Senator to push bill to let Wells Fargo customers sue over unauthorized accounts
Sen. Sherrod Brown (D-Ohio) said Monday that he plans to push legislation that would allow Wells Fargo & Co. customers to sue the bank over unauthorized accounts opened by employees trying to meet aggressive sales quotas.
The escalating scandal also drew the attention of Democratic presidential nominee Hillary Clinton, who in a speech criticized the San Francisco bank and other companies that use the fine print in customer contracts to force disputes into private arbitration instead of allowing consumers to go to court.
She said Monday that if elected, she would “rein in the abuse.”
Brown’s bill, which he plans to introduce when Congress returns after the November elections, would invalidate mandatory arbitration clauses in the contracts of customers who were among those who had unauthorized accounts opened in their names. About 2 million such accounts were opened.
“Secret arbitration proceedings allowed Wells Fargo to get away with this fraud for far too long already,” Brown said. “And even now that it’s out in the open, Wells Fargo still hasn’t given us straight answers as to how long this fraud went on, exactly how many customers were hurt or how the bank will restore damaged credit scores that could end up costing customers thousands of dollars.
“Giving customers back their right to take Wells Fargo to court gives them the power to ensure they are made whole and helps prevent cases like this in the future,” he said.
Brown, an outspoken opponent of mandatory arbitration clauses, pressed Wells Fargo Chief Executive John Stumpf on the matter during the Senate Banking, Housing and Urban Affairs Committee’s Sept. 20 hearing on the bank’s recent $185-million settlement related to the opening of the unauthorized accounts.
Stumpf said he would have to discuss with his legal team whether customers would be forced into arbitration on disputes about the unauthorized accounts.
At a House Financial Services Committee hearing last week, Stumpf said he believed that the arbitration process was fair, but that the bank would pay for a mediator to assess any additional customer concerns.
“Will you let them to go to court if they want to go to court, yes or no?” Rep. Brad Sherman (D-Porter Ranch) asked Stumpf.
Stumpf said he would not.
The Consumer Financial Protection Bureau has proposed new rules that would prevent arbitration clauses for financial products from including language that bans customers from joining in class-action lawsuits.
Such bans are common in mandatory arbitration clauses. The bureau’s latest proposal, released in May, could take effect next year.
Clinton said in a speech in Toledo, Ohio, on Monday that she would push to eliminate mandatory arbitration clauses from financial products and other consumer and employment contracts, such as those for student loans.
“We are not going to let corporations like Wells Fargo use these fine-print ‘gotchas’ to escape accountability,” Clinton said. “This has become a common practice across a lot of industries — from nursing homes that mistreat seniors to for-profit colleges that defraud students. Who reads all that fine print? I don’t. So you get … mistreated, and all of a sudden they say, you can’t sue us. So we’re going to rein in the abuse.”
Clinton’s campaign said she would build on the efforts of the CFPB and other regulators to eliminate mandatory arbitration clauses by “ordering executive agencies to pursue additional measures to level the playing field for consumers and employees under their existing authorities.”
Brown supports the CFPB rules for financial products, but noted that they would only apply to future customer contracts.
Brown’s bill would invalidate arbitration clauses for unauthorized accounts at Wells Fargo or any other bank in the past.
In a statement, Wells Fargo responded that it is “working to make things right” for customers with unwanted accounts and reiterated that it is paying for mediation through an “impartial” third party.
“This is fast and free to the customer,” it said.
The bill would stymie a legal strategy The Times documented last year: Wells Fargo has repeatedly argued that customers, when opening genuine accounts, agreed to arbitrate all disputes with the bank — including disputes over accounts they never authorized.
Though 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, local and federal judges have ruled in the bank’s favor.
“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 calling for 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 the bank that all disputes would be resolved through arbitration.
While the issue of the arbitration clauses became an election issue Monday, more state and local officials moved to sanction Wells Fargo over its accounts scandal.
Illinois State Treasurer Michael Frerichs said his office would not use Wells Fargo to buy or sell securities for the next year, an attempt to punish the bank for behavior he called “downright shameful.”
Chicago City Treasurer Kurt Summers, meanwhile, said his office would divest itself of about $25 million in Wells Fargo securities.
Those moves follow last week’s announcement by California Treasurer John Chiang that his office would temporarily suspend Wells Fargo from doing several types of work for his office, including underwriting some bond deals.
The loss of the business from both states and Chicago is not expected to materially affect the bottom line of Wells Fargo, which recorded more than $22 billion in revenue and $5.6 billion in net income in the second quarter.
Wells Fargo said Monday that the Illinois state treasurer’s office only generates about $50,000 in annual revenue. But if other jurisdictions follow suit, losses would mount.
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Times staff writer Chris Megerian contributed to this report.
UPDATES:
6:40 p.m.: This article was updated with information about Wells Fargo’s legal strategy, actions taken by the Illinois state treasurer and a response from the bank.
This article was originally published at 12:45 p.m.
