When they open an account at Wells Fargo, consumers may miss the fine print stating that any disputes with the bank have to be resolved through arbitration. Not that Wells Fargo gives them a choice: If they want to open a savings account, they had to agree (with limited exceptions) not to take the bank to court.
But what consumers couldn’t have anticipated is that Wells Fargo would use this agreement to insulate itself against class-action lawsuits when the bank fraudulently created entirely new accounts in their name without their knowledge or consent. That’s what the company has been doing since its employees created more than 2 million such accounts, then paid the fees generated by the new accounts by surreptitiously dipping into the customers’ legitimate accounts. And astoundingly, the courts have sided with the bank, ruling that even the question of whether a dispute must be arbitrated had to be resolved by an arbitrator.
Wells Fargo, which has refunded the fees generated by the fraudulent accounts, argues that it is committed to resolving customers’ complaints without going to arbitration. The bank also notes that those consumers remain free to go to small claims court (where the maximum award in California is $10,000).
But Wells Fargo shouldn’t even have the ability to invoke arbitration — a process that has been notoriously skewed in favor of the businesses that demand it — over accounts the bank created behind its customers’ backs.
Lawmakers should bar banks from requiring arbitration over disputes related to accounts customers didn’t seek to create, as Sen. Sherrod Brown (D-Ohio) and Rep. Brad Sherman (D-Sherman Oaks) have proposed. State Sen. Bill Dodd (D-Napa) is proposing similar relief for Wells Fargo’s customers in this state. Meanwhile, the Consumer Financial Protection Bureau has proposed an even broader approach: a rule prohibiting banks from blocking future customers from bringing class-action lawsuits. The CFPB’s rule would restore the deterrent effect that the threat of class actions can have on banks. That’s a more extreme step, but Wells Fargo’s actions in the wake of its unauthorized accounts scandal make it seem reasonable — and necessary.