As if the rip-off of some 2 million customers weren’t enough for Wells Fargo & Co., it turns out that the bank is trying to deprive its victims of their days in court.
In a pattern reported this week by The New York Times, the bank – which was fined $185 million this fall by federal authorities for opening millions of unauthorized accounts in its customers’ names and sticking them with nearly $2.5 million in fraudulent fees – has been arguing in federal and state courts that the wronged customers should have to argue their cases, not in public, but in private arbitration.
It’s a cynical ploy, and destructive to the public trust and the legal system. Forced private arbitration, an entrenched feature in even the most mundane contracts, often tilts contractual arrangements in favor of corporate interests and deprives the public of important consumer information and case law.
Companies like it because it keeps bad publicity out of the public record, stymies potential class actions and improves the odds of favorable decisions; private paid judges know that companies often give repeat business to arbitrators who give favorable rulings. Consumers are at a disadvantage in what has come to amount to a shadow system of civil justice.
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In the Wells Fargo case, the push is particularly reprehensible: Because most of the fraud victims once had legitimate accounts – that’s how the bank’s sales employees got the identifying information to create additional fake ones – their files included contracts in which they had once waived their right to sue and agreed to private arbitration.
The bank claims that those waivers apply to the legitimate accounts, and to the fake ones, even though the signatures were forged in many cases. It’s a scam on top of a scam, and some judges are buying it, due to the broad wording of the arbitration clauses.
The federal Consumer Financial Protection Bureau, which levied the $185 million fine, has initiated rules to forbid arbitration clauses that ban class actions in cases involving financial services and products. But even if those rules stand – a dubious proposition, given President-elect Donald Trump’s promise to dismantle some bank regulations – they would not be retroactive, and would not apply to the Wells Fargo lawsuits.
Sen. Sherrod Brown, D-Ohio, and Rep. Brad Sherman, a Los Angeles-area Democrat on the House Financial Services Committee, this month introduced legislation invalidating the arbitration clauses in the Wells Fargo customers’ contracts. A similar bill was introduced this week at the state level by state Sen. Bill Dodd, D-Napa.
Though it will be a heavy lift, given gathering corporate might, this imbalance must be leveled. As it is, Wells Fargo’s new chief executive appeared this week at a financial conference, publicly calling, in an incredible act of chutzpah, for a rollback in financial regulations. Three months ago, though it now seems another lifetime, the bank was vowing to regain consumers’ trust.