(Chuck Muth) – Banking giant Wells Fargo finds itself in three separate pots of hot water related to allegedly illegal practices harmful to its customers: A fraudulent checking and credit card accounts scam, an insurance scam on auto loans, and an overdraft fees scam.
The problem is that millions of victims of these cons unwittingly signed away their 7th Amendment rights to sue for relief and damages in the U.S. court system thanks to confusing and largely unknown “forced arbitration” clauses buried in the fine print of “adhesion contracts” with take-it-or-leave-it terms the customers had absolutely no opportunity to negotiate.
On October 3rd, Wells Fargo CEO Timothy Sloan testified before the Senate Committee on Banking, Housing and Urban Affairs to address the scandals, as well as a new Consumer Financial Protection Bureau (CFPB) rule that restores consumers’ ability to join together in class action lawsuits to challenge such deceitful bank practices.
In the scam in which millions of Wells Fargo customers had fake bank and credit card accounts set up in their names without their knowledge or their permission, Sen. John Tester asked Sloan if Wells Fargo was using its forced arbitration clauses in the fraudulent accounts to prevent defrauded customers from suing.
“There were instances, historically, that we did that,” Sloan replied, “but we are not doing that right now.”
But that’s the problem. Just because they’re not doing it “right now” doesn’t mean they won’t do it sometime in the future. There’s currently no law against it.
And that’s the reason for the CFPB rule. While the rule could certainly be changed in the future under a new Administration, it at least provides some immediate relief and restores a consumer’s constitutional rights until such time as Congress passes an actual law providing a permanent fix to the problem.
And make no mistake; the CFPB rule does NOT ban the use of arbitration. It only provides the consumer with a CHOICE as to whether to use the arbitration process or to join a lawsuit to hold banks accountable for alleged misdeeds.
Having gotten a non-specific answer to his direct question, Tester continued to press Sloan.
Tester: “Will you commit to not use forced arbitration on accounts that were not authorized by the customer?”
Sloan: “The easy answer for that, Senator, is yes, because we haven’t done that; we are not doing that.”
Tester: “And you’re not going to do it moving forward.”
Sloan: “We are not doing that.”
Again, Sloan deceptively dodges the question. While Wells Fargo may not have done that in the past and may not be doing it in the present, there is no law preventing the bank from doing it in the future. And Sloan certainly never committed to refraining from the practice down the road.
And again, this is why, absent congressional action on this issue, the CFPB rule is needed to restore the rights of wronged customers to take their grievances to court. Especially in light of the fact that Mr. Sloan appears to have misled the committee as it relates to the fake bank accounts matter.
Indeed, under follow-up questioning by Sen. Chris Van Hollen, Sloan was asked about reports that Wells Fargo lawyers HAVE invoked the forced arbitration clause in disputes relating the fake accounts.
Van Hollen cited a Reuters article from September 18, 2017 about a case in Utah in which a motion by Wells Fargo attorneys “said consumers signed agreements to arbitrate disputes when they first opened accounts at the bank and those agreements also cover other accounts allegedly opened without their consent.”
In the motion, the attorneys asked the court “for an order compelling 64 named plaintiffs (customers trying to sue over the fake accounts scam) in this class action to submit their claims to binding arbitration.”
They went on to cite the forced arbitration clause in the Consumer Account Agreements for accounts the consumer not only never agreed to open, but had no idea they’d been opened in their names.
“Wells Fargo,” the lawyers continued, “respectfully requests that this Court order Plaintiffs to bring their claims in arbitration and dismiss their claims in this lawsuit.”
The bank’s lawyers’ position is that even though the customer had new bank and credit card accounts opened in their name without their knowledge, let alone consent, the fact that the customer had opened OTHER accounts with the fine-print forced arbitration clauses included means the forced arbitration requirement transfers over to accounts in their name that they never opened themselves.
Sloan’s reply was equally unbelievable. He claimed he was “not familiar with that case” in Utah but would “look into the matter.” He also told van Hollen he was “not familiar with the overdrafts scandal,” despite the fact that it’s been in the news since at least 2013.
The exact same situation exists as it relates to automobile loans made by Wells Fargo in which some 800,000 borrowers were allegedly charged for automobile insurance they didn’t need, pushing many of them into delinquencies and vehicle repossessions.
In response to a class action lawsuit on behalf of these victims, Wells Fargo’s legal beagles cited the forced arbitration clause in the loans – by which the conned “agree to resolve any disputes through arbitration” – in order to quash the lawsuit.
The fact is, Timothy Sloan, before a Senate committee, danced around this entire issue of little known, and less understood, forced arbitration clauses in his bank’s consumer agreements. He dissembled, evaded and possibly outright lied about the practice.
Which is more than enough reason for Congress not to repeal the CFPB rule at this time and instead address the issue through legislative action if deemed necessary sometime in the future.
Mr. Muth is president of Citizen Outreach and publisher of Nevada News & Views