‘Solid reputation’: Why regulators long deferred to Wells Fargo on sales abuses

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Between 2010 and 2014, federal banking regulators missed numerous opportunities to address sales-related misconduct at Wells Fargo, in part because they saw the bank as having a “historically solid reputation,” according to a new government watchdog report.

The report, released Wednesday by the Treasury Department’s inspector general, evaluates the Office of the Comptroller of the Currency’s supervision of Wells Fargo prior to revelations that Wells employees opened millions of customer accounts without their authorization.

Its findings are generally consistent with the conclusions of a slimmer OCC report from 2017, which acknowledged that the agency failed to investigate complaints about abusive sales practices at Wells Fargo despite learning about potential issues more than a decade earlier.

The new report, which is based partly on interviews with current and former OCC officials, contains many additional details, including information about why the agency failed to respond forcefully to explosive Los Angeles Times reporting in 2013 about sales misconduct at Wells.

Thomas Curry, left, headed the OCC for much of the period covered by the new report, and John Stumpf, right, was the CEO at Wells Fargo.
Thomas Curry, left, headed the OCC for much of the period covered by the new report, and John Stumpf, right, was the CEO at Wells Fargo.

“According to OCC examiners, historically, Wells Fargo had a solid reputation,” the watchdog report states. “Articles similar to the Los Angeles Times articles are published often about banks and often times the press does not have all the facts. OCC officials told us that it is uncommon to change its supervisory course due to press allegations.”

The newspaper’s reporting ultimately sparked a lawsuit against Wells Fargo by the Los Angeles City Attorney’s office in May 2015, around which time the OCC began to take a tougher stance regarding sales misconduct at the bank.

In September 2016, the OCC and other government agencies hit Wells with $185 million in penalties. Three and a half years later, the bank agreed to pay $3 billion more in order to resolve criminal and civil investigations.

The report released Wednesday includes the finding that the OCC took appropriate supervisory action beginning in 2015. But it wasn’t until May of that year that the agency even became aware that 230 Wells Fargo employees had been fired or resigned as a result of an internal bank investigation in 2013, according to the report. In the meantime, the agency was only aware of 30 employee terminations stemming from the bank’s internal probe.

At the time that OCC officials were deferring to what they saw as Wells Fargo’s solid reputation, the bank had been hit with several recent enforcement actions, including a 2011 consent order with the Federal Reserve Board in connection with allegations that employees of a now-defunct subsidiary, Wells Fargo Financial, falsified information in mortgage applications.

Current and former OCC employees gave several other explanations for their failure to see the magnitude of the sales misconduct sooner, according to the new report. One stated explanation was that the OCC dedicates more supervisory resources to higher-risk areas.

“Historically, deposits have never been a high risk for banks and banks don’t fail because of deposit products,” the report states. “Sales practices were considered a low risk area.”

“The termination of 30 employees in 2013 was considered immaterial and insignificant compared to the bank’s population of approximately 200,000 employees,” the watchdog agency wrote.

The other explanations that were given for the OCC’s shortcomings were: competing priorities that demanded supervisors’ attention; understaffing of the Wells Fargo compliance examination team; and a rigid supervisory process.

“Several OCC examiners told us that the strategy process is not nimble,” the report states. “Further, all changes must be approved by OCC’s senior level management.”

The watchdog report does not include any recommendations for the OCC, instead citing actions that the agency has already taken in the aftermath of its own 2017 report, including two that dealt with the implementation of an enterprisewide whistleblower complaint review process at the OCC.

“We believe that if an adequate process had been in place,” the watchdog report states, “it could have identified the rise in sales integrity complaints and potentially assisted in identifying and addressing the inappropriate sales practices at Wells Fargo sooner.”

An OCC spokesman said Wednesday that the agency appreciates the inspector general's feedback. He also stated that the new report identifies issues consistent with those that the OCC flagged in 2017 and subsequently corrected. "The OCC reviews and assesses the efficiency and effectiveness of our supervision with the goal of continuous improvement," OCC spokesman Bryan Hubbard said in an email.

Former Comptroller Thomas Curry, who headed the agency from 2012 to 2017, declined to comment on the report. A Wells Fargo spokesman had no immediate comment.

The inspector general’s report focuses on supervision of the bank’s sales practices and does not discuss other instances of coziness between the OCC and Wells Fargo.

In 2006, the same watchdog agency found that the OCC should have hit Wells with a public cease-and-desist order for repeated and severe problems in its anti-money-laundering program. Instead, senior OCC officials who had met with Richard Kovacevich, who was then the bank’s CEO, overturned the recommendations of examiners and issued an informal enforcement action.

In 2011, Wells Fargo’s next CEO, John Stumpf, gave a speech to OCC employees in which he urged examiners to raise issues early, escalate them to the highest levels in the bank, and continue to view banks as the agency’s partners.

Update
This story has been updated to add comments from an OCC spokesman.
September 30, 2020 4:07 PM EDT
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Crime and misconduct Consumer banking OCC Wells Fargo Thomas Curry John Stumpf
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