By: Jonathan Vaitl

In December 2016, identical bills were introduced in both the U.S. House[1] and Senate[2] that would allow consumers to avoid mandatory arbitration clauses in cases of fraud.

The bills came on the heels of the bombshell Wells Fargo scandal, where Wells Fargo employees fraudulently opened deposit and credit card accounts in customers’ names, which resulted in fees wrongfully charged to customers. Although the Consumer Financial Protection Bureau (“CFPB”) ultimately fined Wells Fargo $185 million and ordered the refund of $5 million in fraudulent fees, when Wells Fargo customers attempted to file suit, they ran into a mandatory arbitration roadblock.

Wells Fargo argued in cases before the courts of the District of Utah[3] and the Northern District of California[4] that, despite the fraud and deceit, customers were bound by the mandatory arbitration clauses, which prohibited class arbitration, included in the terms customers agreed to when they opened their accounts. In a press release, Sen. Sherrod Brown (D-OH), who introduced the Senate bill, said, “Forced arbitration is shielding Wells Fargo from being held accountable for tanking customers’ credit scores and charging them fraudulent fines.” Brown further stated: “Wells Fargo’s customers never intended to sign away their right to fight back against fraud and deceit. We need to give customers back their ability to seek justice in court so they can be made whole again.”

The bills would invalidate any pre-dispute arbitration agreement in a dispute related to a credit card account or a personal deposit account opened without the request of, or an application from, the customer. It is not clear how much support either bill has. The Senate bill has 14 cosponsors, all Democrats and Sen. Bernie Sanders (I-VT). Likewise, the House bill, introduced by Rep. Brad Sherman (D-CA-30) has 14 cosponsors, all of whom are Democrats.

The bills also come at a time when the CFPB expects to promulgate a final rule that would prohibit financial institutions from enforcing arbitration agreements that disallow class arbitration.[5] The CFPB was expected to issue its final rule in February of this year; however, some believe that it may come before President-elect Donald Trump’s inauguration.[6]

Regardless of the outcome of these bills, their introduction, along with the impending final rule from the CFPB, indicates a renewed interest among lawmakers to wind back the court-approved power of financial institutions in forcing consumers into mandatory, class-restrictive arbitration agreements, even in the face of rampant fraud.

Endnotes:

[1] Justice for Victims of Fraud Act of 2016, H.R. 6423, 114th Cong. (2016).

[2] Justice for Victims of Fraud Act of 2016, S. 3491, 114th Cong. (2016).

[3] Mitchell v. Wells Fargo Bank N.A., No. 16–00966 (D. Utah complaint filed Sept. 16, 2016).

[4] Jabbari v. Wells Fargo & Co., No. 15–cv–02159–VC (N.D. Cal. Sept. 23, 2015).

[5] Arbitration Agreements, 81 Fed. Reg. 32829 (May 24, 2016).

[6] Jessica Karmasek, CFPB Will Likely Issue Rule Targeting Arbitration Before Trump Takes Over, Attorney Says, Forbes (Dec. 26, 2016, 8:10 AM), http://www.forbes.com/sites/legalnewsline/2016/12/26/cfpb-will-likely-issue-rule-targeting-arbitration-before-trump-takes-over-attorney-says/#69b999abbcf0.