David Dayen: Wells Fargo Is Trying to Bury Another Massive Scandal

The bank became notorious last year for creating fake accounts on behalf of customers. Now it’s trying to kill a class-action lawsuit over shady debit card fees.

Wells Fargo became a poster child for corporations that abuse their own customers last year when it got fined for ginning up roughly 2 million (maybe even more) fake accounts to meet high sales goals. The bank has since tried to block customer lawsuits over that misconduct, using fine print buried in contracts known as the forced arbitration clauses, which force customers to go not before judges but a secretive non-judicial process to get relief.

It turns out Wells Fargo has a long history of using arbitration to evade legal scrutiny. In fact, for the past six years, Wells has tried to use arbitration to block a class-action suit that every other major bank in America long ago settled. This has not only delayed restitution for regular customers, but revealed exactly why Elizabeth Warren’s brainchild Consumer Financial Protection Bureau (CFPB) moved to eliminate class-action bans through arbitration clauses earlier this month: It hands big banks a license to steal with impunity.

The case centers on something called debit card reordering. Let’s say you have $100 in your bank account, and you make three purchases, costing $20, $30, and $110. Under Wells Fargo account guidelines, the bank can charge you a $35 overdraft fee for taking out more than you have in your account. But by reordering the transactions from highest to lowest, putting the $110 charge first, the bank could charge three separate overdraft fees, one for each attempt to draw insufficient funds. Simply by altering the transaction order, Wells Fargo could make an additional $70.

Multiply that by millions of customers, and you’re talking about serious money.

This was a common scheme in the banking industry for years, affecting the poorest customers—those most likely to overdraw their account. A 2014 federal report showed that approximately 8 percent of the US customer base paid nearly 74 percent of all overdraft fees. High fees are one reason the poor often stay out of traditional banks, but lack of access to banking also imposes large burdens from check-cashing and payday lending. In short, it’s very expensive to be poor in America.

Reordering has been ruled deceitful in federal court. Starting around 2008, consumers filed national class-action lawsuits against more than 30 different banks over these bogus overdraft fees. The cases got consolidated in 2009, in the Miami federal courtroom of US district court Judge James King. Most banks eventually settled with the plaintiffs: Bank of America agreed to pay $410 million in 2011; JPMorgan Chase promised $162 million in 2013. To date, banks have shelled out $1.1 billion in restitution for overdraft abuses.

Wells Fargo was the only one to keep fighting.

The bank knew it could be liable for a big payout. In 2010, a California judge ordered it to pay $203 million to customers in that state alone over deceptive overdraft practices. Wells fought that all the way to the US Supreme Court but lost last spring; they finally starting paying Californians in 2016.

A national class-action suit was supposed to compensate Wells Fargo customers in the other 49 states, but a 2011 US Supreme Court ruling offered the bank a potential reprieve. In AT&T Mobility v. Concepcion, a 5-4 decision effectively said companies could use arbitration agreements to ban class-action lawsuits. “Before that, it was assumed that consumers had a right to join a class action,” said Amanda Werner, campaign manager with the consumer groups Americans for Financial Reform and Public Citizen.

Literally two days after the Concepcion ruling was released, Wells Fargo filed to dismiss the overdraft case in favor of arbitration. But Wells had a problem: In both 2009 and 2010, Judge King explicitly asked banks if they wanted to file a motion to move to arbitration, and Wells Fargo declined, apparently preferring to try to win the case. Wells told the court then it “did not move for an order compelling arbitration… nor does it intend to seek arbitration of their claims in the future.” For two years, company lawyers took depositions and filed motions and did everything a litigant would do. Then, after receiving more favorable precedent from the Supreme Court on arbitration, Wells Fargo changed course.

Judge King denied the bank’s motion to dismiss at the end of 2011; Wells appealed to the 11th Circuit. In a unanimous ruling in 2012, the higher court denied appeal, arguing that Wells Fargo missed its chance at arbitration, and pointing out that lots of money and resources had already been spent on the case.

