Everyone’s favorite bank, Wells Fargo caught in another massive scandal
07/23/2017 / By Rhonda Johansson
Even as Wells Fargo attempts to rebuild its image after an appalling scandal last year, it is still practicing questionable banking practices. The bank was fined nearly $2 million last year after they were found guilty of fraudulently opening accounts for new customers in order to reach their unrealistic sales goals. Supposedly, more than 5,000 employees were involved in this crime, all of whom have been fired by the international bank. In response to the scandal, CFO John Shrewsberry told CNBC that the financial giant is taking aggressive steps to improve management operations and impose strategies that would better serve the American people. Even so, a damning report on VICE suggests otherwise.
The bank is currently embroiled in a less-covered but still-damaging dispute on forced arbitration clauses. These are provisions written in fine print in most (if not all) contracts being given today. In everything we do, from opening a bank account to using Netflix, we are typically required to sign some kind of agreement or other. These clauses are rarely used or referred to, but Wells Fargo has made it so that all legal arguments become extremely difficult for the plaintiff. Within these arbitration clauses, it forces customers to take their concerns not before a court, but to a private arbitration hearing. These hearings are usually more expensive, tedious, and lengthy. The normal outcome of these legal disputes is the complaining customer dropping the charges. This is a perverted yet perfectly legal way in which Wells Fargo has evaded legal scrutiny.
These arbitration clauses are being used in the scores of lawsuits being filed against the bank for something called “debit card reordering” which has collectively cost Americans millions of dollars in overdraft fees. The mathematics of it are as follows: Let’s assume you have $50 in your bank account. You then make three purchases, one for $5, the other $20, and the last for $60. