When Wells Fargo recently agreed to pay $110 million to settle a class-action lawsuit related to the creation of millions of sham accounts, the bank’s chief executive, Tim Sloan, called it another step toward making “things right with customers.”
The settlement also achieved something just as important for the San Francisco bank: It kept out of court for now a high-stakes battle over whether companies should be able to require customers to resolve their disputes through private arbitration rather than by filing a lawsuit.
Tucked into the fine print of millions of agreements covering consumers’ bank accounts, credit cards, payday and auto loans is language that prevents consumers from filing class-action lawsuits or taking other steps to seek relief from a company they believe has wronged them. Instead, they must submit to private arbitration in which the complaint is resolved by a third party.
Such arbitration clauses have become a standard business practice for many companies, including Wells Fargo. But have drawn criticism for favoring companies over consumers.
For Wells Fargo, it has been a winning strategy. After admitting last year that its employees had opened up to two million sham accounts customers didn’t request, Wells Fargo successfully blocked several lawsuits citing the clause.
But pressure on the bank, one of the largest in the country, has been building. Democratic lawmakers in the U.S. House and Senate have introduced legislation to allow Wells Fargo customers to sue despite the arbitration clauses, and the Consumer Financial Protection Bureau is preparing to unveil rules soon that would also restrict such provisions.
And there are other challenges ahead. Next month, the bank’s independent directors are scheduled to issue a report on the scandal that has humbled the more than 100-year financial powerhouse and the House Financial Services Committee still is sifting through more than 100,000 company documents in its own investigation.
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“It is certainly not a coincidence after months of concerted pressure” that Wells Fargo would opt to settle rather than litigate the issue, said Amanda Werner, arbitration campaign manager for advocacy groups such as Public Citizen and Americans for Financial Reform. “We’re happy to see that, but it doesn’t solve the problem in general.
“Essentially until we have strong federal rules and laws, we’re just waiting for the next scandal to happen.”