customer wins, there's no public record of it like there would be if we were in a court case. director cordray, do you think forced arbitration clauses make it easier for big banks to cover up patterns of abusive conduct including the years of misconduct by wells fargo in this case? >> i do think so, yes. >> so in other words these forced arbitration clauses make it easier for wells to get away with scamming their customers, which is why it is good news for customers that cfpb has proposed

strong new rules that would ban forced arbitration clauses that permit customers from joining together to bring a public action in court. i think this is just one more way. we're talking here about the cfpb's enforcement division, which i'm very glad we're doing and that's powerfully important. but you get better rules in place and this kind of fraud gets exposed much earlier. if we had had class actions on this back in 2010, 2009, 2008, the problem would have never gotten out of hand. i think that's really important. please. >> there's another sort of somewhat related indicator here that shows you the focus on these things. one of the first things that wells fargo did in the l.a. city action that was brought was aggressively seek a protective order to keep the proceedings as much as possible from public view. >> that's right. trying to keep it all secret and

that's what the arbitration clause does they put in these contracts. everything out of public view for as long as humanly possible. you know, i also want to hit another point about how you make structural change. i think that's so important here. mr. clark, i want to thank you for your testimony today and for the great work that your office has under taken in this case. >> thank you, senator. >> one of the really powerful things that the cfpb has done is create a new complaint hot line, which allows customers to register complaints against any financial product. we'll just put in the record, go to cfpb.gov and file a complaint online, right? anyone can do this. since its inception, the agency has fielded nearly a million complaints. is that right, director cordray? >> a million later this week. >> we're almost there.

we'll have to mark the occasion. >> i think thursday. >> one of the best parts about this not just you fielded the complaints, it's that you made them public and you made them searchable online. and that allows everyone from researchers to academics to law enforcement authorities to the banks themselves to be able to spot growing problems and to address them. mr. clark, i wanted to ask, in the process of conducting your investigation into wells fargo, did you use the cfpb's complaint database? >> yes, we did. >> and it was helpful to you. >> very helpful as was the ftb's sentinel database. >> i'm very glad to hear that. this is another way the consumer agencies is protecting customers and holding banks accountable. it's bringing a lot more transparency to the market, which helps identify banks that

are consistently harming their customers. just as important, it rewards the banks they are doing a good job for their customers. there must be a lot of community bank presidents who are standing by watching this hearing saying we don't engage in this type of behavior. you won't find those kind of complaints against us in the cfpb database, move accounts over where you can actually trust your banker. in light of all of the great cfpb work in investigating this case and everyone working together on this, from the arbitration rule to the complaint database, to stop this kind of scam from happening again, because that's the part we really want to make sure we focus on, i think you're sending a very loud message to the banks that -- and a loud message to my republican colleagues to continue to attack the agency. wells fargo may wish that the

cfpb would disappear, and some republicans may keep trying to leash up this watchdog, but that's not going to happen. thank you. thank you, mr. chairman. >> thank you. senator. >> thank you. earlier i mentioned several of the features that came out of interviews with employees of the high pressure environment, employees who were given daily quotas for, quote, daily solutions, that is sales of accounts, that they had to stay late or come in on weekends if they didn't meet them, high pressure sales meetings, bonuses that were tied to meeting those threats of being put on probation or being fired because they did not meet those quotas. in some cases managers conducting coaching sessions on how to meet the quotas through these accounts. regional sales meetings on an hourly basis to keep checking in. this whole structure that was

established in the wells fargo culture of how to do intensive cross sales, was this a high pressure sales culture for people who were the personal bankers and tellers? just each of your opinions on that. >> yes. i think that's really what we were addressing in our supervisely letter in june 2015. those were all deficiencies. >> thank you. do both of you agree with that? >> if i can elaborate, it was excruciatingly high pressure in some settings. when you hear it takes time to untangle conflicting accounts. there were different pieces, different angles on it. one issue was whether employees themselves were being abused. that was part of the complaints people were seeing. another issue was whether they were pressuring consumers to open, ultimately getting their consent but pressuring them into improper or not suitable accounts.

third, which emerged later, potentially they were just opening accounts without consumers even knowing about it. it's the third thing we're folk uf focused on here. takes time. >> mr. cordray, excruciatingly high pressure? does that fit your investigation? >> it does. i was in the bank friday doing a transaction. the senior person there, recognized me, asked me about this. you can't believe, jim, what the pressure was like. it's excruciating. i'm so glad i'm out of this now because i'm in a different kind of bank. this was on friday and he told me this. i found that extraordinary, senator. >> so just a few moments ago when i was asking ceo of wells fargo about the establishment of this high pressure situation that left bank tellers and personal bankers in a no win between a rock and a hard place position, he dind there was any

such structure. is that completely inconsistent with your complete understanding of the situation? >> senator, again i'd go back to our june 2015 supervisory letter in which we found that the program was deficient. >> that's a nice way of saying yes. okay. >> it does differ from my understanding of the situation we found in our investigation. >> so why after this extensive public review of the establishment of high pressure culture, why would the ceo after working with you all, having various letters, paying a fine, come in here and say no such thing existed. these were just individual employees who had ethical lapses. why possibly can we hear that testimony today? >> i don't know. >> i don't either, senator.

>> any insight, mr. curry? >> it's inconsistent with our findings. >> it's inconsistent with everything. is it because the bank is trying to insulate it's self from lawsuits? >> i don't know. speculate, i don't know. >> is it possible because top executives in charge during this whole period want no responsibility, claim no responsibility, instead it's just those 5,000 low level people who this h nothing to do with the system they set up to sale? >> i think there is responsibility here, that we have a consent order with occ, cfpb and the city of los angeles. >> i'd like to enter into the record banking on the hard sell article from national employment law project. >> without objection. >> it lays out high pressure cultures that happened in many financial retail banking groups. and i think when the question

was asked earlier, there mr. curry, you noted that's something you'll horizontally be looking into. do any of you have an impression what you've seen so far these practices, maybe not to the same degree but high sale practices, high pressure practices did result in similar creation of fake accounts or adding things to customers they didn't ask for? >> that really will be the focus of our horizontal review. banks under enormous margin pressure. that could be it. >> that could be the case? >> just say that, for example, we started with our first deceptive marketing or credit card add on enforcement action, many we took jointly with occ. that mushroomed into 12 across the industry, worth billions of dollars. we will certainly follow up aggressive here. >> i've had the experience opening an account and

