Wells Fargo Uses Arbitration to Hide Sham Settlements

Wells Fargo recently became the center of attention when it came to light the company’s employees were creating sham accounts using its customers’ personal information. But now the company is using private arbitration to bury settlements from the public eye.


Earlier this year, the Consumer Financial Protection Bureau revealed Wells Fargo employees had a widespread practice of opening sham accounts in its customers’ names. Wells Fargo and the CFPB reached a settlement including restitution, penalties, and fines.

Wells Fargo Employees Created Fraudulent Accounts

The situation has resulted in the retirement of the bank’s CEO John G. Stumpf. The new chief executive, Timothy J. Sloan, told Congress his “immediate and highest priority is to restore trust in Wells Fargo.”

It also opened the company up to thousands of lawsuits nationwide. Wells Fargo is facing claims filed over the creation of up to 2 million fraudulent accounts using its customers’ identities. That’s a lot of public exposure.

Using Arbitration to Cover the Company’s Sins

To limit its exposure to the court of public opinion, Wells Fargo is filing motions in many lawsuits to dismiss them in favor of private arbitration. Mandatory arbitration agreements, contained in most bank agreements, require customers to submit any disputes to private decision makers. Arbitrators are paid by the parties, which means they will face the same corporate clients again and again.

The bank is claiming that its customers signed mandatory arbitration contracts when they opened their accounts, and that these contracts applied to the sham accounts as well. The customers’ attorneys say it would be impossible for them to agree to arbitrate disputes over accounts they never agreed to in the first place. The argument has been persuasive to some judges, and some legislators. Senator Sherrod Brown (D-OH) told the New York Times:

“Wells Fargo’s customers never intended to sign away their rights to fight back against fraud and deceit.”

Senator Brown has introduced federal legislation that would prevent Wells from enforcing arbitration agreements in the sham account cases.

But not all the courts have been persuaded. Judges have been dismissing large class-action cases, including one in California, and requiring the customers to argue their cases one by one before arbitrators who often favor corporate parties over individuals.

Mandatory arbitration agreements have become a tool of banks and big corporations to keep problems from coming into the public view. In addition, because each individual’s claims are small, often less than $100 in the Wells Fargo cases, they may have problems finding lawyers who will bear the substantial time and cost to bring such small claims to arbitration.

Mandatory arbitration agreements are legally binding when entered into voluntarily. Now Wells Fargo is using its sham agreements with their customers to bury its employees' fraud from public scrutiny and save money at the same time.

Dani K. Liblang is a consumer protection attorney at The Liblang Law Firm, P.C., in Birmingham, Michigan. If you have been the victim of insurance fraud, contact The Liblang Law Firm, P.C., to schedule a free initial consultation.