What to expect at the Wells Fargo hearing

The CEO of San Francisco-based Wells Fargo is expected to appear before a US Senate committee to answer questions about widespread consumer fraud at the bank.Max Whittaker/The New York Times

Beleaguered Wells Fargo CEO John Stumpf is expected to get the “what did you know and when did you know it” treatment Tuesday when he appears before a US Senate committee tasked with investigating widespread consumer fraud at his company.

The issue? Thousands of Wells Fargo employees have been surreptitiously signing customers up for new accounts — without bothering to get the customers’ permission.

Details have been leaking out for years but last week the company was hit with a wrist-slapping $185 million fine and an embarrassing report showing how strangely counterproductive the whole operation was. It never helped the company make money; it just helped employees meet misguided sales targets.

Stumpf himself may stay quiet at Tuesday’s hearing — given the risk of incriminating himself in the ongoing criminal probe. But the senators will insist on being heard, not least among them Elizabeth Warren, the wolf of Wall Street regulation who is already taking aim at the big bonuses executives earned as their employees cheated customers.

What did Wells Fargo do?

Bankers at local branches were encouraged to focus their salesmanship on existing customers, getting them to sign up for additional Wells Fargo products. And that’s exactly what they did.

Only, sometimes they opened those new accounts without the customers’ knowledge or permission.

It’s a perverse case of “you get what you ask for.” If you press employees with unreasonable targets — while promising bonuses or threatening layoffs — some of them will cross lines in order to hit those goals.

The city of Los Angeles put it this way when they filed a complaint in 2015: “Wells Fargo imposes unrealistic sales quotas on its employees, and has adopted policies that have, predictably and naturally, driven its bankers to engage in fraudulent behavior to meet those unreachable goals.”

You could write this behavior off as the work of a few bad apples, except this was a big orchard. Over 5,000 employees have been fired for similar behavior since 2011, apparently all across the country.

What did Wells Fargo have to gain?

It’s not what you think. This isn’t about bilking customers to boost profits. It couldn’t be, because fraud at this level isn’t profitable. We’re talking about teeny sums of money.

According to the Consumer Financial Protection Bureau, the unauthorized accounts and credit cards brought in about 2.5 million in fees, which amounts to .003 percent of Wells Fargo’s annual revenue.

That shouldn’t be surprising. When people have accounts that they don’t really need — or even know about — they tend not to put much money in them.

It was all about personal incentives, rather than the company’s bottom line. Retail bankers needed to create fraudulent accounts in order to meet goals and keep their jobs. But the same kind of logic applies further up the ladder. When employees are hitting their tough targets, the executives above them are often rewarded with big bonuses. In this climate, who has an incentive to check for fraud?

Particular attention has been focused on Carrie Tolstedt, the long-time Wells Fargo executive who oversaw the community banking division where all the illegal activity occurred. Tolstedt allegedly earned $20 million in bonuses between 2010 and 2015. Now, Senator Warren and several of her colleagues are arguing that those bonuses are ill-gotten and should be clawed back.

Will the Senate Committee hearing make a difference?

Don’t expect damning revelations during Tuesday’s hearings. Stumpf should be well-prepared, tutored by his lawyers on how to answer and when to evade.

And while the committee will also hear from investigators, they too have reasons for reserve. In particular, they don’t want to interfere with ongoing criminal probesthat have the best shot at meting out meaingful penalties — higher fines or even jail time.

But so what if nothing new comes out Tuesday? That’s not what committee hearings are for. They’re about drawing attention to a key issue, embarrassing bad actors, and letting politicians advance their priorities.

If nothing else, by the time Tuesday is done, there’s likely to be some viral video of Elizabeth Warren excoriating a big banker for bad behavior.

Will bank executives ever pay a real price for misdeeds?

Whatever the sins of Wells Fargo, the real issue is broader. Why do we keep ending up here, with maligned financial executives sitting tight-lipped before railing politicians?

Whether it’s the big-time risk-takers who brought down the US economy in 2007, those who were found manipulating interest rates, or those caught laundering money, there always seems to be more outrage than consequence.

Tuesday’s hearing won’t just be about Wells Fargo and John Stumpf. It’ll be about all these cases, all the other executives who briefly took the hot seat but ultimately slipped comfortably away.

If you want to understand the fire and passion likely to erupt Tuesday, that’s where you have to look. Beyond the fraud at Wells Fargo to the abiding question of whether executives will ever be held accountable for the excesses and misdeeds of their farflung businesses.