partnership, going to the bank with my daughter. it was very clearly we went through -- this was a no fee account for student. yes, right, right, right. then paperwork comes and it's a fee account. i had another case where i opened an account and i said i don't want overdraft protection or the fee that goes with that, i want the free account. yes, yes, absolutely. got the paperwork. funny thing, i had the fee account. and i just thought it was sloppy paperwork. i had no idea until now there was a hard sell system of quotas causing folks to basically slam me with stuff i had explicitly said i didn't want. that was not at wells fargo. so i'll just say i suspect you'll find lots of this activity elsewhere. turning to sarbanes-oxley where a ceo must sign off on the sufficiency of internal audits,

and clearly from this hearing the conduct was relevant to a bank's reputation and therefore to -- certainly of material interest to investors. should the s.e.c. launch an investigation of this in terms of those sarbanes-oxley reports? >> i'll leave that to the s.e.c. >> and finally, in the settlement, wells fargo was allowed to neither admit nor deny wrongdoing. we heard today the result, the head of the bank comes in here and says, we didn't do anything. just a bunch of bad apples ethically misguided. it bothers me. was that debated and wrestled with? why was wells fargo allowed not to admit wrongdoing. >> here is my thing on that.

the order speaks, very detailed, tells facts as we establish them through the investigation. that is the story. we'll can quibble with it if they want. that is the story and it is the story that's forming vigorous public scrutiny going forward and potentially investigation by other officials which we will be welcoming and assisting. >> doesn't it make it harder to hold managers accountable to board of directors of a company when they haven't admitted wrongdoing. >> i think actions speak louder than words. the notion nothing happened but they fired 5,300 people, those things cannot be squared. >> i also think senator we wanted to get relief to consumers as quickly as we could. it's typical i practice law 35 years for nonadmissions to be part of ab agreement. it would have taken years to litigate this case at least from our perspective. we got relief from consumers. we thought consumers needed to get relief now and the practices

had to stop. so that's one reason from our perspective. put it that way. >> i do applaud that. i do say from the man and woman on the street, perspective. it's enormously frustrating to see the people at the bottom be fired from their jobs, threatened with firing, force an untenable situation and see managers take no responsibility. they take their bonuses, they aren't clawed back, they keep their jobs. let me take and i'll just close with this, mr. chairman. the manager of this unit, who worked to establish this very successful -- i say successful from the cross-selling profitability system that produced these fraudulent activities is walking away. you can call it a bonus or platinum parachute or money she's already earned, which is what we've heard. but more than $100 million, not counting what came previously.

it would take a bank worker earning $25,000 a year, and that's roughly in the ballpark because a lot of these workers were paid $11, $12 an hour, it would take them 4,000 years to earn that $100 million. 4,000 years. put it differently, 100 lifetimes working 40 years. it's phenomenal distinction. that managers are taking home those kinds of profits from developing a system that destroyed so many consumers and affected so many of their own employees by putting them in an impossible situation, it is wrong. it is ugly. it is criminal. there should be accountability for the managers. thank you. >> thank you, senator. we appreciate your appearance today. it's been a lengthy hearing.

i think maybe this is the beginning of a lot of things. but a lot of us are worried about perhaps there's similar doings going on in other banks. i've said from the beginning, banking should be based on integrity on trust. i think you would agree with me on that. >> we do. >> most banks have that but some don't. thank you. committee is adjourned.

>>. >> the senate banking committee wrapping up its hearing on wells fargo business practices. we'll have this archived in the c-span video library if you missed any of this hearing.

one of those portions included questioning by senator elizabeth warren of massachusetts earlier who said to wells fargo ceo john stumpf, you should resign, give back the money and be criminally investigated. check out this part of the hearing with senator warren via the twitter feed of c-span's craig kaplan. we'll show the hearing in its entirety in a moment here on c-span 3 the hearing was held after it discovered the baj opened accounts in customers' names without their knowledge or consent. john stumpf was the first to appear alone at the witness table. .

today we'll learn about what happened at wells fargo by the occ and cfpb. first we will receive testimony from john stumpf. wells fargo terminated 5,003 employees and agreed to pay $185

million in fines and $5 million in customer remediation. a number of former wells fargo employees described the work environment characterized by intense pressure to meet aggressive and unrealistic sales goal. in a 2010 letter to shareholders mr. stumpf wrote that wells fargo's goal was eight products per customer because eight rhymed with great. the result was a corporate culture that drove company team members to fraudulently open millions of accounts using their customer's funds and personal information without their permission. i've often said banking was based on trust and that trust was broken at wells fargo. while much has been written

about these events, i believe there's several questions that warrant answers. first when did this conduct start at wells fargo and why would the regulators unaware of this growing problem. second, when did mr. stumpf and his senior management become aware of these activities and how did they respond? third, have all the appropriate wells fargo been held account able and to what extent? finally, where were the federal regulators while certain wells fargo employees were taken advantage of unsuspecting customers over a period of many years. here is what we do know. wells fargo's internal review only covers unauthorized accounts dating back to 2011. news reports and court documents suggest these problems might have existed long before then. the 2013 "los angeles times"

articles led to l.a. city attorneys office investigation into wells fargo sales practices. thousands of man-hours by a dozen dedicated l.a. city attorneys culminated in a lawsuit filed against wells fargo in may of 2015. this time line begs the question, where were the federal regulators during those years. if the occ and cfpb were aware of these issues before the l.a. city attorney's lawsuit, why did they wait until 2016 to bring the enforcement action. why it take an "la times" reporter to uncover what should have been uncovered by wells fargo's regulators. if there were ever a textbook case where consumers needed protection, this was it. how many millions of unauthorized accounts does it take before the cfpb notices. while the bureau is billing this as the largest settlement in

history, it's unclear whether it had any significant role in discovering or investigating the bank's conduct. fair to ask mr. stumpf what he knew, when he learned it and what he did about it, it's also fair to ask those same questions of wells fargo regulators. the simple -- their simple facts and circumstances questions occ and cfpb should be able to answer without violating any confidentiality restrictions. i look forward to today's hearing as both congress and american people especially the aggrieved consumers have been kept in the dark for far too long. senator brown. >> mr. chairman, thank you for calling this hearing. i want to commend the city of los angeles. occ and cfpb for their actions and "l.a. times" for bringing this to light. i was stunned when i learned that the breadth and duration of the fraud committed by wells fargo.

