Wells Fargo’s Chief Executive Officer Timothy Sloan said Oct. 3 that the bank hasn’t steered customers seeking redress over the fake-accounts scandal into arbitration, even though recent litigation says otherwise.
The company also doesn’t plan to drop mandatory-arbitration clauses entirely on its products, Sloan said during testimony before the Senate Banking Committee.
Democratic senators prodded Sloan over the use of forced arbitration, as they prepare for a potential Senate vote to overturn a federal rule that would bar the use of such clauses in contracts for credit cards, bank accounts, and other consumer financial products. The clauses often prevent customers from banding together to file class-action lawsuits.
“We haven’t done that. We’re not doing that,” Sloan told Sen. Jon Tester (D-Mont.), who had inquired whether the bank was using forced arbitration clauses attached to real accounts to address customer claims about unauthorized accounts.
Court documents, however, show that Wells Fargo filed Sept. 18 in federal court in Utah seeking to direct dozens of would-be class-action plaintiffs into arbitration to have their case heard. In that lawsuit, one of several the bank is facing, a group of 80 plaintiffs alleged the bank created fake accounts in their name ( Mitchell v. Wells Fargo , D. Utah, 2:16-cv-966, 9/18/17 ).
In July, Wells Fargo reached a $142 million settlement in a California federal court on fake-account allegations, and Wells Fargo officials expect that settlement to eventually resolve the Utah claims ( Jabbari v. Wells Fargo , N.D. Cal., 15-cv-2159, 7/8/17 ).
“We are providing customers their day in court via a nationwide class-action settlement agreement that will set aside $142 million to address their needs,” Jennifer Dunn, a Wells Fargo spokeswoman, told Bloomberg BNA in an email. “This covers unauthorized accounts dating back to 2002.”
Wells Fargo paid $185 million in penalties to federal regulators and the City and County of Los Angeles in September 2016, but repercussions from the scandal have continued well into 2017. The bank disclosed in August that employees, aiming to reach sales targets, created two-thirds more unauthorized accounts than initially thought.
More than 40,000 customers have complained to the bank about fake accounts created in their name, inquiring whether the banks’ misconduct affected their credit scores, Sloan said Oct. 3.
The hearing came as Senate Republican leaders are trying to line up votes for a Congressional Review Act resolution that would overturn the Consumer Financial Protection Bureau’s arbitration rule.
Republicans have a 52-seat majority in the House and can ill afford defections. Sen. Lindsey Graham (R-S.C.) has said he would oppose nixing the rule, and Sen. John Kennedy (R-La.), a Banking Committee member, has repeatedly said he is undecided.
Aside from the potential defectors, support for the CFPB rule has generally broken along party lines. “If we allow that rule to go into effect, we’ll have forced class-action lawsuits,” Sen. Tom Cotton (R-Ark.) said during the hearing. “I don’t think we should be forcing consumers to fund the lawsuits of class-action lawyers.”
Sloan said that the culture of Wells Fargo has changed in the aftermath of the scandal, but lawmakers remain skeptical.
“Why should we believe you’re committed to changing your bank’s practices and being fair to customers when you continue to use that behind closed doors arbitration system that clearly doesn’t allow customers their day in court?” Sherrod Brown (Ohio), the committee’s ranking Democrat, asked.
“I think we’ve made fundamental changes to the way we do business so we’ll limit the number of times that that ever becomes an issue,” Sloan said in response.
Sloan didn’t commit to Wells Fargo stopping use of the clauses in its products, however. In recent correspondence with Sen. Elizabeth Warren (D-Mass.) related to the CFPB’s rule, several banks, including Capital One and Bank of America, said they rarely use the clauses.
To contact the reporter on this story: Rob Tricchinelli in Washington at email@example.com
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
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