Wells Fargo arbitration confusion illuminates importance of Senate rule debate
By Neil Haggerty. 5 October 2017.
Wells Fargo Chief Executive Tim Sloan's confused testimony on whether the firm will let defrauded customers band together to file lawsuits drew attention to Senate Republicans' effort to deny all bank consumers this right.
The Senate has about a month to block a US Consumer Financial Protection Bureau rule allowing mortgage, banking and credit card customers to opt out of arbitration in a dispute with a firm and file a class-action suit instead.
At a hearing this week, Sloan was asked by Senator Sherrod Brown, the Senate Banking Committee's top Democrat, if he would agree to allow Wells Fargo customers to go to court if they want to file a claim against the bank.
"No I won't, Senator," Sloan said.
He described arbitration as a faster, more efficient way of resolving disputes.
But Sloan was pressed by Senator Jon Tester, a Montana Democrat, who asked again if the bank would prevent customers from suing.
"We haven't done that," the executive said. "We're not doing that."
Senators' uncertainty about Wells Fargo's stance grew when Senator Chris Van Hollen brought up a pending case in Utah.
Wells Fargo has asked a federal court to compel arbitration in a dispute over the 3.5 million fake bank and credit card accounts that the bank has admitted opening in recent years.
"If your customer knows best," the Maryland Democrat asked, "then why do you deny them the ability to go to court?"
Sloan said he wasn't familiar with the case but said he would look into it.
Asked to try to clear up the confusion, a Wells Fargo spokeswoman said that the bank has made a $142 million settlement offer to settle all disputes arising from fake accounts dating to 2002.
"As Tim emphasized today, Wells Fargo is committed to making things right with our customers," she said. "We are providing customers their day in court via a nationwide class-action settlement agreement."
In July, the consumer agency adopted a rule requiring banks to allow customers to file class-action suits rather than forcing them to submit to arbitration.
Customers who preferred arbitration would still be allowed to pursue that approach.
The Republican-led Congress can block the rule if both chambers vote to do so by around Nov. 6.
Senator Tom Cotton, an Arkansas Republican who opposes the consumer agency rule, called attention to the measure at the Wells Fargo hearing.
"If we allow that rule to go into effect, we may not have forced arbitration, but we'll have forced class action lawsuits, because without arbitration as an option, then the arbitration system will eventually cease to exist," he said.
Cotton has previously said that, although the rule would allow customers to opt for arbitration, few firms would offer it because of the cost of setting up an arbitration framework.
The House voted along party lines to pass a Congressional Review Act block of the rule.
Senate Republicans filed a similar resolution, but it hasn't yet been voted on and it is unclear that the Senate has enough members who support blocking the rule.
Several news outlets have reported that Senator Lindsey Graham, a South Carolina Republican, said he opposes the resolution.
Business groups including the US Chamber of Commerce filed a lawsuit last week challenging the consumer agency rule.