i hope today we can begin to understand what went wrong and what needs to be done. i call it fraud because i got tired of the euphemisms a long time ago. i think the american people did, too. this is not a matter of customers who received products and services they did not want or need as wells fargo puts it. that makes it sound like there was a mix-up under the christmas tree and i got the right-handed baseball glove meant for my brother charlie. this is 5400 employees, wells fargo calls them team members, 5400 team members forging signatures, stealing identities, social security numbers an customers' hard earned cash, so as to hang onto their low paying jobs and make money for high paid executives at wells fargo. and they did it for at least five years. wells fargo's reaction has been remarkable. i did not treat this as a big

problem until it appeared in the newspapers. did not begin to make customers whole until this year. we don't know whether the bank chose to do so or were told to do so. wells fargo taking out full page ads claiming it is accountable and accepts responsibility. it has not admitted responsibility for a misdeed with the city of los angeles and federal government. wells fargo claims to have made things right with its customers but its efforts have been incomplete. for example, it's not clear pwc calculated the cost of a lower credit score which might be paid every month for 30 years. at times the bank has been down right hostile to aggrieved customers. rather than letting fraud victims have their day in court, wells fargo forced customers to abide by mandatory arbitration clauses in their real accounts. you heard that right. the bank invoked the fine print on a real account to block

redress on a fake one which wells fargo had created. wells fargo team members many struggling to support a family on $12 or $15 an hour, my understanding is wells fargo tellers make about $11.80 an hour. wells fargo team members struggling to support a family of $12 to $15 an hour followed their manager's guidance to do whatever it took to make their quotas. some may have worked off the clock. others cut corners to avoid being fired, for missing goals, goals that we will now admits were too high. they have been accountable, these low income workers. they lost their jobs with no parachute of any color. it's not just 5,300 team members who paid the price, but many more were fired when they couldn't meet the quotas, others chose to quit rather than cheat. by contrast, miss carrie

tolstedt the senior vice president for community banking has done quite well. she knew of this problem at least five years ago and is retiring with a package that may be worth more than the cfpb record fine of $100 million. so 5300 team members earning perhaps $25,000, $30,000, $35,000 a year have lost their jobs while miss tolstedt walks away with $120 million dollar. despite firing thousands of team members, miss tolstedt decided it was not important enough to alert the head of the company mr. stumpf or the board of directors for anyone else for two years, if ever, even though you both sat on that bank's board. senior management and board of directors apparently agreed once the scandal became public remedial actions stepped up against frontline team members but praise and performance bonuses continued to be lavished

on miss tolstedt until three months ago. you would think the lessons of the financial crisis which came at such a high cost to our country would change the way the banks do business. to be fair many banks did take it to heart but for the largest banks in this country every week we hear of a new lawsuit or enforcement action against one of them. week after week after week. what are some of these lessons of first, the culture of these banks needs to change. that starts at the top. second, there must be a reliable way for legitimate complaints end up in c suite rather than circular file. third, in the wake of robo signing fraud we saw at wells fargo and other places, banks need better control. fourth, if you pay people on the basis of how many products they sell, that's what they will do whether it's in the interest of the customers or not.

base pay needs to be increased. finally change the pay structure or at least make incentives deferred so it's clear customer and company interests are aligned and enduring. wells fargo has come up short in all five counts that. conclusion is not just based on this, its latest scandal. last year wells settled with the occ for, among other things, 11 years of deception deceptive practices and identity theft. think about this, at the same time the bank was stealing customer identities, it was charging for protecting them. if the wells id theft product that they sold didn't discover the fraudulent wells accounts, perhaps some refunds are due. this april wells settled a false claim acts suit in part because it used bonuses to get out staff

to churn out and improve ever-increasing quantity of fha loans. it applied pressure on loan officers and underwriters to originate and approve for fha loans as quickly as possible, unquote. thousands of americans we know so well, although unfortunately all too few of us know them personally, thousands lost their home through mortgage foreclosures as a result. i hope, mr. stumpf, you will level with the committee and public, words that come like a san francisco fog on little cat feet won't cut it. these were not magically delivered unwanted product. this was fraud, fraud that you did not find or fraud you did not fix quickly enough. instead of focusing on damage control, you need to admit to the problems and fix them and treat your customers in real life like you do in your vision statement. that would be the best damage control of all for your customers, your bank, for your industry and for our country. thank you.

>> mr. stumpf, will you rise and be sworn. raise your right-hand. do you swear or affirm that the testimony you are about to give is the truth, the whole truth, and nothing but the truth so help you god? you may be seated. mr. stumpf, your written statement will be made a part of the hearing record. you proceed as you wish. welcome to the committee. >> chairman shelby, ranking member brown and members of the committee, thank you for inviting me to be with you today. i am chairman and chief executive officer of wells fargo where i have worked 35 years. it is my privilege to lead this country, which was founded 164 company which was founded 164 years ago. and has played a vital role in financial history and development of our country. we employed 168,000 team members, 90% of whom are in the

united states. one in every 600 working adults is a member of the wells fargo family and we have a presence in all 50 states. i am deeply sorry we failed to fulfill our responsibility to our customers, to our team members, and to the american public. i have been through many challenges as wells fargo but none of which pains me more than the one we will discuss this morning. wrongful sales practice behavior in our retail banking business goes against everything regarding our core principles, our ethics and our culture. it runs counter to our vision of helping our customer succeed financially and it is not representative of wells fargo as an institution. i'm here to discuss the

