Wells Fargo victim consumers tried to sue, were thrown out of court — and you would be too

Click to watch Elizabeth Warren at the Wells Fargo hearing.
Click to watch Elizabeth Warren at the Wells Fargo hearing.

Elizabeth Warren rightly eviscerated Wells Fargo CEO  John Stumpf at today’s hearing on that bank’s wide-ranging scandal.  She connected the dots neatly, showing that Stumpf made perhaps hundreds of millions of dollars in salary and stock while presiding over a crime involving two million fake consumer accounts.  She then made the point that a $12-per-hour teller who stole a few $20 bills would be in jail; Stumpf gets to laugh all the way to the bank.

There’s plenty more places to read about the outrage.  Start with Helaine Olen at Slate. NPR’s coverage is good, too.

But I’d like to highlight a critical element of this story that’s easy to miss in the blind rage of it all.   Victims of this massive fraud tried to stop it by suing — both individually, and as a class. But they couldn’t.  Why?

Because in America, consumer contracts are now nearly all built with a get-out-of-jail free card known as binding mandatory arbitration. The cases were tossed by courts, which said the consumers had no right to sue.  Because of clauses in the Wells contract (and in most of your contracts, I assure you), consumers had no day in court. And the scam went on.

The Consumer Financial Protection Bureau is trying to ban such clauses, but for now (thanks to the Supreme Court) they are still the law of the land.

The Consumer Federation of America is trying to bang home this point, which shouldn’t be missed. So here is more detail from that organization.

The Consumer Federation of America applauds the Senate Banking Committee for holding the hearing and Senator Sherrod Brown of Ohio and Elizabeth Warren for noting the large role forced arbitration played in the Wells Fargo scandal.  In his opening remarks at a hearing on the recently uncovered fraud at Wells Fargo, Senator Brown noted that “rather than letting fraud victims have their day in court, Wells Fargo forced customers to abide by the mandatory arbitration clauses in their real accounts. You heard that right – the bank invoked the fine print on a real account to block redress on a fake one which it had created.”  In questions to the second panel, Senator Warren asked whether forced arbitration clauses make it easier for large banks to cover up wrong doing and Director (Richard) Cordray indicated that they do.

Consumers had previously tried to sue Wells Fargo both in a class action (Shariar Jabbari & Kaylee Heffelfinger et al. v. Wells Fargo (U.S. District Court, N.D. Cal.)) and individually (David Douglas v. Wells Fargo (Superior Ct of Los Angeles, CA) but both were dismissed because of forced arbitration agreements.

The fact that even clear cases of fraud, ultimately resulting in serious enforcement actions, cannot be brought to court by consumers is why the CFPB’s proposed rule prohibiting class action waivers in forced arbitration clauses is so important, and why CFA supports the proposed rule so strongly.

The Consumer Financial Protection Bureau…has begun issuing new rules which would limit the use of force arbitration clauses in financial contracts, such as the ones used in this case.  While the harm to consumers is clear and an outright ban on forced arbitration enjoys broad public support, there have been numerous efforts in Congress to halt the progress of the CFPB rules and weaken the Bureau’s ability to protect consumers.

In the House, the CHOICE Act of 2016 passed out of committee last week and contained a host of deregulatory, anti-consumer provisions, including a provision that would thwart the implementation of the CFPB’s proposed rule against forced arbitration clauses.

“The practices at Wells Fargo brought to light by the CFPB demonstrate exactly why an independent watchdog is so critical to protecting consumers from abusive financial practices,” stated Rachel Weintraub, Legislative Director and General Counsel at Consumer Federation of America, “It is troubling that, in the wake of a case of such widespread fraud and consumer harm, we continue to see efforts to block consumer’s access to justice.”

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About Bob Sullivan 1137 Articles

BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

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