Bank regulator faults itself for missing Wells Fargo issues

NEW YORK — The nation’s big bank regulator is faulting itself for failing to address the problems at Wells Fargo before it was too late.

Bank examiners saw sales problems at Wells Fargo as early as 2010 and met with executives but declined to investigate further, the inspector general at the Office of the Comptroller of the Currency said Wednesday. It was investigating after it came to light that Wells Fargo workers opened up to 2 million accounts without customer permission as employees tried to meet sales goals.

“The OCC did not take timely and effective supervisory actions after the bank and the OCC identified significant issues with … sales practices,” the office’s inspector general said in its report.

That may partly explain why Wells Fargo’s behaviour went on for years and was ignored by authorities, until The Los Angeles Times uncovered sales practices problems at the bank in Southern California. A scathing assessment released last week by the board of directors of the San Francisco-based bank also said the problems stretched back many years.

According to the OCC’s report, examiners met with Carrie Tolstedt, the executive in charge of Wells Fargo’s consumer banking operations, to discuss an unusually high 700 whistleblower complaints regarding the bank’s aggressive sales practices. Tolstedt told regulators at the time that the large number of complaints was due to Wells Fargo having a culture that “encourages valid complaints which are then investigated and appropriately addressed,” according to the report.

Despite knowing about these complaints and other issues, the OCC declined to investigate further into why these whistleblower complaints existed in the first place. It also did not look into risks that could come from compensation programs like those at Wells.

The OCC’s examiners took no action against Wells Fargo through at least 2014, according to the report, which would have been months after The Los Angeles Times published its investigation in late 2013.

Eventually the OCC, along with other authorities, did investigate Wells Fargo and fined the bank $185 million in September. Comptroller of the Currency Thomas Curry had ordered an internal investigation into the agency’s handling of Wells Fargo shortly after the bank was fined. This report is the result.

Wells Fargo was known in banking circles as a having an extremely aggressive sales culture, and its executives highlighted its “cross-sell ratio,” or the number of accounts or other services a Wells Fargo customer typically had at the bank. Wells was aiming for as many as eight per household, while most big banks aim to have two to three per customer.

The Inspector General’s report notes that the OCC’s examiners were aware of Wells’ now infamous “Going for Gr-Eight” sales program, but again, did not take action.

“We are aware of no assessment of the risks and controls associated with the corporate goal of cross-selling eight products per household,” OCC examiners wrote in 2010, according to the report.

The assessment by the bank’s own board said the problems date back at least 15 years — but that executives had little interest in dealing with the issue until it spiraled out of control. The board has reclaimed millions in pay from Tolstedt and former CEO John Stumpf, saying they dragged their feet for years. The OCC’s report also found that the board was aware of some sales practices issues as early as 2005.

Tolstedt retired from Wells Fargo in June. The board of directors’ report laid most of the blame for Wells’ toxic sales practices at her and Stumpf’s feet. Tolstedt has denied the board’s allegations.

Since the scandal, Wells got rid of its sales goals and restructured how it pays employees to focus less on opening checking accounts and more on how those bank accounts are actually used. The bank also stopped referring to its branches as “stores.”

The bank still faces other investigations by state and federal authorities. The bank will also face angry shareholders next week at its annual meeting, amid a push to get rid of the company’s board of directors.

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