situation today, tell you about the actions we have taken and our commitment on how to move forward. our entire culture is centered on serving our customers. in this case we let our customers down. our retail banking practice issues, sales issues, are not a reflection of our hardworking and talented team members who deserve thanks for helping our customers with their financial needs. i want to make very clear we never directed or wanted our team members to provide products and service toss customers they did not want. that is not good for our customers and not good for our business. it is against everything we stand for as a company. that said, i accept full

responsibility for all unethical sales practices in our retail banking business and i'm fully committed to fixing this issue, strengthening our culture and taking necessary actions to restore our customers' trust. senators, let me tell you today, the wells fargo board is actively engaged in this issue. the board has the tools to hold senior management accountable including me and carrie tolstedt, former head of retail banking business. any board actions taken with our named executive officers will be appropriately disclosed. i want to be clear on this, i will respect and accept the decision of the board. under new leadership, we've already began taking steps to ensure that the sales culture in

our retail banking business is wholly aligned with our customer's interest. on september 13, 2016, we announced a major decision that we will end product sales goals for everyone in our retail banking business, because we want to make certain that nothing gets in the way of doing what's right by our customers. the new leadership team's primary mission will be to provide the best possible service to our customers. i'm also announcing today three new initiatives that will reinforce our commitment to our customers. first we're expanding this scope of our account review and remediation to include both 2009 and 2010. second, we will be contacting every single one of our deposit

customers across the country using the same process that we agreed to with the city of los angeles for our california customers. and third, we have begun contacting hundreds of thousands of our customers with open credit cards including those for whom we've already refunded fees to confirm whether they need or want their credit card. in addition, we've recently started sending customers a confirmation e-mail with one hour -- within one hour of opening any new deposit account, an acknowledgement letter before submitting a credit card application. we recognize now that we should

have done more sooner to eliminate unethical conduct or incentives that may have unintentionally encouraged that conduct. we took many incremental steps over the past five years in an attempt to address these situations, but we now know those steps were not enough. in 2011 a dedicated team began to engage in proactive monitoring of data analytics, specifically for the purpose of rooting out sales practice violations. in 2012, we began reducing sales goals that team members would need to qualify for incentive compensation. in 2013 we created a new corporate wide enterprise oversight for sales practices. in 2014 we further revised our incentive compensation plans to align pay with ethical performance. in 2015, we added more

enhancements to our training materials, further lowered goals, and began a series of town hall meetings to reinforce the importance of ethical leadership and always putting our customers first. throughout this five-year period, we identified potential inappropriate sales practices. we investigated those, and we took disciplinary actions that included terminations of managers and team members for sales policy violations. the 5300 terminations over the five years have been widely reported. despite all of these efforts, we did not get it right. we should have realized much sooner that the best way to solve the problems in the retail banking business was to completely eliminate retail bank product sales goals. and one of the areas we missed was the possibility a customer

could be charged fees in connection with accounts opened without their authorization. because deposit counts that are not used are automatically closed. we assumed this could not happen. we were wrong. we took steps to refund fees that were charged and made changes so this could not happen again. in august 2015, we began working with a third party consulting firm, price waterhouse coopers, which conducted extensive large scale data analysis of all 82 million accounts, deposit accounts and nearly 11 million credit card accounts that we had opened from 2011 through 2015. of the 93 million accounts reviewed, approximately 2%, 1.5 million deposit accounts and

565,000 consumer credit card accounts were identified as accounts that may have been unauthorized. to be clear, pwc did not find these accounts had been unauthorized, but because it could not rule out the possibility, these accounts were further reviewed to determine if any fees had been charged. pwc calculated that approximately 115,000 of these accounts had incurred $2.6 million of fees, which had been refunded to those customers. even one unauthorized account is one too many. this type of activity has no place in our culture. we are committed to getting it right 100% of the time. when we fall short, we accept

responsibility and we'll do everything we can to make it right by our customers. i will close by saying again, i'm deeply sorry that we have not lived up to our values in this way. i also want to take the opportunity to thank our 268,000 team members who come to work every day to serve our customers. today i am making a personal commitment to rebuilding our customers and investors trust, the faith of our team members, and the confidence of the american people. i'm happy now to address your questions. thank you. >> thank you, mr. stumpf. mr. stumpf, according to your testimony, wells fargo began making internal changes in 2011 to address the opening of unauthorized accounts. did these problems start in 2011 or could there have been unauthorized activity before

then? why 2011? >> i think we all know that not every team member will do everything right every day of every minute. and we do a lot of training of our team members, coaching. they each sign an annual ethics statement. and i can't guarantee it did not happen before that time. we are trying to manage it within the business and that's why i announced today that we're going back to 2010 and 2009, because at that time you might recall we were putting wachovia and wells fargo teams together and we don't want to leave any stone unturned. wells fargo fired 5,300 employees in connection with these practices.

what were the criteria for termination, and were any personnel actions taken short of termination and, if so, what were they? in other words, i'm sure you didn't fire everybody. did you discipline them and why and so forth? >> sir, thank you for that question, and it's a good one. we have a number of triangulations around how to understand when there might be improper behavior. if some customer, for example, all of a sudden shows up with three savings accounts, they probably don't need that. or we have ethics line. we have a culture, if you see something, tell someone. some were perfectly legitimate. for those who broke our trust, dishonest, put customers at risk, we drew a bright line. we're a regulated institution.

we have a fidelity bond. people who behave in this way simply can't work here. >> mr. stumpf, your testimony also does not address when the violations were brought to the attention of senior management, specifically when did you find out that thousands of your employees were opening unauthorized accounts or fraudulent accounts? did it take that long? when did you find out? >> thank you again, senator. the business has their own audit and investigations and sales practices, efficacy and so forth contained within the regional bank or retail bank. after they had been working on this issue for a couple of years, and again, this was way too many people but it was 1% of our people. at any one time there's 100,000

team members in our banks. and after we noticed after the business was dealing with this for a couple of years, it was then brought to the holding company and corporate assets, corporate audit, corporate compliance, the so-called second line of defense got very active. that's when i became much more aware of the issue. >> does it bother you as ceo of such a large bank that systemic fraud was not brought to your attention sooner by your employees? >> if i could turn the clock back, and i thought about this 1,000 times, of course i wish i would have done -- we all wish we would have done something more earlier. we didn't get on this fast enough. again, recognizing this was -- the vast job of people were

