Embattled Wells Fargo revises employee pay system

Wells Fargo pledged Tuesday to eliminate product sales goals in retail banking as it faced mounting criticism over its bogus accounts scandal, including from Treasury Secretary Jacob Lew.

Lew slammed Wells Fargo after it was fined $185 million and charged last week by a federal consumer watchdog with secretly opening accounts without customers' knowledge.

"It's unacceptable behavior and it's the kind of behavior that we need to be able to catch and stop," Lew said at an investor conference hosted by the CNBC network.

Lew's remarks came as Wells Fargo announced that employees would no longer have product sales goals starting January 1. Regulators with the Consumer Financial Protection Bureau said Wells Fargo employees engaged in the chicanery because their compensation was tied to opening up new accounts.

"Our objective has always been and continues to be to meet our customers' financial needs and drive customer satisfaction," said Wells Fargo chief executive John Stumpf.

"We are eliminating product sales goals because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers."

On September 8, the CFPB denounced Wells Fargo for "widespread" illegal activity tied to its cross selling of credit and bank products to customers. By Wells Fargo's own figures, the bank opened roughly 1.5 million deposit accounts and 565,000 credit card accounts that may not have been authorized by consumers, the CFPB said.

Wells Fargo has apologized and said it fired 5,300 employees tied to the illegal conduct.

The US Senate Banking Committee has scheduled a hearing on Well Fargo for next week at which Stumpf is expected to testify. The hearing is expected to focus at least in part on whether the bank should demand the return of bonuses from top executives.

Wells Fargo is the biggest private mortgage lender in the United States and has been the largest bank by market capitalization. However, shares have been hit by the scandal, leaving its market capitalization slightly below that of JPMorgan Chase Tuesday.

At midday, shares of Wells Fargo were down 3.4 percent at $46.91.

Though the scandal does not involve huge amounts of money, it has tarnished the image of Wells Fargo after it emerged from the subprime housing bust comparatively unscathed. Warren Buffett's Berkshire Hathaway is the biggest shareholder in the bank with more than nine percent.

Morningstar called the conduct "beyond the pale."

"Unfortunately, it's not surprising that numerous employees took advantage of an incentive system designed to spur cross-selling," Morningstar said. "The financial services sector has seen many similar instances of poorly designed bonus programs, including a wide variety of excesses leading to the subprime crisis."

Lew said the crackdown vindicated the creation of the CFPB under the 2010 Dodd-Frank financial reform law, which was enacted in response to the 2008 financial crisis.

"When I hear people say we want to roll back the statute that created the consumer protection bureau, this is another proof point it was the right thing to create," he said.