On Tuesday, Wells Fargo’s CEO, Tim Sloan, was summoned by the Senate Banking Committee to report changes the bank has made in the aftermath of a fake-accounts scandal that saddled customers with unauthorized fees and charges.* Sloan told the committee that the bank was “a better bank today than it was a year ago.”
Sloan’s claim about the progress that Wells Fargo has made is in many ways at odds with the bank’s record over the last year, during which more fake accounts have been uncovered, another scandal related to the company’s auto-loan business surfaced, and the bank was accused of other predatory sales practices. Indeed, members of the committee weren’t convinced. “At best, you were incompetent. At worst, you were complicit. Either way, you need to be fired,” Senator Elizabeth Warren told Sloan. “Wells Fargo needs to start over and that won’t happen until the bank rids itself of people like you.”
A year ago, Wells Fargo’s then-CEO, John Stumpf, appeared before Congress to answer questions about a sales scheme in which employees created accounts for customers without their authorization; some of those accounts racked up fees and penalties for Wells Fargo customers. At the time, Stumpf said that an estimated 2 million accounts were affected.* “I am deeply sorry that we failed to fulfill our responsibility to our customers, to our team members, and to the American public,” he said, and promised the bank would change its ways.
One year after such a public apology, one would expect that the bank, and its new CEO, Sloan, might have significant progress to announce. But much of his testimony on Tuesday sounded strikingly like the words of his predecessor. “The past year has been a time of great disappointment and transition at Wells Fargo,” Sloan said. “I am deeply sorry for letting down our customers and team members. I apologize for the damage done to all the people who work and bank at this important American institution.” (Ironically, as Sloan spent several minutes discussing handing over information to credit-reporting agencies in the name of protecting consumers, the former head of Equifax was nearby giving his own testimony about a massive breach of customers’ data.)
Indeed, the scandal has only gotten worse since it first came to light. Since Stumpf’s appearance before Congress, the estimated number of accounts affected has been revised up to 3.5 million. Additionally, a separate scandal, involving auto loans the bank issued, affected some 500,000 customers, who had insurance policies taken out in their names that sometimes resulted in defaults and vehicle repossessions.
While Sloan tried to focus on progress made in the past year—bringing up changes made to the bank’s organizational structure, review processes, plans for repaying customers, sales incentives, and corporate culture—the senators focused on how long it took Wells Fargo to open official inquiries into the claims of fake accounts, the predatory nature of the sales processes, and the compensation executives received. The committee members dwelled on the questions of how the bank’s practices could be improved and whether it should be allowed to continue operating in the first place.
The bank, however, will almost definitely not be shut down and its executives will likely keep their jobs. And similarly unlikely is the possibility that the bank will come up with any groundbreaking new plans to protect its customers. Hearings like Tuesday’s are often better suited to the political posturing of elected representatives than they are to forcing accountability.
But the hearing did lead to an important and possibly useful discussion about Wells Fargo’s controversial use of mandatory-arbitration clauses. Such clauses prevent customers from being able to take the company to court and from banding together in class-action lawsuits, and would instead require that they individually work things out with the bank’s lawyers. Though Sloan said that even getting to the point where arbitration was necessary is something he’d consider to be a “failure,” he supported the bank’s use of them. He suggested that mandatory-arbitration clauses aren’t widely used, and that their outcomes were typically better for customers than those of other legal routes. Sloan, citing research from the Consumer Financial Protection Bureau (CFPB), argued that “arbitration is fast and efficient for consumers, and consumers have higher returns.”
But that’s yet another claim that seems to go against the evidence. A 2015 paper from the CFPB, the one Sloan appears to be citing, laid out the positive and negative aspects of arbitration, but was ultimately much less complimentary of the practice than Sloan was. In reference to the paper, the director of the CFPB said, “Our study found that these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year.” In fact, the study led the CFPB to write rules intended to limit companies’ use of mandatory arbitration.
Even if Tuesday’s hearings prompt further conversations about mandatory arbitration, they won’t do much to give consumers and banking skeptics what they really want: accountability at the highest levels of the financial sector.