doing the right thing. >> when, let's go back to the question a minute ago. i don't believe you answered it specifically. when did the senior management, you and others you deemed senior management, learn about this fraud? >> i can speak for myself. i know that other corporate executives at the corporate area outside of the business -- i can speak to myself and i believe others, it was 2013. before that it was being dealt with the audit and compliance within the business unit. >> mr. stumpf, the board of directors of wells fargo has awarded the then head of the community bank carrie tolstedt millions of dollars, could be $100 million senator, brown says or more in incentive compensation for, quote, success in furthering the company's objective of cross-selling products and, quote, reinforcing

a strong risk culture, according to 2015 proxy statement issued by your bank. explain to the american public today here what accountability at a large bank looks like when an executive departs with millions of dollars in compensation after thousands of employees defrauded customers. this question was raised by senator brown. >> i'll try to get to all of those. if i don't, please -- it's a good question. carrie tolstedt is leader of the community banking business had a lot of requirements and things that her performance was measured on. the putting wachovia and wells business together, doing common branding, making sure customers were treated properly. throughout that entire period from 2011 until 2016, customer loyalty scores continued to improve.

today they are top of class even by independent studies of large banks. our team member engagement, we do a study every year. today we have 15 people who are engaged in that business, everyone disengaged. balances and customers had grown. now, in this particular area, she did not do enough. and we decided -- the chief operating officer she was reporting to decided we would go in a different direction. i also want to be clear, carrie was eligible to retire when she was told that we're going in a different direction, she chose to retire and she got no retirement severance benefits. her compensation that she received in the past, some of it which has not -- which has been granted but not yet vested and

other compensation will be considered by the board of directors in an independent process that they have. i will respect and accept whatever decision they make. >> that would be -- you have ability at the bank to clawback. >> i'm not an expert in compensation. >> you're the chairman, ceo of the company. are you the chairman of the board? >> i'm the chairman of the board. but i do not -- >> the buck stops here. >> i'm the senior officer. >> are you going to look into seriously what this person did, her responsibility and the big reward she's getting that happened under a watch? >> senator, the board of directors, the compensation committee and they will refer to the board, i'm not part of that

process. i want to make sure that's a very independent process. nothing that i say would prejudice their deliberative process but that is their decision and they have all the tools available to them. whether she would have retired or been fired. >> mr. stumpf, isn't a lot of banking based on integrity or trust by your customers in the bank it's self? they have business with you, put their money there. they trust you. what's happened to the banking system? not everywhere but what happened to the banking system? >> senator, you think about it exactly the way i think about it. trust is the core element of any relationship. surely in the financial services business. we know we have work to do in

that area. i intend to do all i can to help in that area? >> do you believe you violated that trust? >> there is no question with some of our customers, we have violated trust and we have to work hard to re-earn that. >> senator brown. >> thank you, mr. chairman. mr. stumpf, i'll make my questions short and ask you to be as concise as possible. thank you. to start with your response to senator shelby, you became aware of the widespread fraud in 2013. could you be more precise than that sneh. >> i became aware that the problems the local business was working on in rooting out this behavior by 1% of our team members, give or take, i don't want to minimize that, we were not making enough progress. >> when did you become aware more precisely? the "l. a. times" article? >> yes, later in 2013. >> i had -- actually, i don't remember the exact timeframe, ki get back to you. it was sometime in 2013. >> thank you for that.

you suggest, mention the wachovia merger that you're willing to go back before 2011, 2009, 2010 because of the wachovia merger, the interest in cross-selling dates back at least to the norwest merger, right? this has been a wells fargo business plan for a number of years. what year was norwest merger? >> it was announced -- you're talking about -- >> norwest merger with wells. >> that was 1998. >> and so this wachovia merger, clearly you're going back to 2009 and '10, you're offering to do that. why stop at 2009? we hear from people that it's gone on longer than that with the cross-selling and the pressure and the sales goals. why are you only willing to go

to 2009? >> well, senator, i would tell you this, we want to make it right by any customer. we agreed with our regulators in our agreements to go back to 2011. we made a decision to go back to 2010 and 2009 and we want to make it right by any customer. >> does that mean you're willing to go back earlier than 2009? >> i can't tell you that today. i have to talk to our folks. i don't know about records and so forth but i want to make sure any customer who has had harm of any kind, that we will do right by them. >> you have records before 2009. is that a pledge from you to go back earlier than that if, in fact, there were customers harmed by unauthorized accounts? >> senator, i will take that under advisement and i'll get back to you. >> i accept your good intentions you're going back to 2009 to give restitution -- provide restitution to those customers but why stop there if you say you know you have to go back and

talk to staff. if you really do want to make sure these customers are made whole, you should go back as long as you possibly can. >> and senator, again, i think that's -- you know, we've considered that. we'll take that under advisement. >> i hope you more than consider it. thank you. talk about senator shelby's discussion on the clawback. understanding i think you minimize your influence, to us at least, minimize your influence to the board. you're the chairman of the board. i understand the board goes through a process, and i respect that. but, as the chairman, are you going to recommend to the board -- back up. you, i would assume, are more familiar with both the pros and the cons of performance from miss tolstedt. you're aware she is getting -- she is slated to get some news reports say up to $120 million. you're also aware that most of the 5300 people, team members that were fired, were low income workers as low as $11 something an hour, maybe up to $16 or $17 an hour but generally low income

workers. you're probably more familiar with that. would you make a recommendation to this board they should clawback a significant amount of her compensation? >> senator, i'll answer that question. i just want to put something in perspective. the lowest paid worker we have, our entry level in our least cost area is $12 an hour. our lowest paid worker in our high cost area is $16.50 an hour. in addition to that, about $6 also, that doesn't include the benefits around health care, which we pay virtually all of it for low paid people. most of the people lost their jobs because they violated code of ethics, were dishonest, those were good paying jobs. people lost their jobs who were

bankers, bank managers, managers of managers and even an area president. these were good paying jobs. jobs that the averages were, i think, in the 35 to $60,000 area, if you just want to take an average. but with respect to your question specifically. i'm not on the human resources committee. it's an independent committee. they will take that under their deliberation. i don't want any way to prejudice their activity. i'm going to accept and respect any decision that they make on anything. >> thank you for saying that. so you are not willing to make a recommendation based on how this looks to the public, call them good paying jobs at $16 or $17

an hour or not, compared to what. i'll put that aside. whatever these workers were making, they were in the bottom some percentage of the workforce, whatever. they make mistakes. they were honest, apparently deserve to be fired. i won't dispute that. you're not willing as ceo of this bank to make a public recommendation -- to make a public statement that you think mrs. stumpf -- i'm sorry, miss tolstedt, carrie tolstedt, you're not willing to say publicly to this committee or to anyone that some of her compensation, over $100 million when she announced retirement in the last several weeks, that any of it should be clawed back. >> i'm going to let the process proceed. the board has already met and i've made an affirmative comment in my testimony.

