SALT LAKE CITY, UT–Grappling with a myriad of lawsuits over charges it opened customer accounts without proper customer consent, Wells Fargo & Company has requested that a U.S. court should force customers suing it to settle disputes privately via arbitrations, rather than in court.
The third-largest U.S. bank as measured by its resources, Wells Fargo has seen its reputation damaged in recent months as its former Chief Executive Officer, John Stumpf, who earlier apologized to the American people, has resigned amid the scandal.
The bank’s motion, filed on November 23, stems from “the first class action lawsuit filed against Wells since it agreed to pay $185 million in penalties and $5 million to customers for opening up to 2 million deposit and credit-card accounts in their names without [customer] permission,” according to a report published by Reuters news service.
The bank has previously been called out for “its mandatory arbitration clauses from Democratic lawmakers in Congress, including Senator Elizabeth Warren of Massachusetts,” writes Reuters.
It has also been facing tougher regulatory scrutiny in the wake of the scandal, and scores of probes into its activities.
But Wells Fargo has fought back with advertisements to “win back customer loyalty” and restore reputational damage.
In response to questions from U.S. lawmakers published recently, the bank indicated it would use an arbitrator to settle disputes though it “was offering free mediation services to affected customers,” says the report.
On December 1, Democratic legislators introduced a bill called the “Justice for Victims of Fraud Act” which would prevent the bank from forcing its customers into arbitration, according to a report in the Los Angeles Times.
“If a customer never authorized the opening of a credit card or checking account, that same customer should not be bound by an arbitration agreement for a separate, legitimate account,” said Congressman Brad Sherman, according to the report.
“Cheated customers should have the choice to opt out of phony contractual arbitration provisions and seek justice in court.”
The Consumer Financial Protection Bureau (CFPB) is currently considering rules to stop banks, and credit card providers from making consumers agree to out-of-court mediation, and thus giving up the possibility of joining class-action lawsuits.
Still, the CFPB “could find its powers scaled back by President-elect Donald Trump and a Republican-led Congress,” reports Reuters, citing “members of both political parties, lobbyists and lawyers.”
The embattled bank is not only facing the potential of class action litigation from its consumers, but also from its employees.
Separately, a proposal for a class-action lawsuit was filed in a federal court on November 22 by Wells Fargo employees who feel the bank mismanaged their retirement plans, costing them $323 million in returns over five years, reports Reuters.
These charges allege Wells of wrongful “self-dealing and imprudent investing,” says Reuters, “by steering 401(k) contributions to its Wells Fargo Dow Jones Target Date funds.”
Wells Fargo’s 401(k) plan has about $35 billion in assets and more than 350,000 participants, according to Reuters.
The suit “seeks to recoup excess fees and unrealized profits stemming from Wells Fargo’s alleged breach of fiduciary duties to all 401(k) participants over the last six years,” explains Reuters, citing the complaint.
“Lifecycle funds” or “Target date funds,” as they are known, “blend mutual funds that invest in stocks, bonds and cash,” notes Reuters, while “shifting the mix” according to individuals’ retirement dates.
But “Wells Fargo’s target date funds cost 2.5 times more than [competitive] funds,” says Reuters, citing the complaint.
Moreover, the person spearheading the suit, speaks of unnecessary “layering of an extra set of fees to run the funds,” plus other fees “to manage the underlying indexed funds,” in the suit, according to Reuters.
But citing “a default investment option” and easy-quick sign up feature on the part of the bank, the report says that “assets allegedly grew” anyway and “generated substantial revenues for Wells Fargo.”
Dave is an award-winning business reporter who has authored over 200 articles for New Brunswick Today.