Wells Fargo Pulled Off a Massive Scam for Five Years. Here’s How.

For at least five years, Wells Fargo was engaged in a practice of secretly opening some 2 million phony credit card and deposit accounts in an effort to put multiple banking products in customers’ hands. That kind of growth strategy was central to the bank’s business, and employees were pressured to meet demanding quotas calling for each customer to have eight accounts with the bank. This prompted employees to cut corners. They started opening up accounts without customers’ Ok or knowledge.moneytower

This practice started at least as far back as 2011, but there is evidence to indicate it may have been going on even back in 2009. As a result, the bank was able to rake in at least $2.6 million in additional fees on accounts customers never wanted to begin with. In many cases, customers didn’t even know they existed, and the fees were simply being deducted from other legitimate accounts. Federal regulators got involved this month, and the bank quickly agreed to settle the case for $185 million. Thousands have been fired (though not the company CEO) and U.S. Attorneys have begun investigations. Sen. Elizabeth Warren (D, Mass.) lambasted CEO John Stumpf during a Senate Banking Committee. Although he apologized, Warren told him he was personally responsible, should resign and be criminally investigated.

But the question of why this took so long to uncover goes back to another practice that isn’t unique to Wells Fargo. It’s called an arbitration clause. 

There is evidence that individual customers did try to bring lawsuits against the bank over the last few years for creating accounts without their knowing. However, the courts sent those complaints to arbitration because their “contract” with the bank – the fine print included when they signed up for the original accounts – compelled them to forfeit their right to have disputes handled in a court of law. These strict provisions protect the bank from customer litigation, and instead force the aggrieved customers to have their claims handled in a private arbitration session overseen by an arbitrator of the bank’s choosing.

These agreements also prohibited class action lawsuits by numerous customers.

As Warren, the creator of the Consumer Financial Protection Bureau, has stated, if class action lawsuits had been available to customers way back in 2008, this fraud would not have gotten so far as it did. Think about it: If a bank swindles tens of thousands of customers in the exact same way, but there is an arbitration clause in place, those customers aren’t allowed to go to court together. That means each individual has to not only research the scam, figure it out, determine what their rights are and then spend time and money going toe-to-toe with a multi-billion-dollar bank. This kind of system makes it so that each customer is on his or her own when it comes to battling the banks on these issues. What’s more, even if they do get to that point, they will have to take their case before an arbitrator. Whatever information they uncover, whatever scam is revealed – that all stays secret. Arbitration proceedings are not public. Further, arbitrators are not even bound to follow the law.

Our Miami consumer protection attorneys understand lawmakers are considering new rules recently proposed by the CFPB that would curtail forced arbitration and make it easier for duped customers to band together in a class action lawsuit. Those claims have a much better shot at prevailing against a large institution like Wells Fargo.

If you’re battling debt collection in Miami or the surrounding areas contact Jacobs|Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday at 5 p.m. on “Debt Warriors with Bruce Jacobs and Court Keeley,” discussing foreclosure topics that matter to YOU.

Additional Resources:

Why Wells Fargo got away with it for so long, Sept. 20, 2016, By Robert Weissman and Lisa Donner, The Hill