>> that's unfortunate. you said in your testimony in august 2015, your words we began working with pwc, unquote, to locate and reimburse customers fees. was that your decision or was that the regulators? >> that was in consultation with regulators and city attorney's office. >> you did not on your own after finding out in late 2013 of these problems, you through the rest of 2013, 2013, all of 2014 and then into the first seven months of 2015, it never occurred to you you should bring in somebody without the regulator suggesting it or in consultation, never occurred to bring in somebody to really find out who was hurt, what kinds of issues going on. how do we find these customers to reimburse them? >> senator, that's a good

question. i thought about that, a lot about why. it was early in 2015, about the time that we were considering or talking of who we would bring in that we finally connected a dot. there's no excuse why we didn't connect it before. what happens when an account is open that is not funded, the system eliminates it within a couple months. if it doesn't get funded, it's not used, it's not started, it's truncated or closed. it never dawned on us -- again, no excuses. and we were wrong. it never dawned there could be a cycle where a, 30-day cycle would have been completed an there could have been a fee associated with that.

it was the first time that light bulb went on? >> i appreciate your candor about this. in 2011, 1,000 employees fired, 2012, 2013 was the peak number. 2014. 2013 "l.a. times" article. 2015 throughout the year nothing happened. it seemed to never occur to management to do any of this when it just -- then today, i don't question your integrity, then today you come in and make all these announcements. it's been five years since -- at least five years since all of this has been happening. today you make announcements you're doing -- you apologized, we appreciate that. you make announcements you're doing the right things. we appreciate that. it just sort of begs the issue of where was management when these so many thousands of people were fired, stories were written, regulators were starting to come in. i understand this is a huge profit center for wells, the retail banking at large in terms

of unauthorized accounts and everything else, but it doesn't seem quite right. it didn't occur to anybody on the board, apparently, or at least had your ear, didn't occur to ceo, didn't occur to top management they should do something more affirmatively until that august 2015 date when the regulators sort of help you suggest and come to that conclusion? thank you, mr. chairman. >> senator corker. >> thank you, mr. chairman. mr. stumpf, thank you for being here. just as an observation, i know that you have a whole host of people here with you. i'm sure one of those people is a communications person. i would just make the observation, look, i know you talked daily with board members and been on boards before myself. i would suggest just again as an observation to not invoke some degree of clawback for yourself and others involved would be committing malpractice from the standpoint of just public relations.

so at a minimum, i'm sure that is going to take place. i would be surprised if it doesn't. let me just -- you found out about this through reading the "l.a. times." is that correct? >> i don't recall back in '13 exactly the timeframe, but i learned about it later in 2013. remember -- i'm sorry. >> it sounds like it really was brought to your attention after a story in a newspaper. that's when the focus really began. i'm not criticizing that, i'm just asking. >> only thing i want to make, senator corker, is we had dismissed a number of people. that's what caused the "l.a. times." >> the story. y'all this taken some actions and caused the story. >> yes. >> the board, intense scrutiny, all kind of committees that are set up. when did the board realize that

you had a unit that was committing fraud? it seems to me that's one of those things you flag pretty quickly or at least a committee of the board. >> yes. i just want to say, these team members, you're absolutely right. they did not do us right. >> i didn't ask that. i'm asking you when the board became aware you had a unit involved in committing fraud? >> it would have been later 2013 and 2014 and on. >> so they weren't aware of the "l.a. times" story. >> i think that was later in 2013. i'd have to go back and check my records, the best i remember, it was sometime later '13, surely in '14. >> i read a story about miss tolstedt. i don't know her. sounds like she was an incredibly hard worker. got to work early, rode a bus, micromanaged, signed leases herself. i don't know if any of this was true. how do you -- when you have

somebody that involved in sort of micro details, is this a case of not raising their head up to 5,000 or 10,000 feet and understanding the kind of culture that was being created like slogans like eight is great and those kinds of things? it's just hard to -- it seems to me within a bank with all the data you used to contact customers, you can -- with algorithms, you guys can pick this stuff up so quickly, it's hard to believe there isn't some report within the bank that would cause this to jump out at people and say something really bad is happening here. >> senator corker, i think that's a good question. in a retail business, where you have 100,000 people in seats at any one time in our 6,200

branches, there is a lot of turnover. i'm not justifying. >> no, there's an officer, a compliance officer. >> absolutely. >> all banks have these. y'all are regulated to death. that's their job. this is something that you would think would be flagged and jump out at someone in that job. >> thank you. that's what i was trying to explain. in her business, surely she was, i believe, reporting situations where there was ethical breakdowns. >> but not to the board. >> it got to the board level. it got to the corporate level in 2013 because progress was not being made in the board level in '13 as corporate research started to. we have been seeing improvements in that time. >> doesn't seem like, in fairness, does seem like a big disconnect there. so she left after 27 years.

i think it would be good for the audience at some point, not during my time, to explain compensation. i think it's a little different based on what people think based on comments made. but i assume her departure after 27 years was based on this issue. is that correct? >> it was based on a number of issues. this is one of them. we wanted to take the business in a different direction. >> she, in essence, was terminated over this issue. >> no, carrie chose to retire. tim sloan, our chief operating officer, with my consultation had discussion with her. it was sometime in june or july, and said we want to go in a different direction. we want to put more focus on the issue. it was a variety of things. she was eligible for retirement and she decided to retire. >> my time is up. out of respect to other members i will stop. i have numbers of other questions. we thank you for being here. >> thank you.

