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Bill Bolsters Legal Efforts of Wells Fargo Fraud Victims

By Richard Adhikari
Dec 8, 2016 5:00 AM PT

United States lawmakers last week introduced legislation to stop Wells Fargo from enforcing arbitration agreements with victims of fraud it perpetrated against them.

Bill Bolsters Legal Efforts of Wells Fargo Fraud Victims

Sen. Sherrod Brown, D-Ohio, the ranking member of the Senate Committee on Banking, Housing and Urban Affairs, and Rep. Brad Sherman, D-Calif., a member of the House Financial Services Committee, introduced the Justice for Victims of Fraud Act of 2016 in their respective chambers.

Among the Senate bill's cosponsors are Sens. Patrick Leahy, Elizabeth Warren, Patty Murray, Richard Durbin, Jack Reed, Al Franken and Jeff Merkley.

House cosponsors include Reps. John Conyers, who serves as ranking member of the Judiciary Committee, Michael Capuano, Matt Cartwright, Judy Chu, Danny Davis, Donna Edwards and Raul Grijalva.

The bill complements an oversight rule prohibiting mandatory arbitration clauses, which the U.S. Consumer Financial Protection Bureau proposed this spring.

The CFPB rule would apply only to contracts signed after its adoption, but the Justice for Victims of Fraud Act would apply retroactively to victims Wells Fargo defrauded, even if they signed contracts that included arbitration clauses for legitimate accounts in the past.

Cooperative Courts

Wells Fargo has achieved some success in court with the argument that arbitration clauses applicable to legitimate accounts also cover accounts the bank fraudulently opened for customers without their consent.

In a push to boost its account numbers, Wells Fargo management over a period of years instructed employees to create millions of unauthorized accounts. The fallout from the fraud included the firing of 5,300 employees and the exit of CEO John Stumpf following a grilling in Congress. The CFPB imposed a fine of $100 million, and Wells Fargo customers stampeded out the door.

In an apparent effort at damage reduction, the bank now is attempting to avoid harsh legal penalties by forcing defrauded customers into arbitration proceedings.

The odds tend to be stacked against consumers when cases go to arbitration. Among other things, strict judicial rules limiting conflicts of interest don't apply, so companies can steer cases to friendly arbitrators. Further, there is no public oversight, and decisions tend to be binding.

"It takes a lot of corporate chutzpah to stick people with accounts they didn't ask for and then tell them they can't sue because of an arbitration clause in some other account," Jim Lardner, communications director of Americans for Financial Reform, told CRM Buyer.

Wells Fargo's Dirty Deeds

"This legislation gives these defrauded customers the opportunity to seek justice in court, and is a step in the right direction in bringing fairness to consumer finance," said Melissa Stegman,, a senior policy counsel at the Center for Responsible Lending.

Opening fraudulent accounts isn't the only abusive tactic Wells Fargo has used, she told CRM Buyer, noting that it's also "notorious for manipulating transactions in order to charge excessive overdraft fees."

Court rulings in favor of Wells Fargo's enforcement of arbitration with various disgruntled consumers are in error, maintained Sally Greenberg, executive director of the National Consumers League.

The doctrine of unclean hands should apply in these cases, she told CRM Buyer.

"You come in, commit fraud, and advocate some argument to allow your fraud to be realized -- that's not acceptable," Greenberg said. Wells Fargo "has come in with unclean hands and has no right to force arbitration."

Support for the Bill

The Justice for Victims of Fraud Act has received endorsements from a plethora of organizations, including The American Association for Justice, Consumers Union, the National Consumer Law Center, Americans for Financial Reform, the Center for Responsible Lending, the NAACP, and the National Consumers League.

Richard Adhikari has written about high-tech for leading industry publications since the 1990s and wonders where it's all leading to. Will implanted RFID chips in humans be the Mark of the Beast? Will nanotech solve our coming food crisis? Does Sturgeon's Law still hold true? You can connect with Richard on Google+.

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