Wells Fargo & Co.’s attempt to force aggrieved customers into closed-door arbitration over its fake-accounts scandal is drawing a legislative backlash in its home state of California and risks subjecting the bank to another round as a public punching bag.
Following pledges at Capitol Hill hearings and in advertisements that it would rebuild customer trust, the San Francisco-based lender moved to avoid facing many claims in open court. Even as Donald Trump’s surprise election may ease pressure from Washington, the arbitration issue injects new life into the scandal and could further tarnish the firm’s reputation.
“It goes once again to the bank’s not following the rules, and they get away with it at the detriment of the consumer,” Ed Mills, an analyst at FBR Capital Markets, said in an interview. “It’s a concern that Wells Fargo is trying to have it both ways.”
California state Senator Bill Dodd, a Democrat, has responded to Wells Fargo’s arbitration stance, introducing a bill this month to override forced-arbitration clauses in contracts created through fraud. He said his legislation is, in part, a pushback against likely attempts to weaken U.S. regulations.
“Unfortunately, we’re more likely to see an erosion of consumer protection at the federal level over the next several years,” Dodd said.
Wells Fargo admitted this year that its bankers may have created millions of fraudulent accounts. It fired thousands of employees, made refunds to customers and agreed to pay fines totaling $185 million. That was followed by congressional hearings and the resignation of Chief Executive Officer John Stumpf.
“We are working very hard to undo harm that may have been caused to our customers, including contacting those affected to ensure they still want their accounts, reimbursing improper fees and issuing refunds,” Wells Fargo spokeswoman Jennifer Dunn said in an e-mailed statement. “We want to make sure that no Wells Fargo customer loses a single penny because of these issues.”
‘Basic Fairness’
In setting up the fake accounts, bank employees entered existing customers into new contracts requiring that any related disputes be handled in private. At issue is whether such terms are binding on customers for bogus accounts.
“It’s a question of basic fairness, that a large bank is denying you some of your legal rights based upon something you never signed,” Mills said. “That probably reignites some of the populist angst against the bank that is still simmering.”