OP-ED CONTRIBUTOR

Courts, Regulators Must Stop Wells Fargo’s Rigged Arbitration System

A decade after the start of the Great Recession, the well-deserved poor public image of big banks reached an even lower point. Thanks to the recent revelations of Wells Fargo’s venal behavior toward its customers and employees alike, a recent Barron’s survey named Wells Fargo the least respected of America’s 100 largest companies, falling behind big tobacco’s Altria and Philip Morris.

Wells Fargo’s fall should not be surprising. Just two years ago, it was the world’s most valuable bank. But a steady drumbeat of ugly headlines – and even uglier details behind those headlines – have taken a toll.

A $35.5 million settlement with its own employees and trainees who had been discriminated against based on their race; a $32 million settlement with female employees for sex discrimination; and a $184 million settlement for discriminating against minority home-buyers. All the while, the total payouts from the bank opening approximately 3.5 million fake and unauthorized accounts for its customers has reached more than $100 million and continues to climb.

Wells Fargo’s leaders have pledged to change, and they hope to put this all behind them. A true test of this new-found commitment will come this summer.

The 11th Circuit Court of Appeals is scheduled to hear arguments in August over Wells Fargo’s abusive overdraft fee practices. Not content to rake in the profits at up to $35 per fee, banks like Wells Fargo began a deeply cynical and abusive practice: By re-ordering a customers’ transactions, banks could ensure the largest-dollar items were charged to your account first, resulting in additional fees when lower-dollar transactions, which had been completed earlier, hit your empty bank account. Instead of being charged one overdraft fee, you would be hit with several, leaving less money than you expected in your checking account and creating a never-ending cycle of debt.

Banks have used overdraft fees to earn billions of dollars; estimates from early this year put profits from overdraft fees alone at $12 billion across the industry. Worse yet, 90 percent of these overdraft fees are paid by the poorest 10 percent of a bank’s customers.

The country’s largest banks, such as JPMorgan Chase and Bank of America, eventually made amends and settled with their customers; all told, the total settlements were more than $600 million on just the largest banks alone. Wells Fargo, on the other hand, refuses to reimburse its customers. Instead, the bank has spent years trying to force its customers into a complicated arbitration process, which would in reality provide little chance of recovering the money that was stolen through these overdraft fees.

According to a study from the Consumer Financial Protection Bureau, most customers simply give up when forced to arbitrate, especially for small-dollar claims, considering the time and expense. In the handful of arbitration claims filed in 2010 and 2011, only 9 percent of consumers with affirmative claims obtained relief, recovering only 12 cents of every dollar claimed. In contrast, 93 percent of companies won their claims in arbitration, recovering an average of 98 cents on the dollar.

Courts have ruled multiple times against the bank, but this summer Wells Fargo will go before the 11th Circuit to again argue that its customers should be forced into an arbitration process where big businesses almost always win. It represents a significant moment for the customers who lost billions to Wells Fargo’s overdraft scheme.

At the same time, the CFPB is considering a rule which would ban banks from being able to force arbitration on a class-wide basis, as Wells Fargo is attempting to do in its overdraft case. If successful, it would be a monumental victory for consumers in communities across our country who have come to rely on these banks for their businesses and for their personal lives, and expect they can hold them accountable when wronged.

Wells Fargo’s efforts to force arbitration will not be affected by the CFPB rule; only the court can put a stop to it and protect consumers. But the rule will make for a better future. Anyone who believes that overdraft abuses are a thing of the past only needs to look at the news that at the start of this year Wells Fargo’s overdraft income was up 7.5 percent compared with the previous year. A group of U.S. senators recently wrote a public letter of concern.

It appears Wells Fargo will fight tooth and nail at the 11th Circuit and against the CFPB to force customers past and future into its rigged arbitration system – and ensure it can never be held accountable for its theft of billions of dollars. We hope the court and CFPB cast the bank’s efforts aside.

 

Ira Rheingold is executive director of National Association of Consumer Advocates.

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