Wells Fargo Tries to Enforce Mandatory Arbitration in Phony Accounts Litigation

San Francisco-based Wells Fargo Bank (WFC), one of the largest banks in the US, is trying to push its customers to resolve the lawsuits that they are bringing over the opening of unauthorized accounts through private arbitration, instead of in a courtroom, according to legal documents filed Wednesday.

The bank asked the US District Court in Utah to order dozens of customers to settle their disputes outside the court. The motion is Wells Fargo’s latest attempt to resolve claims that bank employees secretly opened millions of unauthorized accounts for their customers in order to meet aggressive sales goals.

Thousands of employees at Wells Fargo opened roughly two million bank accounts and applied for 565,000 credit cards without customers’ knowledge or consent. In some cases, bank employees created fake email addresses to sign up customers for online banking services, accumulating late fees on accounts they never even knew they had.

Mandatory arbitration provisions

The phony accounts scandal has roiled the third-largest US lender by assets, with immediate effect earlier in October.

Wells Fargo is trying to make use of the fine print in account-opening contracts that bars unsatisfied customers from suing, known as ‘mandatory arbitration clauses’, by which customers agree to take any future dispute to an independent arbitrator, often selected by the bank, instead of joining a class-action lawsuit.

Critics of the practice, which was validated by the US Supreme Court in 2011, say that it is unfair and often conducted in secret, denying customers the legal protections of court proceedings, such as the right to appeal. In addition, plaintiffs trying to recover small sums of money may not be able to secure lawyers to represent them in arbitration.

Supporters say it is quicker than lawsuits and allows customer to get more of the settlement monies than what they get in class-action lawsuits, where people band together to sue. Wells Fargo also responded by saying it “believes that the use of arbitration is a fair and efficient process that serves the needs of both parties.”