According to a story published in the Hill, Wells Fargo’s scandalous practice of secretly opening more than 2 million sham deposit and credit card accounts dragged on for at least five years, because Wells Fargo contract provisions blocked consumers from suing the bank in court.
Like most big banks and many other corporations, Wells Fargo buries rip-off clauses in the fine print of its customer contracts. These provisions, also known as “forced arbitration” clauses, prevent consumers from suing over wrongdoing in court and prohibit consumers from banding together in class actions. Instead, rip-off clauses force consumers to seek redress in private arbitration, on an individual basis.
So when lots of consumers have suffered small harms — as was the case with Wells Fargo — there’s nothing they can do. It’s generally not worth the time and money to bring a case individually, and there’s a disincentive to proceed in arbitration, where claims are decided by a private firm handpicked and paid for by the corporation rather than a judge or jury. Effectively, banks and other corporations are free to rip off their consumers without fear of being held accountable in court.
The CFPB has proposed a rule that would end the worst rip-off clauses in the financial arena, restoring consumers’ right to join together in class actions to hold banks accountable for predatory behavior. The big banks are trying to block the rule, but the Wells Fargo scandal shows exactly why the CFPB should prevail.