>> senator reid. >> thank you very much, mr. chairman. mr. stumpf, thank you for being here. let me clarify your position with respect to going forward with not just mrs. tolstedt but your consideration. will you recuse your self from board deliberations? >> i'm not involved with board discussions with what the hrc does in respect to me or any recommendations to the board. there is no recusal required. i'm happy to do that but i'm not involved in that. >> it will ultimately come up to the board for affirmation of the compensation committee, correct? >> that's done in executive session without me. it's always done that way. >> in 2013 when you learned of this, what did you do? this has been asked several different ways. did you inform the regulators or instruct someone to inform regulators of a growing problem?

>> thank you, mr. reed. yes, and i should have mentioned it earlier, but yes. our primary regulatory was informed at that time. >> did you inform the board at that time? >> yes. i can't recall the exact meeting, but i can -- but it was sometime in '13. and i know in 2014 various committees of the board were made aware of this -- the risk committee, the audit and examination, the corporate responsibility. >> did you take any steps to internally notify your employees of this type of behavior, which going back was you know, 11,000 people are gone, 12, 13, including an area manager. did you communicate that or did you keep these discussions internal to the board? >> i do a team member town hall every quarter where i go to one

of our various cities, and there will be a couple thousand people in the audience, and then we webcast that broadly across our company. and i, you know, typically talk about ethics and doing what's right for customers. and in the case, the vast majority do it. but i was trying to really bring home this fact. >> but there was given specific evidence of techniques used to essentially, the words of some of my colleagues, defraud customers. those specific practices were not focused upon and made very clear that they were not tolerated? or it would seem to be a generic discussion of follow the rules. >> again, senator reed, at the time that the escalation happened in 2013, there were many different meetings and

things happening. as i mentioned in my oral testimony, about reducing goals, talking about sales efficacy, having manager meetings, talking with leaders, putting more controls in place. and again, not fast enough, not far enough, and i apologize for that. >> well, it seems, you know, and i would suspect looking back that the emphasis on meeting sales objectives, cross-selling was unremitting. and yet, you had examples here, specific examples of things that you knew were happening and should not be happening. and yet, what i'm hearing is more or less a generic make those sales. oh, and by the way, you know, we have these ethical rules in place, too. again, i think you've said it, and it's obvious that the tone, emphasis, what the leader does, what the leader says, is

sometimes more important than anything else. for a period there, this was recognized, but there was no specific stop, you know, stop this stuff. >> well, i can tell you, we said stop this stuff. and the thing about cross-sell is, i'd rather have a customer with two products that they use and they need and they want and they value than four products that are not used and valued. in the first case, customer wins, we win, we all do well. in the second case, everybody loses. we lose money. it does not help us. so, we've been -- we tried very hard. and again, we were not as effective as we could have been in talking about -- you know, the goal here is not, you know, products. the goal here is deep relationships. we had the wrong tool for too long to make that happen.

>> it just seems that it took too many months, years, literally, for some simple steps which should have been taken to be taken, and it was only, i think, as a result of what ultimately los angeles county and the regulators and others did that forced the issue. thank you. >> thank you. >> senator toomey? >> thank you, mr. chairman. thank you for calling this hearing. i have to say, what we've been learning is so deeply disturbing at so many levels. first we discover that wells fargo had a sales culture that was blatantly antithetical to what's best for customers. we discover the management had far too few commonsense controls in place to prevent the kind of abuse that customers were subject to. we discover wells fargo executives completely out of touch. in a 2011 "forbes" article,

wells fargo was rated the best at cross-selling its products. only problem is we discovered wells fargo wasn't always cross-selling, signing up customers for products when you know the customer doesn't want the product, failing to notify customers about these sham accounts -- and this isn't cross-selling, this is fraud. that's what this is. and then we discover way too little done to prevent it from continuing, even after it was discovered. so, wells fargo employees continued for years to literally forge customers' signatures, including my constituents, on documents to open up accounts. and then the case of carrie tolstedt, my understanding is that something on the order of over $20 million in bonuses for her between 2010 and 2015 were awarded because of strong cross-sell ratios. yet, we know in some cases, she

was hitting numbers by these fraudulent accounts. so, this is unbelievable. let me begin, mr. stumpf. do you acknowledge that the employees who engaged in this activity were committing fraud? >> yeah, i'm not a criminal, you know, officer, and i don't know -- i'm not a lawyer. i don't know the legal term. i know this, they broke our code of ethics, they were dishonest, and we did everything we can to support law enforcement, police -- >> i'm not a lawyer either. neither are most adults in america. but i think most people understand the meaning of the word fraud. black laws dictionary does provide a useful definition. it says fraud is "a knowing misrepresentation or knowing concealment of a material fact made to induce another to act to his or her detriment." how does falsely signing a customer up for an account they don't want, how does it not meet that definition?

>> well, and again, if that's the definition that -- you know, i can tell you this, it is absolutely wrong. the definition that -- you know, i can tell you this, it is absolutely wrong. we found this out. we got rid of those people, and they have no place. that behavior has no place in our culture. if that means fraud, that means fraud. >> at what point did you alert your regulators and law enforcement that you had probably criminal activity happening on a large scale? >> yeah, well, again, it was 1% of our people, senator. and i know -- >> but 5,000's a big number. >> it's bigger than my hometown. i do know that. and it was -- but we also had the vast majority who did the right thing. but let's talk about those. every time -- and we made a very bright line. if it happened one time it was one time -- >> i have only five minutes

here. >> to answer your question. i'm sorry, we sent it. we did everything we needed to do -- >> did you refer it to law enforcement? >> when it was required, we did. we did everything according to the rules. >> when did you begin to disclose in s.e.c. filings that you had this potentially material adverse set of circumstances that could certainly have huge damage to your reputational value? >> well, i don't -- i can't answer that. i'd have to get to our legal team. i don't have that in front of me. but this was not a -- i'd just have to get back to you on that. i don't know. >> well, we haven't been able to discover such a disclosure, and the s.e.c. very clearly requires disclosure of material adverse circumstances. and i don't know how this could not be deemed material. i think the market cap lost 9% over the last couple of weeks. that's pretty material. >> yeah, well, from a financial perspective, you know, $2.6 million.

and it's $2.6 million too much. and $185 million was not deemed -- >> i get that those dollar amounts may not qualify as material to a bank the size of wells fargo, but the reputational damage done to the bank clearly is material, and that has been manifested by this huge, adverse movement in stock prices. let me raise one other issue. you mentioned in your testimony, and you state unequivocally that there are no orchestrated effort or scheme, as some have called it, by the company. but when thousands of people conduct the same kind of fraudulent activity, it's a stretch to believe that every one of them independently conjured up this idea of how they would commit this fraud. isn't it very probable that there was some orchestration that happened at some level, if not -- i'm not suggesting it was you personally by any means, but doesn't it defy common sense to think that there wasn't some orchestration of this?

