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Wells Fargo’s Testimony Left Some Feeling Shortchanged

Did Wells Fargo mislead the United States Congress during hearings last fall when it characterized its widespread opening of unauthorized bank accounts as a one-off problem in an otherwise clean operation?

That question took on greater urgency Thursday after Wells issued disturbing new disclosures about its customer dealings. The bank concluded that it had opened as many as 3.5 million unwanted accounts for customers, 1.4 million more than previous estimates. What’s more, Wells admitted a new impropriety: enrolling more than half a million accounts into its online bill pay service without customers’ permission.

The mounting infractions at Wells Fargo are getting hard to track without a scorecard. Unrequested auto insurance that affected 800,000 people — check. Unauthorized changes to mortgage repayment terms in bankruptcy — check. Improper withholding of refunds to some car loan customers — check.

All of which raises questions about statements made last September by John G. Stumpf, Wells Fargo’s former chief executive, during and after the congressional hearings. When asked if any other fraudulent activities had been uncovered across the bank, he indicated that problems were limited to the unauthorized accounts opened by the Community Banking unit.

In written questions after Mr. Stumpf’s testimony, Senate Democrats reiterated the question. “Have you discovered other types of misconduct involving other products aside from credit cards or basic banking (such as misconduct related to applications for mortgages or personal or other loans, or lines of credit, insurance or other investment areas)?”

Wells’s response: “We believe that the activity at issue here was limited to certain team members within the Community Banking Division.”

That certainly sounds like a no.

But there’s a problem with that. We now know that last summer, before the hearings, Wells had become aware of its longtime practice of forcing auto insurance on some customers who did not need it. Yet there was no mention of that in the bank’s response to Senate Democrats.

This lapse calls for new congressional hearings on Wells Fargo, according to 33 consumer groups. Led by Americans for Financial Reform and Public Citizen, two left-leaning consumer organizations, the groups sent a letter late Thursday to leadership of the Senate Banking Committee and the House Financial Services Committee urging them to bring Wells Fargo executives back to Capitol Hill to answer questions about the bank’s stream of abuses.

“We stand by the accuracy of statements previously made to Congress in the context of its examination of unauthorized account-related sales practices in our community bank,” Jennifer G. Dunn, a Wells spokeswoman, said in a statement. “We continue to review operations across the company for unrelated issues that may have resulted in customer harm and to make things right for those customers. We are committed to further improving our operations and to transparency with all stakeholders on these matters.”

Even before Thursday’s disclosures by Wells Fargo, Democrats on both the Senate Banking Committee and the House Financial Services Committee had called for hearings. An Aug. 1 letter to Michael D. Crapo, the Idaho Republican who heads the Senate Banking Committee, requested hearings with Timothy J. Sloan, the Wells Fargo chief executive. Signed by 11 Democratic members of the committee, the letter noted the string of disclosures about misconduct at the bank and expressed concern about the bank’s use of forced arbitration clauses to prevent customers from being able to hold the bank to account through lawsuits.

Senator Sherrod Brown of Ohio, the committee’s ranking Democrat, was among those urging Republicans to convene fresh hearings. In an interview Thursday, he said: “I’m hopeful that we’ll have another hearing, and I plan to follow through on that. John Stumpf has a lot of explaining to do.”

If Wells misled lawmakers in its responses last year, it may have violated a section of the United States Code, the consumer groups’ letter noted. The section bars anyone from knowingly making materially false, fictitious or fraudulent statements or representations with respect to “any investigation or review, conducted pursuant to the authority of any committee, subcommittee, commission or office of the Congress.” Violators could face fines or as much as five years in prison, the code says.

Concealing information from Congress when it is conducting an investigation is a serious matter, said Amanda Werner, arbitration campaign manager for Americans for Financial Reform and Public Citizen.

“The first step is to have congressional hearings to determine the extent of the cover-up,” she said. “The American public wants Wells Fargo to be held accountable.”

It’s unclear, though, whether Republicans will convene new hearings on Wells Fargo. A representative for the Senate Banking Committee and Mr. Crapo did not return phone calls seeking comment. Jeff Emerson, a spokesman for the House Financial Services Committee, provided a statement from Jeb Hensarling, the Texas Republican who leads it. “This latest revelation of customer abuse is further evidence of catastrophic mismanagement at the bank, Mr. Hensarling said in the statement. “As for the Financial Services Committee, our investigation is ongoing and we are deploying all necessary investigative powers to make sure people are held accountable.”

On Monday, Mr. Hensarling sent a lengthy document request to Mr. Sloan, Wells Fargo’s chief executive, seeking records, internal communications and contracts related to the bank’s problematic auto insurance program and the executives who oversaw it. The request also covered documents received by the Wells Fargo board and asked that the bank provide the materials by Sept. 18.

In an email, Senator Elizabeth Warren, Democrat of Massachusetts, said it was not enough for Congress to investigate Wells Fargo. “I’ve been asking for months: Where is the Justice Department? Where is the S.E.C.?” she said. “They need to do a thorough criminal and civil investigation of the bank to hold all responsible executives accountable.”

Wells Fargo’s lobbyists have certainly been hard at work on the bank’s behalf in Washington. According to the Center for Responsive Politics, in the 18 months that ended on June 30, Wells Fargo spent $6.4 million on lobbying. This exceeded the $4.4 million spent by JPMorgan Chase and the $3.4 million paid by Bank of America during the period.

Among the major domestic banks, only Citigroup outspent Wells, paying about $8 million during those 18 months.

One aspect of Wells’s efforts is highly unusual, however: The bank’s independent directors lobby Congress separately. They started doing so last fall after the hearings, when they hired a firm to represent them before Congress on “issues related to congressional investigations of Wells Fargo,” documents show. Between Oct. 1 and June 30, Wells Fargo’s independent directors paid their lobbying firm $450,000 for its services, beyond what Wells itself paid.

Lobbying by independent directors of a public company is unheard-of, corporate governance professionals said.

“What exactly are the shareholders getting out of this arrangement?” asked Nell Minow, a governance expert and vice chairwoman at ValueEdge Advisors, a firm that guides institutional shareholders on how to reduce risk in their portfolios. “And what disclosures about this are being made to shareholders?”

I asked Wells Fargo those questions and whether the lobbying expenditures were covered by directors’ and officers’ insurance or by shareholders. Ms. Dunn, the spokeswoman, declined to comment.

Ms. Minow said the practices were particularly notable because of Wells Fargo’s record.

“It might be different if this was a different company,” she said. “But this board, even somewhat reconstituted, has lost so much credibility with investors that this expenditure for lobbyists looks like another in a series of very bad decisions.”

via nytimes

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