One of the most dramatic moments during Tuesday’s congressional hearing on the Wells Fargo scandal came when CEO Tim Sloan was asked why the bank should be allowed to keep its charter.

Until recently, that question would have been unfathomable at a Senate Banking Committee hearing. But in response, Sloan did not present a strong case for why Wells should be permitted to continue operating.

For example, he did not contend that Wells has halted consumer abuses during his 11-month tenure in the top job. Nor did he argue that the $1.9 trillion-asset bank makes a substantial contribution to the U.S. economy.

Tim Sloan, chief executive officer and president of Wells Fargo, shakes hands with Sen. Elizabeth Warren, D-Mass., before testifying at a Senate Banking, Housing and Urban Affairs Committee hearing in Washington.
Calm before the storm
Sen. Elizabeth Warren, D-Mass., after greeting Wells Fargo CEO Tim Sloan before the hearing, later told him, "At best you were incompetent. At worst you were complicit. And either way, you should be fired." Bloomberg News

Instead, Sloan noted that one in three U.S. households are Wells Fargo customers, and that the firm has 270,000 employees. He also made the argument that as of today, the San Francisco bank is doing much more right than it is wrong.

“So you’re too big?” was the blunt response from Sen. Brian Schatz, D-Hawaii.

“No, we’re not too big at all. I’m just reinforcing that every day we have 270,000 team members,” Sloan said, before being cut off.

The exchange illustrated that more than a year after the unauthorized-accounts scandal emerged, the once-swaggering big bank remains in a defensive crouch. Throughout the hearing, Sloan absorbed heavy punches from Democrats and somewhat lighter blows from their Republican colleagues.

The dynamics were similar at a Senate hearing on Wells Fargo in September 2016, when then-CEO John Stumpf absorbed a bipartisan beating. A few weeks later, he resigned.
It seems unlikely that Sloan will lose his job in the wake of his appearance Tuesday, though Sen. Elizabeth Warren, the banking industry’s chief nemesis on Capitol Hill, was certainly gunning for him.

Sloan has worked at Wells Fargo since the 1980s, and he served as the bank’s chief financial officer between 2011 and 2014. Before Tuesday, his own actions prior to September 2016 — some 3.5 million potentially unauthorized customer accounts were opened in the preceding years — had gotten little public attention.

But Warren argued that Sloan looked the other way as the abuses mounted because Wells Fargo’s sales prowess was a key selling point to Wall Street.

“You say you’ve been making changes at Wells Fargo for 30 years?" the Massachusetts Democrat said. "But you enabled this fake-account scam, you got rich off of it and then you tried to cover it up.”

“At best you were incompetent. At worst you were complicit. And either way, you should be fired. Wells Fargo needs to start over, and that won’t happen until the bank rids itself of people like you, who led it into this crisis.”

Sloan’s response amounted largely to a defense of his insider status. He said that his deep understanding of Wells Fargo is an asset in bringing about change.

“I have made mistakes, I certainly haven’t been perfect,” he said. “But I think having that knowledge of the company, having the ability to make the change — the actions that I’ve taken since I’ve become CEO 11 months ago have made fundamental change at this company.”

Later, Sloan faced hostile questions from Sen. Sherrod Brown, D-Ohio, who accused Wells Fargo of covering up a separate scandal that emerged earlier this year involving charges for auto insurance that customers did not need.

Wells Fargo knew about the auto insurance problems in July 2016, but later told the Senate Banking Committee that the fraudulent sales practices were limited to the firm’s retail banking unit.

“Mind you, this was not a casual response to a question that caught somebody off guard at a hearing. It was a written response that undoubtedly was approved by lawyers and others at the bank,” Brown said. “Maybe even you, Mr. Sloan, were among those who saw the response before it was sent to Congress.”

Sloan pointed to several actions that Wells took, including informing its regulators about the auto insurance problems in the third quarter of 2016. The bank also hired a law firm and a consulting firm to conduct a review, though it did not disclose the problems publicly until August 2017.

“So we haven’t been covering it up,” Sloan said.

For all of the theatrics on Tuesday, Congress may be the least of Wells Fargo’s problems. The bank’s reputation with consumers has taken a big hit over the last year. Numerous investigations of the misconduct at Wells continue. And regulators are reportedly considering taking further action against the San Francisco bank.

But one area where Congress does play a pivotal role involves a recently finalized Consumer Financial Protection Bureau rule that bans the banking industry’s use of forced arbitration clauses. Such clauses have long prevented consumers from banding together in class-action lawsuits.

Wells Fargo uses mandatory arbitration clauses for some of its products, and congressional Democrats have seized on the company’s scandal as they try to stop a Republican-led effort to overturn the CFPB rule.

At Tuesday’s hearing, Sen. Jon Tester, D-Mont., sought Sloan’s assurance that Wells will not try to enforce mandatory arbitration clauses that customers agreed to in an effort to stymie lawsuits brought against Wells regarding unauthorized accounts.

“We’re not doing that,” Sloan said.

But later, Sloan was pressed on the same issue by Sen. Chris Van Hollen, D-Md. He pointed to a Utah lawsuit involving fake accounts that Wells Fargo recently sought to move to arbitration.

“Senator, I will look into that matter,” Sloan responded.

That position that did not sit well with Sen. Heidi Heitkamp, D-N.D., who said it echoed Stumpf’s repeated professions of ignorance when he testified before the committee last year.

" 'I'm not familiar' is not an answer we should be hearing today,” Heitkamp told Sloan. “I haven’t heard you say mistakes were made at the highest levels of Wells Fargo. I do not hear a level of culture change that satisfies me today.”