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Op-ed: Wells Fargo case shows how fine print can erode freedom

A woman walks past a Wells Fargo location in view of City Hall, left, in Philadelphia, Thursday, May 11, 2017.
A woman walks past a Wells Fargo location in view of City Hall, left, in Philadelphia, Thursday, May 11, 2017.
Matt Rourke, Associated Press

On June 7, a Utah judge will decide whether more than 50 consumers defrauded by banking giant Wells Fargo in its fake account scandal will be forced to pursue claims one by one in a secret arbitration system. Even as the bank’s PR machine loudly trumpets a focus on restoring consumer trust, Wells Fargo is insisting once again that defrauded customers should be barred from having their day in court.

Last September, the Consumer Financial Protection Bureau led a $185 million enforcement action against the bank for opening as many as 3.5 million fraudulent accounts and credit cards, which it then used to charge illegal fees. While Wells Fargo initially responded by firing 5,300 front-line employees it deemed “bad apples,” bank executives had, in fact, been made aware of this fraud years earlier, warned directly by workers on multiple occasions. A recent report from the Office of the Comptroller of the Currency noted 700 whistleblower complaints related to the aggressive cross-selling quotas pushed by upper management as far back as 2010, and customers tried to sue the bank over fake accounts since at least 2013.

Rather than addressing this systemic wrongdoing, Wells Fargo moved to keep the scandal out of the public eye by pointing to “ripoff clauses” buried deep in its contracts that force consumers to file individual claims in secret hearings. It may seem strange that the bank would prefer to face hundreds of thousands of consumers one by one and not defend itself in a handful of class-action lawsuits. Yet in practice, forced arbitration is not simply an alternate forum, but a way to ensure the bank never has to give consumers their money back.

A recent report from the nonprofit Level Playing Field found just 215 Wells Fargo customers pursued claims against the bank in arbitration since 2009, despite millions of fake accounts exposed by the CFPB. Looking at the numbers, it is not surprising so few consumers file. Of the 48 cases that advanced to a final hearing, only seven consumers in eight years received a dime from Wells Fargo with the bank paying out just $349,549. Indeed, consumers paid more restitution to Wells Fargo in arbitration than the other way around.

No wonder the bank won’t let it go.

Wells Fargo customers in the Utah case have argued — quite logically — that the bank cannot use its contracts as a shield against liability for systemic fraud. While forced arbitration has been upheld in many contexts, it is clear Wells Fargo customers could not reasonably understand that signing a standard agreement for one product would block them from suing over a separate account they never agreed to open. Indeed, at least one consumer represented in this class action never even banked with Wells Fargo.

Fortunately, the CFPB has proposed a rule that would restore consumers’ right to join together and challenge banks in court, even when the fraud is not as egregious or widespread as Wells Fargo’s. The rule would also return transparency to the arbitration process by creating a public record of claims and outcomes, making it easier to unearth illegal practices before they impact millions.

However, this rule can only protect consumers harmed by future financial fraud. For the many thousands ensnared in Wells Fargo’s fake account scam, the federal court system is their last line of defense.

While federal precedent often enforces fine print that almost nobody reads, judges cannot allow corporate wrongdoers to pervert freedom of contract into a license to steal from American consumers. A more profound notion of freedom includes preserving the public’s right to equal justice under the law.

Christopher Peterson is the John J. Flynn Professor of Law at the University of Utah and Amanda Werner is arbitration campaign manager with Americans for Financial Reform and Public Citizen.