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Boss of Wells Fargo bank told to resign

Wells Fargo CEO John Stumpf testifying before a Senate Banking Committee hearing on the firm’s sales practices on Capitol Hill in Washington, US. Photo: Gary Cameron/ReutersWells Fargo CEO John Stumpf testifying before a Senate Banking Committee hearing on the firm’s sales practices on Capitol Hill in Washington, US. Photo: Gary Cameron/Reuters

US Senate lawmakers excoriated Wells Fargo & Co.’s chief for his oversight of the bank as it opened two million bogus customer accounts, potentially laying the groundwork for new rules and reviving questions of whether banks are “too big to fail”.

Chief executive officer John Stumpf told the Senate Banking Committee on Tuesday that customers who had bogus accounts opened in their name will be made whole and compensated for any damage to their credit rating, but some Democratic senators called for his resignation.

Under fire, Stumpf said he has told his managers to do “whatever it takes” to make customers whole, refunding fees or compensating them for damage to their credit ratings. But he stood behind the former executive who ran the unit that oversaw many of the practices, and at times downplayed the scope of the affair.

In an answer to a question, he declined to commit to setting aside mandatory arbitration agreements that prohibit clients from suing Wells Fargo. The Consumer Finance Protection Bureau has proposed a ban on such clauses that prohibit class-action lawsuits.

Earlier this month, the lender agreed to pay $190 million in penalties and customer payouts to settle the case involving the creation of credit, savings and other accounts without customers’ knowledge. About $5 million will directly go to customers, many of whom might have paid a small fee on the unwanted accounts.

I apologise to all of the American people and our customers and I will make it right

The revelations are a severe hit to Wells Fargo’s reputation. During the financial crisis, the bank trumpeted itself as conservative, in contrast to its rivals.

Besides potential criminal charges against the company and its executives, Wells Fargo may face pressure from shareholders to change its practices on executive pay and governance.

The scandal also renewed debate over whether US banks are “too big to fail” and need closer government oversight to prevent a massive collapse. Lawmakers could use the fraud settlement as a springboard for new rules on executive pay, including clawbacks of compensation, and limits on forced arbitration.

Wells Fargo has said its board will assess whether to cancel or claw back any incentive compensation paid to a now-retired executive at the center of the scandal, Carrie Tolstedt.

Democratic Senators Jeff Merkley of Oregon and Elizabeth Warren of Massachusetts called for Stumpf to resign, with Warren saying Stumpf should give back his salary and be criminally investigated.

The bank’s board of directors is examining what action it should take against company executives, Stumpf told the committee.

“I accept full responsibility for all unethical sales practices,” Stumpf said, adding later: “I apologise to all of the American people and our customers and I will make it right.”

Lawmakers said the phony bank accounts might have hurt customer credit ratings, increased the cost of a mortgage or car loan. New credit card applications and consumer borrowing trends can weight on an individual’s credit.

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