Wells Fargo Using Forced Arbitration to Kill Sham Account Lawsuits

In the wake of Wells Fargo’s most recent scandal, in which the financial firm was caught red-handed creating two million fraudulent accounts by customers, the bank promised it would clean up its act. It promised to change its practices and do its best to protect its customers. But as a New York Times‘ investigation shows, the bank has been – and still is – actively trying to kill off lawsuits stemming from its fraud by forcing customers affected to settle their claims via arbitration, rather than be allowed to have their day in court. So much for accountability. credit cards

Highlighting these actions are critical now that we have leaders intent on gutting the Consumer Financial Protection Bureau and its regulations – proposed and existing.

We should start by explaining first what forced arbitration is. It is part of a binding contract that bank consumers “agree” to by virtue of having an account, and it requires that all disputes arising with the firm must be handled with a private arbitrator, rather than in a court of law with a judge or jury. There is very good reason banks (and many other businesses) push so hard for these provisions, and its that the outcomes are most often favorable to defendants. Even where decisions are made in favor of consumers, they tend to be for far less than what they might have received in litigation. What’s more, the process is not transparent. It’s all confidential, so it does nothing to help others similarly situated. It effectively quashes the ability of wronged consumers to engage in a class action, which is sometimes the only way to truly hold these large firms accountable. 

In May 2016, the CFPB proposed rules that would prohibit mandatory arbitration clauses that would deny groups of consumers their day in court. Most consumer financial products (i.e., credit cards, bank accounts, etc.) have contract “gotchas” that typically prevent consumers from joining forces. There is also usually no appeals process in arbitration. Whatever decision the arbitrator makes – it’s final. A 2015 investigation by the Times revealed that arbitration has no strict rules limiting conflicts of interest, which means companies can have these matters decided by friendly arbitrators.

So that brings us to the issue with Wells Fargo. Company employees for years were under enormous pressure to meet unrealistic sales goals. In order to meet these – and keep their jobs – employees tapped into customers’ personal information to create banking and credit card accounts that were not authorized by the customers. The scandal sparked ire among politicians and regulators and forced the ouster of CEO John Stumpf.

Now, the bank is pushing to force all customer disputes through arbitration, which has further angered politicians and legislators.

As one customer railed, her identity was stolen by the bank so employees could meet sales goals, and such matters should be litigated in a public forum – not just because arbitration is often stacked against consumers, but because the public deserves to be aware of what happened. Our Miami consumer protection lawyers know that’s a major part of accountability.

Plaintiffs in the Wells Fargo cases are arguing they shouldn’t have to have these cases go before an arbitrator because they concern accounts they never agreed to open. The bank’s attorneys, meanwhile, argue that the arbitration clauses of the customers’ legitimate accounts also cover disputes related to false ones set up in their names. So far, some judges have sided with the bank, and others have sided with plaintiffs.

Sen. Sherrod Brown (D-OH) has introduced a bill that would prevent the bank from forcing arbitration clauses in these fraudulent account cases.

So while Wells Fargo may be flailing with regards to public opinion, it’s still -for now – winning the battle to kill off lawsuits.

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:

Wells Fargo Killing Sham Account Suits by Using Arbitration, Dec. 6, 2016, The New York Times

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Reports: New Treasury Secretary Oversaw “Foreclosure Machine”, Dec. 7, 2016, Miami Consumer Protection Lawyer Blog