>> senator, i don't know how -- what motivated or why people did this, but we did fire managers and managers of managers, and in the case, an area president. so again, you know, this 1% is way too many. i don't want to minimize it, but i also want to make sure that we recognize that the vast majority of the people did exactly the things we wanted them to do to help deepen customer relationships, help them succeed financially. and also, we have put a number of other controls in place, besides taking sales goals off the table. we now have -- we don't open any deposit account today or any credit card without a signature. and while there's a couple of cases where ada, where they can't, we'll have a dual notice. we're also doing mystery shopping. and we're also giving customers a one hour's notice by e-mail,

or if they don't have an e-mail, by letter, to make sure we know exactly and they know exactly what they've opened. >> it seems like it took an awfully long time to impose those sort of basic controls. i see i'm out of time. thank you, mr. chairman. >> senator menendez. >> thank you, mr. chairman. first of all, thanks for your response. i know you said it's already on way, but the letter we sent asking you for this hearing, so i appreciate you holding it. mr. stumpf, let me just say, i am personally appalled by the size, the scope, the duration and the impact of the scandal, and i must say that i'm shocked and incredibly disappointed by the response of wells fargo's corporate executives. in the last week, you and your chief financial officer have taken to the press and laid the blame squarely on low-paid retail bank employees. and while i don't excuse what they did by any stretch of the imagination, i find that despicable. wells fargo touts to its

investors and its customers that we will never put the stagecoach before the horses. well, i'll tell you what, the bank recklessly rolled over 2 million of your customers in what is no way can be viewed as anything other than a large-scale scheme to boost, you know, your growth and whatever that meant for your shares and whatever that meant to your shareholders. so, you didn't fire ten employees, right? you didn't fire 500 employees. you fired 5,300 employees, is that right? >> yes, 5,300 employees did not honor our culture. >> and they were not located in one branch or one district, is that right? >> that is correct. >> they were located across the country. is that fair to say? >> that is fair to say. >> now, shouldn't the workplace actions of employees reflect the values of the institution, no matter what part of the country that they're in? >> i absolutely agree with that. >> so, do you believe that senior executives like yourself are responsible for nurturing and honing a companywide culture

for your employees and your employees' actions? >> absolutely. >> so, this isn't the work of 5,300 bad apples. this is the work and the result of sewing seeds that rotted the entire orchard. and whether tacitly through sales guides and employee training manuals, some of which i have reviewed, or more explicitly through demands from hard-driving managers, you and your senior executives created an environment in which this culture of deception and deceit thrive. and yet, you know, i see this as a toxic combination of low wages -- now, i know that in response to senator brown's question as what is an average

banker at wells fargo made. you said between $30,000 and $60,000. you said that was good money. how much money did you make last year? >> $19.3 million. >> now, that's good money. now that's good money. this is a combination of low wages, punishing sales quotas, and a grossly misaligned compensation incentive throughout the bank's organizational structure, as is evidence that you've removed it. now, when you were holding these ethics sessions, did you ever specifically, seeing this information begin to blip up on your radar screen and then more insignificantly, did you ever specifically say in those sessions, we do not want to open accounts for our customers that they don't ask for? did you specifically say that? >> senator, i will get to that question, but i just want to go back for a second. when a team member opens an account that's not used, that does not help customer and does not help us. and the vast majority did the absolute right thing. >> did you specifically say -- >> and i specifically said, yes, we do not push products.

we sit down with a customer. we have a needs-based analysis. and then based on what we hear, where the customer is in their financial journey, we match products. >> did you specifically say that, in fact, i don't want to see accounts opened for customers that they did not ask for? >> absolutely. >> when did you say that? >> i've said that many times in many town halls. >> let me ask you, ms. tolstedt made about $9 million in salary, did she not, last year? >> you know, it's in our public filings. >> salary, bonus and stock awards. according to glass door, the average wells fargo banker teller salary is $24,and the average salary for a wells fargo personal banker is $37,560. so imagine. do you know what the poverty wage is for a family of three? >> i do not have that. >> well, let me share it. we didn't think you would.

it's $24,300. for a family of three, it's $20,160. so, imagine for a moment, you're a single parent working with two young children as a personal banker in wells fargo's branch. let's say your base salary is somewhere in the $30,000 range. you have a hard-driving boss breathing down your neck to meet rigorous sales quotas. you've got a call into a call center when you don't meet those quotas, and if you don't meet the quota the one day, it carries over to the next day so you've got an even higher quota. and you're being told, forget good about the incentive of making more money, in essence this is about losing your job. and you think that environment was the appropriate environment to protect your customers and to have the culture that you portray here that wells fargo had? >> senator menendez, i get your question. we had been reducing sales goals and bringing other goals into place even before we decided to get rid of the sales product

goals. and the vast majority, the vast majority loved wells fargo. in fact, when we go to our regional banking, our retail banking people, 15 of our people in survey -- it's actually a census done by gallop, every year love the environment of wells fargo, and they put customers first. i can't excuse the behavior of the 1,000. i know it's too many. but the culture is a very caring and collaborative culture. >> i know my time is up, but let me just ask you a final question before hopefully the chairman will have a second round. did you or any senior executive at wells fargo suffer any financial consequence as a result of what's transpired over the years? >> the board will take -- well, first of all --