Two years ago, Judge King certified the class, meaning he officially allowed defrauded customers to band together and sue jointly. But the bank again tried to move to arbitration. This would have blocked anyone not named in the lawsuit from joining the suit, limiting millions of potentially affected customers. Judge King again denied the motion last year, writing, “Wells Fargo deliberately chose to pursue a strategy of litigation… it would be unfair to permit Wells Fargo to effectively ‘wait in the weeds’ and invoke arbitration… now that the alternate path the bank chose did not turn out as it had hoped.”

I think you can guess the next sentence: Wells Fargo appealed again, and the 11th Circuit will hear arguments next month. If the bank loses, it could appeal to the US Supreme Court—and all of this is happening before the trial can even begin. “The bank is being uniquely aggressive,” as Lauren Saunders, associate director at the National Consumer Law Center, a consumer justice organization, told me.

In a statement to VICE, Wells Fargo spokesman Kristopher Dahl said, “Wells Fargo continues to believe that arbitration is a fair, efficient and effective way for a customer to pursue a legal claim and resolve a legal dispute.” Dahl added that Wells Fargo stopped reordering debit card transactions in 2010, although they continued to do so for checks and automatic account withdrawals until 2014.

While Wells Fargo has been unsuccessful in blocking the overdraft case, they’ve already managed to punt for six years without having to pay up. (Even after the initial ruling in the California overdraft case, the bank spent six years appealing before eventually complying.) So through legal maneuvering, Wells Fargo could keep accountability for its deceptive practices at bay for years to come.

If the bank does prevail in moving the case to arbitration, people who got screwed and charged extra fees would have to pursue overdraft complaints by themselves. They would be at a major disadvantage: A recent study by the non-profit Level Playing field found that Wells Fargo customers have won only seven arbitration cases in the past eight years, out of just 48 that actually got to a final hearing. And just to pursue the case, consumers would have to spend heavily on legal representation and hearings. As federal judge Richard Posner of the Seventh Circuit Court of Appeals once wrote in a ruling, “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

In this sense, arbitration can stop people from enjoying their legal rights, effectively allowing corporations to overturn the law by making it unenforceable. Deepak Gupta, who argued the Concepcion case in 2011, calls arbitration “a basic threat to our democracy.”

Incredibly, Wells Fargo went so far as to try and use a separate case to sweep this whole overdraft saga under the rug. In a $142 million settlement over the fake account scandal, Wells Fargo tried to fashion such a broad release—”any and all claims and causes of action of every nature and description”—that it could conceivably have forced some overdraft victims to give up their suits. Lawyers for the overdraft plaintiffs objected, and US district court Judge Vince Chhabria ordered the settlement rewritten to be narrower.

Congressional Republicans have been making noise in recent days about overturning the new federal ban on arbitration clauses that prevent customers from joining class-action lawsuits against their banks. Congress can use the Congressional Review act to kill regulations within 60 legislative days of their release; the rule was made final last week. But Republicans will have to explain why corporations like Wells Fargo would benefit from the rollback; the Consumer Protection Bureau’s director Richard Cordray even cited Wells Fargo—albeit over its fake account scandal—when announcing it.

We have an excellent idea of what corporations could do with such a gift: like Wells Fargo, they might try and make it virtually impossible for customers to prevent small-time rip-offs and change their shady behavior. And that could serve to just enable petty theft. In fact, according to one FDIC study, overdraft fee income at Wells Fargo in the first quarter of 2016 increased 16 percent relative to a year earlier, the largest uptick of 600 banks reviewed. We don’t know whether any of those fees were illegally gained, and if Wells Fargo has its way, we never will.

The new federal regulation on class-action suits against banks will not affect the Wells Fargo overdraft case; it doesn’t apply retroactively. But this real-world example of arbitration in action is so blatant that a Republican-led reversal of the rule would seem like a giant upturned middle finger at millions of Americans.

As Amanda Werner of Public Citizen put it, “I don’t know how [Republicans] can look a Wells Fargo customer in the eye.”

Follow David Dayen on Twitter.

