Washington, DC—Consumer Federation of America applauds the Senate Banking Committee for holding the hearing and Senator Sherrod Brown of Ohio and Elizabeth Warren for noting the large role forced arbitration played in the Wells Fargo scandal.  In his opening remarks at a hearing on the recently uncovered fraud at Wells Fargo, Senator Brown noted that “rather than letting fraud victims have their day in court, Wells Fargo forced customers to abide by the mandatory arbitration clauses in their real accounts. You heard that right – the bank invoked the fine print on a real account to block redress on a fake one which it had created.”  In questions to the second panel, Senator Warren asked whether forced arbitration clauses make it easier for large banks to cover up wrong doing and Director Cordray indicated that they do.

—Consumer Federation of America applauds the Senate Banking Committee for holding the hearing and Senator Sherrod Brown of Ohio and Elizabeth Warren for noting the large role forced arbitration played in the Wells Fargo scandal.  In his opening remarks at a hearing on the recently uncovered fraud at Wells Fargo, Senator Brown noted that “rather than letting fraud victims have their day in court, Wells Fargo forced customers to abide by the mandatory arbitration clauses in their real accounts. You heard that right – the bank invoked the fine print on a real account to block redress on a fake one which it had created.”  In questions to the second panel, Senator Warren asked whether forced arbitration clauses make it easier for large banks to cover up wrong doing and Director Cordray indicated that they do.

We also applaud the important questions and comments from Senators Menendez, Merkley and Reed.  Their participation in this hearing highlighted the critical importance of the CFPB in working to ensure that our financial marketplace is fairer for consumers.

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]

“Enforcement actions like this that both make consumers whole and levy fines restore consumer confidence in the banking system and provide a powerful deterrent effect on banks,” stated Michael Best, Senior Policy Advocate at Consumer Federation of America.

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]

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.

The Consumer Financial Protection Bureau, 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.

“The practices at Wells Fargo brought to light by the CFPB demonstrate exactly why an independent watchdog is so critical to protecting consumers from abusive financial practices,” stated Rachel Weintraub, Legislative Director and General Counsel at Consumer Federation of America, “It is troubling that, in the wake of a case of such widespread fraud and consumer harm, we continue to see efforts to block consumer’s access to justice.”

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/