Wells Fargo Senate Hearing Puts Regulators, Oversight Expansion at Center of Political Storm

Corporate Governance, Executive Pay Legislation and Regulation

Although the majority of reporting on this week’s Senate Banking Committee hearing on the Wells Fargo cross-selling scandal focused on the dialogue between Wells Fargo CEO John Stumpf and the members of the Committee, the Committee also heard testimony from the federal regulators responsible for oversight of the industry, likely setting the stage for further regulations or oversight next year.  During testimony by the Comptroller of the Currency (OCC) and the Director of the Consumer Financial Protection Bureau (CFPB), Republicans sternly admonished the regulators for failing to identify the lapses that led to the civil settlement.  Committee Chairman Richard Shelby (R-AL) argued that the failure to identify and stop the Wells Fargo situation demonstrated the ineffectiveness of the CFPB, stating "If there were ever a textbook case where consumers needed protection, this was it. How many millions of unauthorized accounts does it take before the CFPB notices?" Meanwhile, Democrats pointed to the unauthorized accounts as prime examples for why the regulators, and particularly the CFPB, are necessary.  The positioning on display by the parties, particularly by the Democrats, led by Senator Elizabeth Warren, indicates that, depending on the outcome of the elections, there will likely be a push to beef up the oversight powers of financial regulators in the wake of the Wells Fargo revelation.  This will likely include a push to complete rules implementing Dodd-Frank Section 956, the financial services incentive compensation rules which include far-reaching compensation deferral and clawback requirements, as well as more expanded powers by the OCC and CFPB to oversee the nation's financial firms and potentially additional requirements linking risk and executive compensation.  Republicans, on the other hand, have repeatedly objected to the very existence of the CFPB and to regulatory expansion efforts including Dodd-Frank Section 956 on the basis that they are overbroad and will likely result in unintended consequences that will further harm bank stakeholders.  In fact, the Republican-led House Financial Services Committee is holding a hearing next week to discuss re-vamping how the CFPB's operations work, citing the Wells Fargo scandal as evidence of the agency's incompetence.