Wells Fargo Continues To Try To Avoid Responsibility For Its Massive Fraud

I know we are all shocked to see that Wells Fargo lied to us all again. When the massive fraud perpetrated by the bank, which involved opening thousands of accounts for customers without authorization and spanned almost a decade, was uncovered, management originally blamed it all on unethical low-level employees. Subsequent investigation revealed that management was well aware of what was going on and actively got rid of whistleblowers or others who would not go along with the bank’s high-pressure sales program.

In contentious congressional hearings, Wells Fargo CEO John Stumpf, who was subsequently sent packing with his golden parachute, promised to make whole all the bank’s customers who had paid unnecessary fees associated with these bogus accounts. It turns out that it was yet another empty promise from a corporate executive. The New York Times is reporting today that Wells Fargo is trying to force as many of these customers that it stole from into arbitration, using the standard clause in the legal document that every bank uses when a customer opens an account. For thousands of Wells Fargo’s customers whose fees on unauthorized accounts amount to a hundred dollars or less, arbitration would be a time-consuming process and hiring representation for that process would end up costing the customer more money than they would recoup. In addition, a study in California showed that companies that forced customers into arbitration won those cases 95% of the time. By forcing customers into arbitration, Wells Fargo is once again trying to make it as difficult as possible for customers to get compensation for what they have lost so that the bank can avoid paying for the consequences of its massive fraud.

Wells Fargo’s attempt to force arbitration has met with some success but some courts are rejecting the bank’s arguments. Customers have argued that the arbitration clause can not possibly cover accounts that they did not authorize to set up. Others have argued that these unauthorized accounts are really identity thefts and are therefore not covered by the arbitration clause. Some courts have bought these arguments from customers while other have not. It is also my belief, from my own experience, that these fraudulent accounts represent a serious violation of anti-money laundering (AML) statutes. It would be nice to see some regulator go after the bank in that regard.

Earlier this year, the Consumer Financial Protection Agency (CFPB) implemented a new rule that forbid the use of these forced arbitration clauses in contracts for financial services. Of course, that was immediately challenged in court and two federal circuit courts reached opposite conclusions about the legality of the rule. It will eventually have to be decided by the Supreme Court. If Clinton had won the Presidency and assuming the GOP would never confirm her nominee, it was possible that 4-4 split in the Court would have left us with this bizarre situation where arbitration clauses were legal in some states but not in others. And if Clinton had won, she would have extended the restriction on these clauses to most mundane contracts. With Trump’s victory and the resulting appointment to the Supreme Court, along with the Republicans’ long-held desire to eliminate the CFPB, it looks like forced arbitration will continue, much to the detriment of all consumers.

Last week the Leonard Lopate show on WNYC had on Eugene Soltes who is the Jakurski Family Associate Professor of Business Administration at Harvard Business School and has written a book on white collar criminals called “Why They Do It: Inside The Mind Of The White Collar Criminal”. He pointed out that so many white collar criminals do not believe they have done anything seriously wrong or even illegal. He mentions that law firms that specialize in defending white collar criminals have special rooms, painted in soft colors designed by psychologists, where they take white collar criminals in order to get them to truly understand the seriousness of their crimes. He points out that the acceptable norms of business these days are now far different from society at large. Executives feel they are well within the norms of society as long as they follow the technical rules even as it is clear they are egregiously violating the spirit of those rules. And even when they get caught violating those technical rules, they really don’t believe they have committed a crime. Says Soltes, “They’re shocked…Because no one thinks, within these prominent positions, that they’re the kind of person that could go to prison, that they’re the kind of person a prosecutor would go after. They’re the good guy. It’s those bad guys that they see in the paper that are different and deserve to go to prison.” There’s a perfect description of privilege and entitlement, if I’ve ever heard one. And the sad thing is, they are more likely than not correct – no prosecutor will go after them.

There are two important lessons here. First, start treating white collar criminals like the criminals they really are. Second, eliminate forced arbitration clauses in the mundane contracts for basic services such as banking, financial services, employment.