Banking & Credit

Wells Fargo Scandal Highlights Need to Return Consumer Access to Courts and for Independent, Strong CFPB

Washington, DC—Consumer Federation of America (CFA) applauds members of the Financial Services committee for pressing Wells Fargo CEO John Stumpf to explain the scandal surrounding the creation of millions of unauthorized accounts.

Wells Fargo’s employees may have opened over two million deposit and credit card accounts that may not have been authorized by consumers.[1]  Consumer Financial Protection Bureau (CFPB) Director, Richard Cordray, noted that Wells Fargo employees also requested and activated debit cards without consent—even creating PINs without telling consumers.[2]  In response to the creation of these unauthorized accounts, created by employees so they could collect incentive bonuses, the CFPB has levied a $100 million dollar fine, and ordered Wells Fargo to refund all fees associated with the creation of unauthorized accounts.[3]

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.[4]  Had these consumers been allowed to exert their rights to access justice in the courts perhaps this scandal would have been brought to light and stopped sooner.

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.

“We cannot rely on forced arbitration to protect consumers and we cannot rely on financial institutions to give consumers the access to court they deserve—Congress needs to ban forced arbitration in all consumer contracts,” stated Rachel Weintraub, Legislative Director and General Counsel at Consumer Federation of America.

The CFPB, which to date has recovered nearly $12 billion to 27 million consumers[5] harmed by financial products and practices 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.  But as Representative Foster (D-IL) noted in today’s hearing, “this corporate malfeasance is exactly why we need a strong and independently funded CFPB.”

“The Wells Fargo scandal shows how important it is to restore consumer access to the courts and to support strong regulators like the CFPB,” stated Michael Best, Senior Policy Advocate at Consumer Federation of America, “and rather than trying to spread some of the blame for this scandal to regulators, we hope that lawmakers will focus on making sure consumers are made whole—by allowing them their day in court.”

Contact: Rachel Weintraub (202) 387-6121; Michael Best, (202) 387-6121


Consumer Federation of America is an association of more than 250 nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education.

 

[1] Prepared Remarks of Richard Cordray, Director of the Consumer Financial Protection Bureau, Wells Fargo Enforcement Action Press Call, Washington, D.C., September 8, 2016.   http://www.consumerfinance.gov/about-us/newsroom/prepared-remarks-richard-cordray-director-consumer-financial-protection-bureau-wells-fargo-enforcement-action-press-call/

[2] Id.

[3] CFPB Pres Release: Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unauthorized Accounts, Sept. 8, 2016.  http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-fines-wells-fargo-100-million-widespread-illegal-practice-secretly-opening-unauthorized-accounts/

[4] See Shariar Jabbari & Kaylee Heffelfinger et al. v. Wells Fargo Order Granting Defendents’ Motion to Compel Arbitration https://www.unitedstatescourts.org/federal/cand/287476/69-0.html and James Rufus Koren, Even in fraud cases, Wells Fargo customers are locked into arbitration, LA Times, Dec. 5, 2016.  http://www.latimes.com/business/la-fi-wells-fargo-arbitration-20151205-story.html

[5] CFPB, Consumers Count: Five years standing up for you, July 14, 2016.  http://www.consumerfinance.gov/about-us/blog/consumers-count-five-years-standing-you/