The Arbitration Blues

arbitrationWells Fargo & Co. is trying to keep dozens of customers suing over bogus accounts opened by its employees out of court, saying they agreed to resolve any disputes in arbitration when they began doing business with the bank.

The lender also asked for the lawsuits, filed by 80 customers in federal court in Salt Lake City to be thrown out. Wells Fargo noted in a Wednesday filing that a separate judge has already ruled that arbitration agreements can be enforced in a similar class-action lawsuit in Northern California. The San Francisco-based bank has faced a torrent of criticism and the ire of regulators after agreeing to pay $185 million in September to settle claims that employees opened potentially more than 2 million unauthorized accounts. It fired 5,300 workers over five years. John Stumpf resigned as chairman and chief executive officer in the wake of the scandal. Carrie Tolstedt, the executive in charge of the community banking unit, retired this year. Three Utah customers sued in September shortly after the settlement was announced and blamed the scandal on the lender’s push to increase the number of accounts held by clients — a strategy called cross-selling that’s designed to drive up the number of accounts on which the bank could collect fees. Wells Fargo vowed to eliminate sales goals linked by regulators to cross-selling. The plaintiffs in the Utah lawsuit seek to represent other customers in a class action and to recover at least $5 million in damages from the bank. They said the company also should have to pay punitive damages for its failure to alert customers to the abuses for more than a year after it was sued by the Los Angeles city attorney.

The U.S. Securities and Exchange Commission, the Department of Justice, state attorneys general and prosecutors’ offices and congressional committees have started inquiries into the sales practices. Congressional representatives lambasted Wells Fargo in September over concerns that the bank’s check of a customer’s credit history, when an unauthorized credit-card account was opened, could have hurt his credit scores. That might have resulted in the customer’s paying higher interest rates when they sought credit at other institutions. Tim Sloan, who replaced Stumpf as CEO, promised to “make it right.” He said in October that the bank’s “intent is to err on the side of the customer.” It would refund customers with damaged credit scores who got Wells Fargo loans, he said. The lender has had a harder time courting new customers for some parts of its retail-banking business. New credit-card applications dropped by half to 200,000 in October. Customers opened 44 percent fewer new checking accounts, Wells Fargo said. The bank started a national advertising campaign last month that attempted to show what actions it’s taking to ameliorate the wrongdoing that was found.

Wells Fargo is trying to derail the Utah lawsuit. The bank asked the U.S. District Court in Utah to force dozens of those customers to resolve their claims quietly in closed-door arbitration instead of open court. Wells Fargo and other financial companies have frequently used this tactic to stop class action lawsuits. They point to the agreements customers sign that contains fine print requiring them to enter arbitration. But these forced arbitration clauses are controversial because it helps hide misbehavior by companies in private mediation rather than opening it up to scrutiny in public court documents. And customers suing large corporations for small amounts of money may not be able to find lawyers willing to take on the case. Wells Fargo is being sued over the creation of as many as 2 million accounts that customers did not authorize. The overwhelming majority of those victims were already customers of the bank, which means they may have signed away their right to join class action lawsuits. Still, angry politicians have asked Wells Fargo to waive this arbitration clause for customers claiming to have been hurt by the fake accounts. The scandal sparked a national outrage, congressional hearings, countless investigations and the sudden retirement of longtime CEO John Stumpf. Wells Fargo has apologized for the wrongdoing and alleged mistreatment of workers. The bank launched a national TV advertising campaign that aired during the World Series and featured the company’s iconic stagecoach. The ad pledged, “Wells Fargo is making changes to make things right.” However, Wells Fargo recently signaled it would continue to try to enforce these arbitration clauses. In response to questions from Senate Democrats over this issue, Wells Fargo said it “believes that the use of arbitration is a fair and efficient process that serves the needs of both parties.”

Zane Christensen, a lawyer representing customers in the class action, said that his firm is “saddened” by Wells Fargo’s response and will “vigorously defend” against the bank’s motion. “Wells Fargo isn’t concerned about making things right with their customers. Wells Fargo is worried about making things right in public relations,” Christensen said. In a statement, Wells Fargo said it is “working hard to rebuild trust in our company” and noted that it makes “every attempt” to resolve complaints directly with customers before going to arbitration. The bank said it’s offering “fast and free” mediation at no cost to customers through an impartial third-party.

Wells Fargo had come under fire during the presidential campaign for its use of forced arbitration clauses. Hillary Clinton said, “We can’t let corporations like Wells Fargo use these fine print ‘gotchas’ to escape accountability.” While Clinton said she would call on Congress to give federal agencies the power to restrict the use of arbitration clauses, President-elect Donald Trump has not indicated his stance on the Wells Fargo lawsuits. Wells Fargo & Co. wants a federal court judge in Utah to order that customers suing the banking giant over improper sales practices submit their claims to binding arbitration.

The San Francisco-based company’s request applies to a class-action lawsuit filed initially by three Utah residents who at one time had accounts with the bank.

They sued Wells Fargo, one week after the bank made headlines for agreeing to pay $185 million to settle allegations that its workers opened millions of accounts without customers’ permission to reach aggressive sales targets. The class-action complaint, which alleges breach of contract, fraud and other claims, now includes 80 named plaintiffs. In a filing, U.S. District Judge Clark Waddoups, Wells Fargo asserted that the plaintiffs agreed to submit any disputes to arbitration when they signed up for Wells Fargo checking accounts, credit cards or other services. The lender also asked the court to allow it to gather more information on 22 of the plaintiffs so that the company can determine whether they should also be included in its request to have plaintiffs’ claims deal with via arbitration.

Wells Fargo also faces several other lawsuits, as well as criminal investigations by the Department of Justice and the California Attorney General’s Office.