by Jeff Sovern
Tomorrow, the Senate Banking Committee will hold a hearing on the Wells Fargo unauthorized accounts fiasco. The first witness will be Wells' Chairman and CEO, John G. Stumpf. I hope some Senator asks Mr. Stumpf about the Wells Fargo arbitration clause. Some class actions have already been filed against Wells, and Wells' arbitration clause is relevant to those proceedings. You might think that such an arbitration clause would not apply to a dispute over an account a consumer never agreed to open. But recall that many of the accounts were opened in the names of consumers who already had other accounts with Wells. I randomly selected a Wells Fargo credit card agreement in the CFPB's credit card contract database and took a look at the arbitration clause. The clause is written broadly, and defines a dispute as "any unresolved disagreement between you and the Bank. It includes any disagreement relating in any way to the Card or related services, Accounts, or matters . . . . It includes claims based on broken promises or contracts, torts, or other wrongful actions."
I don't know If that's typical of the arbitration clauses the consumers entered into, but assume it is. The accounts which employees opened were arguably "related" to the existing accounts if they arose from supposed cross-selling. But even if they weren't, because that sentence says "includes," the arbitration clause is not necessarily limited to disagreements related to the accounts the consumers had with Wells. The clause says "any unresolved disagreement (emphasis added)." Accordingly, consumers with existing Wells accounts are probably bound by the arbitration clause even as to accounts they never opened, unless there is some argument I haven't thought of or the clause is invalid for some reason. That means the class actions would go away, and as the cost of arbitrating the individual actions might be prohibitive, Wells might avoid civil liability beyond what it ends up paying in actions brought by government agencies. You could say that if the consumers didn't want to be subjected to arbitration, they shouldn't have agreed to it in the accounts they did open, but unfortunately, our arbitration study showed that few consumers understand these clauses and that many don't believe they mean what they say, which means that consumers can't protect themselves from arbitration clauses, much less very broad ones like this one. Isn't something wrong when consumers can't litigate a claim about an account they never opened?
Another problem with arbitration in this context is that arbitration proceedings, unlike most court proceedings, are secret, and so we might never learn more about what happened than is already in the record, or that comes out during congressional hearings.
Wells has suffered a public black eye from this. To its credit, it has already tried to fix that by taking responsibility. Mr. Stumpf could further help heal Wells' public image by agreeing to waive use of the arbitration clause to increase the likelihood that any consumers hurt by what Wells did will receive full compensation and that the public learns more about what happened.