Wells Fargo Tries, Fails To Explain Why Customers Shouldn’t Be Allowed To Sue Over Fake Accounts

Image courtesy of Gilbert Mercier

Wells Fargo has admitted that thousands of its employees opened fake, unauthorized accounts in customers’ names, but the bank is doing everything it can to prevent these wronged customers from having their day in court. We asked Wells Fargo to explain why it believes hundreds of thousands of Americans shouldn’t be allowed to exercise their constitutional right to sue. The bank’s response made little sense (unless you’re a Wells Fargo executive).

Just to quickly catch you up: Wells Fargo is facing lawsuits from customers who allege that the bank’s strict sales quotas created a culture that encouraged employees to game the system by opening bogus accounts. Plaintiffs have also claimed that top bank execs willingly ignored indications that this bad behavior was going on under their noses.

Even the since-“retired” CEO John Stumpf admitted before Congress that he knew of this fraudulent practice three years before the bank ever publicly acknowledged any wrongdoing.

But rather than either settle with these plaintiffs or mount a proper legal defense, Wells Fargo is attempting to shut down these lawsuits by invoking forced arbitration clauses included in customers’ account contracts.

These arbitration clauses — now found in most agreements for banks, credit cards, cellphone service, pay-TV and broadband, online retail, and a lot more — do two things. First, they prevent the customer from filing a complaint in a court of law. The dispute must instead be heard through private arbitration. Second, they bar the customer from joining together with other similarly wronged customers to have their dispute resolved as a group. Instead, each individual customer must go through the arbitration process on their own.

The customers behind at least one pending lawsuit have argued that if Wells Fargo inserted this language into customer contracts with the intention of violating the law, that “would void the contract on numerous grounds.” And, they continue, if these contracts are not intended to cover illegal bank actions, then the arbitration clause can’t be used to shield the bank from liability for fraud.

The other fact that would seem to weigh against Wells Fargo is that these customers never signed any contract for the fraudulent accounts that were opened in their names. Why should they be barred for suing over those accounts when they didn’t sign the arbitration clause pertaining to the bogus accounts?

The courts have put these lawsuits on hold while they decide two things: First, if the similar class actions going on in various parts of the country should be consolidated into a single multi-district case. Second: If these customers even have the right to sue.

Last week, We Do Count, a coalition of consumer advocacy groups, wrote a letter [PDF] to Wells Fargo CEO urging the bank to stop using arbitration agreements to sidestep accountability.

“Consumers have no reason to believe that Wells Fargo is doing anything differently, when the bank still persists in depriving its customers and workers of their basic constitutional rights,” reads the letter, signed by nearly two dozen groups, including the Consumer Federation of California, National Consumer Law Center, and Public Citizen. “A change in culture does not mean doing the right thing only when it does not cost anything. It means doing the right thing, period. How can Wells Fargo claim to be doing the right thing when it continues to force customers it has wronged into giving up their constitutional rights – even in cases where the account in dispute was created through fraud, identity theft, and /or forgery?”

And the advocacy groups are not alone. At least six U.S. Senators have asked Wells to not force these lawsuits into arbitration.

So why does Wells Fargo — which has already admitted that this fraud occurred — insist on keeping these cases out of the court?

In a statement to Consumerist, the bank explains:
“Our goal is to do what’s right for every customer and team member, every day. If we are unable to resolve a dispute directly, arbitration is a forum in which a customer or a team member dispute is heard and resolved within a neutral third-party legal process. Arbitration is generally faster and less expensive than litigation. It is a fair, efficient and effective forum available for a customer and a team member to pursue and resolve a legal claim.”

First off, a courtroom is also a forum in which a customer dispute is “heard and resolved within a neutral third-party legal process.” In fact, that’s one of the underlying concepts of the court system.

Moving on, there’s Wells Fargo’s contention that “Arbitration is generally faster and less expensive than litigation.” That may be true when you’re talking about one person’s unique claim against the bank, but when applied to a dispute this huge, it shines a spotlight on the very reason that class actions exist, and why companies want to prevent them.

Millions of Wells Fargo customers could potentially have a fake-account dispute with the bank. Many, if not all, of them could have a similar enough dispute to justify one massive class action. How is it more efficient for Wells to individually arbitrate hundreds of thousands — maybe millions — of cases?

The fact is, it’s not. Companies that employ these clauses assume that most affected customers will choose to not arbitrate their dispute. Research shows that very few people ever elect to enter into arbitration, and that a majority of customers don’t even know when they’ve signed away their right to sue.

In a follow-up question, we asked Wells how it could claim that arbitration is more efficient, unless the bank is indeed hoping that only a small number of customers will enter into this process. The response was even more baffling.

“By resolving legal disputes through arbitration, both the consumer and the business have the ability to reach a positive resolution at a lower cost,” explained the bank.

Once again, this doesn’t seem to compute.

With the exception of the very few (sometimes only one) named plaintiff in a class action, the members of the plaintiff class don’t have to do anything to mount a case. That’s the point: The named plaintiff represents the class.

Requiring that customers enter into arbitration on an individual basis means that Wells is asking each affected person to put in the time, effort, and expense of bringing a case against a bank with nearly $2 trillion in assets.

Rosemary Shahan, President of the Consumers for Auto Reliability and Safety Foundation, and a member of the We Do Count coalition tells Consumerist that Wells Fargo’s justification for forcing arbitration reminded her of the old line “‘Welcome to my parlor,’ said the spider to the fly.”

“They try to make it sound attractive, but they know perfectly well that forced arbitration is a trap,” says Shahan, “The arbitration system is rigged in their favor, hardly any consumers even attempt to use it, and even fewer ever win anything.”

Shahan notes that while arbitration is used by many large bank, that are still a number of institutions where you don’t sign away your constitutional rights — and where thousands of employees didn’t recently engage in fraud.