Wells Fargo’s (NYSE:WFC) push to move lawsuits over the creation of fraudulent accounts into arbitration in recent weeks has enraged regulators and politicians. An investigation found that Wells Fargo employees used customers’ personal information to create unauthorized banking and credit card accounts. The company ultimately agreed to settle the cases brought by federal regulators and the Los Angeles city attorney for $185 million. The far-reaching scandal forced the retirement of its longtime leader, John G. Stumpf. The bank also fired 5,300 mostly low-level employees in connection with the scandal.
Affected consumers have asked why they should agree to arbitration in a dispute over an account that they had never signed up for in the first place. The bank says that the arbitration clauses included in the legitimate contracts customers signed to open bank accounts also cover disputes related to the false ones set up in their names.
Some lawmakers say that it is outrageous for the bank to make that assumption. Senator Sherrod Brown, an Ohio Democrat, said, “Wells Fargo’s customers never intended to sign away their right to fight back against fraud and deceit.” However, Wells Fargo has been winning its legal battles over the lawsuits as several judges have ruled that Wells Fargo customers must go to arbitration over the fraudulent accounts. A federal judge in California has ruled that customers could be forced to arbitrate over accounts they had never agreed to.
Wells Fargo has been moving disputes about unauthorized accounts into arbitration for years. Lawyers say that may have helped keep the problems from public view in the past. The fraud may have started as long as a decade ago, but was only fully made public in September.
Critics say that arbitration clauses blunt one of most powerful tools that Americans have in challenging harmful and deceitful practices by big companies. Arbitration clauses prevent consumers from filing a lawsuit as a class, forcing them to fight the disputes one by one. Consumers often find the odds are stacked against them in arbitration. The decisions are nearly impossible to overturn and strict judicial rules limiting conflicts of interest do not apply in arbitration, allowing some companies to steer cases to friendly arbitrators.
Wells Fargo said in a statement it was working with customers to reimburse any improper fees and would offer free mediation services to anyone whose issues were not resolved. The statement said, “We want to make sure that no Wells Fargo customer loses a single penny because of these issues.”