On Wednesday, the California State Legislature approved a bill by Senator Bill Dodd (D-Napa) to protect victims of mass fraud and identity theft. The bill, co-authored by Assemblymember Matt Dababneh (D-Woodland Hills), was introduced in response to the Wells Fargo scandal where millions of accounts were fraudulently opened without consent, using consumers’ personal information from existing accounts. This legislation would eliminate the use of forced arbitration clauses in contracts that were fraudulently created by financial institutions, giving victims their day in court.
“Allowing victims to access our public courts helps them recover and can prevent more victims by putting an end to illegal business practices,” 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 simply un-American. Had my bill been in place before the scandal, Wells Fargo would have been held publicly accountable years ago, and the fraud could have been prevented from spreading. I’m proud that the California Legislature is leading the nation by passing critical consumer protections, and I urge Governor Brown to sign my bill into law.”
Late last year, it was discovered 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. Some of these fraudulent accounts incurred fees that were then passed along to the victims. Last week, Wells Fargo admitted the actual number of victims may eclipse 3.5 million, nearly 70 percent more victims than previously reported.
“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 wrongly pushed customers seeking justice into forced arbitration,” said California State Treasurer John Chiang, explaining the need for the legislation. “While the bank’s latest marketing slogan is ‘On the side of customers,’ it has stubbornly persisted in denying its victims the right to be made whole by coercing them into a secretive process that tilts in favor of corporations. Senate Bill 33, authored by Senator Bill Dodd, will level the legal playing field and restore an urgently needed measure of fairness. I applaud his efforts and am proud of our partnership.”
Many of the victims attempted to sue the bank for damages and to recover their losses. Wells Fargo argued, with the backing of the courts, that their customers waived their right to sue when they opened their “legitimate” accounts with the bank. The only recourse left to victims was through binding arbitration. Arbitration cases usually tend to favor the defendant as they are able to select the arbitrator overseeing the case. In the aftermath of the scandal, California State Treasurer John Chiang suspended ties between Wells Fargo and the state of California, and the bank has had to pay $185 million in regulatory fines for their illegal uses of consumer information.
“With the most recent news uncovering additional fraudulent accounts opened at Wells Fargo Bank without the knowledge and consent of its customers – bringing the total since 2009 to over 3.5 million accounts – it is now even more important that we bring openness and accountability to this process and allow these customers an ability to find justice in our legal system,” said Assemblymember Dababneh. “When signing up for financial products, consumers should not be forced into arbitration clauses when the financial institution itself is the one committing these deceptive acts. This bill will put in place a process to help prevent this kind of fraud and abuse from occurring in the future.”
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. The measure is sponsored by Treasurer John Chiang and leading consumer advocacy groups. The bill now heads to Governor Jerry Brown, who has just over a month to sign the bill. Similar legislation has been introduced in the United States Congress by U.S. Senator Sherrod Brown (D-Ohio) and Representative Brad Sherman (D-Calif.), but those measures have yet to be granted a hearing in the Republican-controlled Congress.