Democrats seek arbitration release for Wells Fargo customers
Congressional Democrats are once again taking aim at Wells Fargo, this time over forced arbitration clauses that prevent defrauded consumers from suing the bank.
On March 7, U.S. Sen. Sherrod Brown (D-Ohio), ranking member of the Senate Banking Committee, and U.S. Rep. Brad Sherman (D-Calif.), a member of the House Financial Services Committee, reintroduced legislation that will give Wells Fargo customers who were victims of a fraudulent account scheme their day in court.
In September 2016, the Consumer Financial Protection Bureau announced that Wells Fargo Bank, a subsidiary of Wells Fargo & Company, was fined $100 million, the largest penalty ever meted out by the agency.
Wells Fargo had compensation incentive programs in place for employees that encouraged them to sign up existing clients for deposit accounts, credit cards, debit cards, and online banking. Spurred by sales targets and these compensation incentives, employees boosted sales figures by covertly opening accounts and funding them by transferring funds from consumers' authorized accounts without their knowledge or consent, often racking up fees or other charges. From at least 2011 to 2015, Wells Fargo employees opened at least 2 million bank accounts and 565,000 credit card accounts in its customers' names that may not have been authorized by consumers. In response to the scandal, the bank fired 5,300 employees.
"Now Wells Fargo is using the forced arbitration clauses it tucked away in the fine print of contracts customers signed when they opened legitimate accounts to block them from suing over the fraudulent accounts," Brown and Sherman wrote. Wells Fargo recently fired a group of senior managers amid the bank's ongoing internal investigation of the scandal, "but the bank has refused to stop using forced arbitration clauses against defrauded customers."
"Forced arbitration is shielding Wells Fargo from being held accountable for harming its customers, directly and indirectly," Brown said in a statement. "We need to give customers back their ability to seek justice in court so they can be made whole again."
"If customers never authorized the opening of a phony credit card or checking account, there is no reason they should be bound by the arbitration agreement they were forced to sign when they set up a legitimate account," Sherman said.
The Justice for Victims of Fraud Act will work hand-in-hand with a new oversight rule that the CFPB put out in May to strengthen protections for consumers. Whereas the CFPB proposal would apply only to contracts signed after the rule is final, the newly proposed legislation would allow victims of Wells Fargo's fraud to seek their day in court even if they signed contracts that included arbitration for their legitimate accounts in the past.
The bill is cosponsored by a variety of Democrats in the House and Senate and has been endorsed by Americans for Financial Reform, Public Citizen, NAACP, the Consumers League, and other advocacy groups.
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