Wells Fargo (WFC) beat earnings expectations on Friday, as it benefited from higher interest rates, though revenue was lower than expected at $22.17 billion. Another cause for celebration earlier this week: court approval of a $142 million settlement of a class-action lawsuit between the bank and victims of its fake account scandal of 2016.
The fiasco, you might remember, included claims that Wells Fargo employees opened up to 2 million bank and credit-card accounts without customers’ permission in order to boost sales numbers. Multiple class action suits followed, and the bank expects them to all fold into this settlement.
However, the bank’s first response was to veto the class action and send it to mandatory arbitration, which is an alternate form of resolving a dispute using an appointed independent party instead of the court system. It’s an option banks and financial institutions have written into contracts with consumers, and they use it to prevent consumers from joining together to pursue relief. Only after public pressure did the San Francisco bank agree to face the suit.
In response to this type of forced arbitration, the CFPB issued a rule this week banning financial institutions from sending class actions to mandatory arbitration.
On the earnings call, Wells Fargo CEO Timothy Sloan was asked about the new rule. He said it wouldn’t have an impact on things going forward with respect to the false account scandal—the rule is not retroactive—but offered some commentary.
“I think that lots of folks have had an opinion on this, and not only in Washington but also various business groups,” he said. “I think there’s a lot of concern about this decision. My guess is that based on the feedback that we’ll see legislative or administrative and legal action against it.”
The Wells incident was, in fact, one of the examples CFPB director Richard Cordray cited to justify the rule to prohibit companies from using arbitration clauses, which denies groups of people suing companies for wrongdoing. “When Wells Fargo opened millions of deposit and credit card accounts without the knowledge or consent of consumers, arbitration clauses in existing account contracts blocked their customers from bringing group lawsuits for the unauthorized account openings,” said Cordray in a recent call with reporters.
Sloan didn’t say what the bank’s official stance was on the matter, but echoed Cordray’s expectations that the rule has a tough path forward. “I am, of course, aware of those parties who have indicated they will seek to have the Congress nullify this new rule. That is a process that I expect will be considered and determined on the merits,” Cordray said when announcing the rule. “My obligation as the director of the Consumer Bureau is to act for the protection of consumers and in the public interest. In deciding to issue this rule, that is what I believe I have done.”
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