Photo: Diego M. Radzinschi / ALM Media

Wells Fargo & Co. chief executive Tim Sloan defended the bank's use of mandatory arbitration as he appeared on Capitol Hill on Tuesday, drawing stiff criticism from U.S. Senate Democrats who are resisting a Republican effort to repeal a new regulation that bars the financial industry from forcing consumers to waive their right to file class actions.

Facing the Senate Banking Committee from the same hot seat where his predecessor, John Stumpf, testified last year in the throes of Wells Fargo's sales practices scandal, Sloan argued that arbitration is fast and fair for consumers. Sloan cited a Consumer Financial Protection Bureau study, saying the agency's analysis showed that arbitration can deliver more redress to aggrieved consumers.

Sen. Sherrod Brown, the top Democrat on the banking committee, said that was a “selective reading” of the study and noted the CFPB finalized a new rule banning forced arbitration clauses with class action waivers.

“But keep in mind where the CFPB ultimately came out on that question,” Brown said.

Brown noted that several of Wells Fargo's competitors have begun eliminating forced arbitration. When Brown asked Sloan whether he would commit to following suit, the Wells Fargo executive responded, “No, I won't, senator.”

Under questioning from Sen. Jon Tester, D-Montana, Sloan said the bank would not invoke its forced arbitration clause in disputes over accounts that were opened without consumers' knowledge or consent. Earlier this year, Wells Fargo disclosed that up to 3.5 million accounts were potentially opened without consumers' consent after previously estimating the total to be 2.1 million. Wells Fargo had agreed in September 2016 to pay $185 million to resolve allegations related to the sales practices scandal.

The Democrats' focus on arbitration comes at a crucial time for the CFPB's arbitration rule. In July, within weeks of the CFPB's move to finalize the rule, the U.S. House of Representatives passed a resolution to undo the regulation under the Congressional Review Act—a tool allowing lawmakers to repeal agency regulations within 60 legislative days. The Senate has until early November to vote on a repeal bill filed by Sen. Mike Crapo, R-Idaho, chairman of the Senate Banking Committee, and co-sponsored by 31 other Republicans.

Last week, the U.S. Chamber of Commerce joined with financial industry groups to challenge the CFPB's arbitration rule in Dallas federal district court. A team from Mayer Brown filed the complaint.

A team from Sidley Austin helped prepare Sloan for the congressional hearing. The core team included: Michael Borden, a government strategies partner; Mark Hopson, the firm's Washington managing partner; litigation associates Ben Beaton, Ava Guo and Sana Munasifi; and Rick Boucher, a former Democratic U.S. representative from Virginia who leads Sidley's government strategies team.

In his opening remarks at the hearing, titled “Wells Fargo: One Year Later,” Sloan apologized for the “damage done to all the people who work and bank at this important American institution.”

“When the challenges at Wells Fargo demanded decisive action, the bank's leaders acted too slowly and too incrementally. That was unacceptable,” he said.

Sloan said Wells Fargo, in response to the scandal, has clawed back $180 million in executive compensation. Sitting behind him at the hearing was the bank's top in-house lawyer, C. Allen Parker, a former Cravath, Swaine & Moore partner who replaced longtime Wells Fargo general counsel James Strother earlier this year. Strother had planned on retiring at the end of 2016 but stayed on to guide the bank through the immediate aftermath of the scandal.

Wells Fargo, Sloan said, “is a better bank today than it was a year ago. And next year, Wells Fargo will be a better bank than it is today. That is because we have spent the past year determined to earn back the public's trust. Since I became CEO 11 months ago, my team and I have been focused on the three tasks you have invited me to discuss today.”

Sen. Elizabeth Warren, D-Massachusetts, questioned whether Sloan—a 30-year veteran at the bank who was promoted from chief operating officer to CEO following Stumpf's retirement last year—could adequately lead the change.

“At best you were incompetent, at worst you were complicit,” Warren said, before adding, “You should be fired.”

C. Ryan Barber, based in Washington, covers government affairs and regulatory compliance. Contact him at [email protected]. On Twitter: @cryanbarber

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