6 Responses

  1. if they allow arbitration such as this and run it down our throats there should be a clause based on cases won vs # of in 8 years where if taken and won for the pennies iit should be subsidized and immediately due and paid from the accounts where these judges paychecks come from in front of their checks awarding 1000 times the max. allowed in any court in our land ,not arbitrated amount and a second offense 10000 times the amount and the judges and our govt can re cupe their money from said lending institution or not as long as consumers get paid who cares that’s the way they feel about our losses and anyone not agreeing to this obviously is in bed with the enemy.it wouldn’t matter unless you were conspiring felonious activity . RIGHT . so whats the problem oh they cant afford that then don’t break the law …Do NOT re elect these Judges PERIOD .That’s how you show them how you feel

  2. Patrick Farrell- you’ve been on and off this site for a number of years, as have I. This is the first time you have me tioned this, can you go i to specifics? I have a WF Trust which isn’t listed in the 2005-2 REMIC IRS 938 publication. But I had 2 “settlement sheets” for the same loan thru FNMA. You know, the usual pattern……

  3. Arbitration has always been unfair and unconstitutional. Ordinary Americans get screwed by arbitration in many fields e.g. investing in securities with a brokerage firm. I know as I worked in the law firm representing the securities firm. WFB needs to be seriously reigned in, and the best way to do that would be to break WFB up along with other mega banks. WFB is also in on the mortgage fraud which is ongoing. Nothing has changed. Worthless Dept. of Justice.

  4. The congressional voting on this will provide us with a listing of those GOP (and DNC) ‘representatives’ who need a replacement come the next election. They seem to have forgotten just who it is they’re representing.

  5. I HAVE BEEN SUING WELLS FARGO FOR 10 YEARS OVER A CASE OF TILA MORTGAGE FRAUD. I HAVE LIVED IN MY HOME FOR FREE ALL THAT TIME BECAUSE WF STOLE FROM ME. I GOT THEM FINED $25 BILLION YEARS AGO, FOR MAKING 2 TRUSTS [BOTH ILLEGAL] FROM ONE HOME. HOW THEY CAN KEEP IT UP SHOWS HOW INCOMPETENT GOVT IS. I HELPED GET THE CFPB FORMED, I HELPED JOHN STUMPF GET FIRED. 2 TRUSTS FROM 1 HOME? THEY USED THE LOAN APP. AND APPRAISAL FOR ONE, AND THE NOTE AND MORTGAGE FOR TWO.

  6. Reblogged this on California freelance paralegal and commented:
    This story is not surprising to me. The fact that the big banks and corporations can use arbitration clauses buried in the fine print of their contract is outrageous and should be banned. The fact of the matter is that historically speaking, arbitration was typically used by merchants and in some cases several different countries to resolve territorial disputes as shown by this quote, “Some historians hold that arbitration was used as a means of resolving disputes before the appearance of the court system. These historians point to records of the ancient Egyptians, Greeks and Romans to support this claim. These records indicate that in ancient times, contrary to the practice of today, the arbitrator was generally a person know and trusted by both parties – the better known the arbitrator the more confidence the parties would have in his or her judgement.

    Philip of Macedon, father of Alexander the Great, is recorded to have used arbitration to settle territorial disputes arising from a peace treaty with some of the Greek states in 337 BC.[1]

    Lord Mustill, Lord Justice of Appeal, commences his article ‘Arbitration – History and Background’ in the Journal of International Arbitration(1989), “Commercial arbitration must have existed since the dawn of commerce. All trade potentially involves disputes, and successful trade must have a means of dispute resolution other than force.” See https://dynalex.wordpress.com/2012/12/28/a-brief-history-of-commercial-arbitration/

    ” In Athens, most disputes were settled through arbitration rather than in the Jury Courts. There were two kinds of arbitration: public and private. In private arbitration, the two parties to the dispute would select a mutually agreeable third person or persons to decide the case; the results of private arbitration were recognized in the law as binding and final, and no appeal was permitted (unless malfeasance could be shown on the part of the arbitrator). Alternatively, the contending parties could bring their dispute to a state-appointed public Arbitrator. (The board of public Arbitrators consisted of all male citizens in their sixtieth year.) Because the disputants had no choice about which Arbitrator was assigned to them, and might end up with a dud, it was thought only fair in the case of public arbitration (unlike private arbitration) to allow the Arbitrator’s decision to be appealed to the Jury Courts. The choice between private arbitrators, public Arbitrators, and Jury Courts introduced a salutary competitive element into the Athenian judicial system. ” See this webpage https://www.lewrockwell.com/2004/06/roderick-t-long/libertarian-athens/

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