Wells Fargo & Co. customers who learned that bank employees opened accounts without their consent later discovered another problem when they tried to sue to recover lost fees and for other damages.
The San Francisco-based bank says that clauses in contracts the customers signed when they opened legitimate accounts forced all disputes — even those over the roughly 2 million unauthorized accounts in the scandal — into private arbitration.
Now, two federal lawmakers want to change that.
Sen. Sherrod Brown (D-Ohio) and Rep. Brad Sherman (D-Porter Ranch) on Thursday introduced the Justice for Victims of Fraud Act, which would allow Wells Fargo customers to have their day in court.
"If a customer never authorized the opening of a credit card or checking account, that same customer should not be bound by an arbitration agreement for a separate, legitimate account," Sherman said.
"Cheated customers should have the choice to opt out of phony contractual arbitration provisions and seek justice in court," he said.
Wells Fargo agreed to a $185-million settlement in September with Los Angeles City Atty. Mike Feuer, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency to end investigations into the unauthorized accounts.
Brown and Sherman said their bill is backed by several consumer and advocacy groups, including Consumers Union, the California Reinvestment Coalition and the NAACP.
But the legislation's fate is uncertain in the Republican-controlled Congress. Although many Republicans said they were angered by the Wells Fargo scandal, the bill's 11 co-sponsors in the House and 14 in the Senate so far are all Democrats.
Republicans generally oppose expanding the right for consumers to file class-action lawsuits.
Last month, in response to a class-action suit, Wells Fargo asked a federal judge in Utah to order customers to submit claims over unauthorized accounts to binding arbitration.
Wells Fargo spokeswoman Jennifer Greeson Dunn said the bank's goal "is to always make things right for our customers."
If a problem with an unauthorized account can't be resolved directly by the bank, it provides "free mediation services for the resolution of disputes, through an objective third-party," she said.
Arbitration would only take place after that.
"Wells Fargo fully intends to address all consumers impacted by improper sales practices," Dunn said.
Brown said that's not good enough.
"Wells Fargo's customers never intended to sign away their right to fight back against fraud and deceit," he said Thursday. "We need to give customers back the ability to seek justice in court so they can be made whole again."
The bill would end a legal strategy The Times documented last year in which Wells Fargo argued that arbitration clauses signed by customers in opening genuine accounts covered all disputes with the bank.
Attorneys for bank customers have called that argument "laughable" and said there's no way customers knew they would be giving up the right to sue over accounts they never authorized. But local and federal judges have ruled in favor of the Wells Fargo.
"The arbitration provisions in the plaintiffs' customer agreements with Wells Fargo are broad," covering any dispute between customers and the bank, U.S. District Judge Vince Chhabria wrote in a 2015 order forcing a suit over unauthorized accounts to go to arbitration.
Brown's bill would allow customers to sue even if they agreed in other valid contracts with Wells Fargo that all disputes would be resolved through arbitration.
Brown and Sherman said their bill would work in conjunction with proposed rules from the Consumer Financial Protection Bureau that would prevent arbitration clauses for financial products from including language that bans customers from joining class-action lawsuits.
Such bans are common in mandatory arbitration clauses. The bureau's latest proposal, released in May, could take effect next year.
But the arbitration rule could be changed if President-elect Donald Trump replaces bureau director Richard Cordray after taking office in January. Republicans have criticized how aggressively Cordray has run the agency, created by the 2010 Dodd-Frank Wall Street Reform Act.
A federal appeals court last month — in a case brought by a mortgage lender fined by the agency — handed down a ruling that said the president should be able to fire the CFPB's director at any time, rather than only for cause, as spelled out in Dodd-Frank.
That ruling, which the CFPB is appealing, might allow Cordray to be replaced prior to the end of his term in 2018.