Allow Consumers to Enforce Their Rights in the Fallout from Any Wrongdoing or Crisis

Protecting consumers from scams, fraud, and deceptive conduct is essential in a time of crisis. In fact, extraordinary situations like the COVID-19 emergency highlight the need for these protections on ordinary days. Wells Fargo and its past track record serve as a good example.

Wells Fargo has earned a reputation for cheating and mistreating its customers and workers with fraud and deception. As a result of its laundry-list of scandals, the bank has paid billions in government fines and received other punishments, including a $1.95 trillion asset cap limiting growth that the Federal Reserve imposed on it in 2018.

But the COVID-19 crisis has led to unexpected developments. As this emergency unfurls and federal regulators seek to alleviate the economic damage, the Fed announced it would temporarily relieve Wells Fargo of a key penalty and relax its “growth restriction” to accommodate the Paycheck Protection loan program that was created by Congress to aid small businesses impacted by the coronavirus epidemic.

Relieving Wells Fargo of any of its well-deserved penalties deserves scrutiny, and the Fed’s action may be justified in this limited circumstance. But federal action or inaction are not the only ways to ensure that Wells Fargo and other financial institutions are held responsible for their misconduct.

Congress can protect consumers by empowering them to hold bad actors accountable at any time, emergency or not. It can ban forced arbitration clauses.

In the 12 years since the great recession, Wells Fargo faced allegations of discriminating against Black and Latino mortgage borrowers, wrongfully foreclosing on hundreds of homeowners, imposing unnecessary add-on products to auto loans, retaliating against whistleblowers, and most notably, opening millions of fake accounts in its customers’ names.

But during that time, Wells Fargo successfully shielded itself from liability with the all-too-normalized corporate get-out-of-jail-free card, forced arbitration.

Wells Fargo and other large corporations insert arbitration clauses in the fine print of their take-it-or-leave-it contracts to block their customers and workers from taking legitimate complaints to court. Instead, any grievances by harmed individuals must go to secretive, closed-door arbitration to be decided by a private arbitrator.

Many forced arbitration clauses go even further by barring individuals who have suffered the same relatively small harms — which when taken together can present evidence of systemic and widespread damage — from banding together in class actions. As a result, few harmed consumers or workers are able to receive the compensation they deserve and corporate misconduct is swept under the rug.

Wells Fargo has repeatedly used forced arbitration to hide its wrongdoing. For example, the notorious fake account scandal was exposed nationally in late 2016. However, in 2013 and 2015 customers filed lawsuits alleging fake accounts were being opened, but both cases were kicked out of court due to the forced arbitration clauses in the customer contracts. If the cases had been allowed to go forward, the widescale fraud could have been uncovered years earlier.

Similarly, the Consumer Financial Protection Bureau in March accused Fifth Third Bank of opening fake accounts. Fifth Third also uses forced arbitration clauses in its customer contracts. When forced arbitration is allowed, bad actors can escape responsibility for harmful tactics and deceptive practices for years.

In February, Wells Fargo announced that it had ended forced arbitration for workers with sexual harassment claims. These employees would be able to take their claims to court. It was a good move and also a savvy one.

The bank’s HR head stated that “Wells Fargo has zero tolerance for sexual harassment.” Wells Fargo should also have zero tolerance for wage theft, fraud, and other corporate harm. It should be willing to commit to ending forced arbitration altogether.

In March, CEO Charles Scharf, the bank’s third in three years, testified before the U.S. House Financial Services Committee (HFSC) where he reaffirmed that Wells Fargo would continue to force arbitration in cases where it has already started. When pressed on whether the bank had plans to eventually end forced arbitration, he declined to give a definitive answer. Even in the years following widespread and well-publicized wrongdoing, its leadership waffles over a simple move that would do much to restore trust and accountability.

Wells Fargo and all other corporations that use forced arbitration can and should do better for their workers and customers, especially in this time of economic travesty. But admittedly, the corporate shield from liability may be too tempting a benefit to surrender outright.

It is up to Congress then to take the necessary step and pass a law. In times of emergencies when Congress must act instantly to protect Americans from harm, ending forced arbitration would ensure that individuals can enforce their rights in the fallout from any wrongdoing or crisis.

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