Bill in Response to Wells Fargo Scandal passes Senate
SB 33 Prohibits Forced Arbitration When Financial Institutions Use Consumer Information Fraudulently
SACRAMENTO – A bill by Senator Bill Dodd (D-Napa) to protect victims of mass fraud and identity theft passed the state Senate on Tuesday. Dodd’s bill was introduced in response to the recent Wells Fargo scandal where millions of accounts were fraudulently opened without consent, using consumer’s personal information from preexisting accounts. The legislation, co-sponsored by California State Treasurer John Chiang, would give victims their day in court by preventing financial institutions from using forced arbitration clauses in cases of fraud committed by the institution.
“My bill will bring justice for victims of bank fraud and help prevent future fraud, before it spreads,” said Senator Dodd. “The idea that consumers can be blocked from our public courts when their bank commits fraud and identity theft against them is un-American. Allowing victims their day in court helps them recover and can prevent more victims by putting an end to illegal business practices. If SB 33 was already law, Wells Fargo would have been publicly held to account years ago, preventing the fraud from spreading.”
Late last year it came to light that Wells Fargo Bank employees had fraudulently used their customers’ personal information to create over two million fake accounts without consent over the course of five years. Recent reports suggest the number of fake accounts may exceed three million and that Wells Fargo targeted seniors, immigrants, non-English speakers, and students for this fraud. Some of these fraudulent accounts harmed the credit of victims and incurred fees that were passed along to the victims. In the aftermath of the scandal, California State Treasurer John Chiang suspended business dealings with Wells Fargo as a sanction. The bank has had to pay over $185 million in regulatory fines for their illegal use of consumer information.
“Instead of allowing victims to have their day in court where an independent judge or jury can arrive at a verdict following an open and fair trial, Wells Fargo is pushing customers seeking justice into forced arbitration,” said Treasurer John Chiang in a recent statement. “While the bank’s latest marketing slogan is ‘On the side of customers,’ it continues to deny its victims their right to be made whole by coercing its customers into a secretive process that tilts in favor of corporations.”
Many of the victims attempted to sue the bank for damages and to recover their losses. However, Wells Fargo successfully argued that their customers waived their right to sue when they opened their original, legitimate accounts, which were the source of the personal information used to create the fraudulent accounts. The only recourse left to victims was through binding arbitration. Arbitration cases tend to favor the corporate defendant as they are able to select the arbitrator overseeing the case.
“Wells Fargo’s customers were ripped off twice,” said Richard Holober, Executive Director of Consumer Federation of California. “First, the bank created two million fraudulent accounts. Then when consumers tried to sue, the bank forced them into company-dominated arbitration hearings. SB 33 will guarantee that the victims of a bank’s identity theft will get their day in court.”
Dodd’s bill, SB 33, will prohibit the use of forced arbitration in cases where a financial institution has wrongfully used consumer information to commit fraud. Dodd’s bill has already gained support from the Consumer Federation of California, the Consumer Attorneys of California, and numerous consumer advocates. The bill now heads to the state Assembly, where it will be heard in the Assembly Judiciary Committee in June or July.