Lawmakers shame ex-Wells Fargo directors for failing to reboot bank

Two former Wells Fargo board members faced bipartisan fury as lawmakers questioned how two of the top officials overseeing the nation’s fourth-largest bank allowed its executives to repeatedly fail to meet the demands of federal regulators.

Elizabeth Duke and James Quigley, who chaired Wells Fargo & Company and Wells Fargo Bank, respectively, defended their efforts to steer the scandal-ridden bank in the right direction before a skeptical House Financial Services Committee on Wednesday, less than three days after stepping down from their positions. 

Wells Fargo announced the resignations of Duke and Quigley on Monday following the release of two damning reports on the bank’s regulatory failures issued by Financial Services panel Democrats and Republicans. The committee’s chairwoman, Rep. Maxine Waters (D-Calif.), called on both to resign last Thursday, accusing them of a “dereliction of duty.”

Lawmakers say Duke and Quigley showed a lack of urgency when dealing with Wells Fargo’s compliance with orders from the Federal Reserve, Office of the Comptroller of the Currency and Consumer Financial Protection Bureau. 

“There are severe deficiencies and management practices that were unique to Wells Fargo and unique failures of this board of directors,” Rep. Patrick McHenry (N.C.), the panel’s ranking Republican, said on Wednesday.

“That’s why we’re having this hearing, even though you’ve both resigned.”

Emails obtained from the bank and its regulators in the report describe their excessive focus on freeing the bank from a Fed asset cap instead of meeting the new regulatory standards necessary to earn that freedom.

“The priority of the two of you and the overall focus of the board was on lifting the asset cap and exiting the consent decree and not actually fixing the risk management problems at the bank or holding senior management accountable,” said Rep. Nydia Velázquez (D-N.Y.).

Duke, a former Fed board governor, and Quigley defended their oversight of Wells Fargo, saying that while they resigned to avoid further “distraction,” they did everything they could to drive progress at the bank without overstepping their roles

“I believe wholeheartedly that we both spent the time, used our judgment, did the inquiries and did our jobs as thoroughly and completely as we possibly could,” Duke said, adding that the plans ordered by federal regulators “are the responsibility of management.”

Quigley added that he and other board members tried to avoid impeding on Wells Fargo management despite repeated failures by former chief executive Timothy Sloan to meet the basic requirements of federal regulators.

“Effective governance requires clear separation between management and the board and anytime those lines get blurred, I believe the enterprise becomes less safe and less sound,” Quigley said.

“I know what I’ve done as a board member of Wells Fargo and I am comfortable with that work, and the way that I perform that role.”

Duke and Quigley’s defenses fell flat, uniting the often polarized Financial Services panel in rage.

“What a sorry excuse for a board, to say nothing about this,” said Rep. David Scott (D-Ga.), one of the committee’s moderate veterans, after asking both to explain the bank’s extensive sales scandals.

“I hope and I pray that the people of this country see your stone silence when you won’t even answer this question, when you won’t even respond to the regulators,” Scott continued.

“This is an unpardonable sin that Wells Fargo has unbanked on the American people.”

Duke and Quigley presided over Wells Fargo as the bank faced a slew of lawsuits and regulatory orders over a decade of abusive sales practices and insufficient oversight.

Wells Fargo was sued by the CFPB for opening and charging customers fees on millions of accounts without their authorization. The bank faced further penalties from the Fed and OCC in 2018 for failing to make promised interest rate adjustments that cost hundreds of customers their homes and automobiles, and forcing customers to buy unnecessary insurance products.

Several Democrats accused Wells Fargo of running a “criminal enterprise,” urging federal regulators to break up a bank that was “too big to manage” and prosecutors to investigate its former leaders.

Waters asked the Justice Department on Tuesday to investigate whether Sloan lied to the committee under oath in March 2019, and several of her Democratic colleagues voiced support for further criminal probes.

“At some point, the long arm of the law has to reach Wells Fargo,” said Rep. Al Green (D-Calif.), chairman of the panel’s oversight and investigations subcommittee.

While Republicans rebuked Democrats for impugning big banks by criticizing Wells Fargo’s size, several echoed their call for prosecutorial action against former bank leaders.

“It wasn’t the ATMs, it wasn’t the conference rooms that committed crimes,” said Rep. Warren Davidson (R-Ohio).

“Someone that worked for Wells Fargo committed crimes,” Warren said, calling Quigley’s refusal to agree “pathetic.”

The Fed in 2018 ordered Wells Fargo to cease growing beyond its 2017 level of assets until the board of governors approved the bank’s plans to repay defrauded customers and improve internal oversight. The reports issued by lawmakers last week fault Duke and Quigley for failing to hold Sloan accountable for years of submitting incomplete plans to regulators. 

Lawmakers in each party blasted Duke and Quigley for not ousting Sloan sooner, citing emails from the committee’s reports that showed the depth of length of their concern over his performance.

“The CEO sets the tone, and if they are not taking the past problem seriously then it’s hard to get other employees to change their behavior,” said Rep. Roger Williams (R-Texas), a car dealership owner who frequently tests witnesses on their support for capitalism.

“Why did you stick with Tim Sloan for so long?”

Updated 12:41 p.m.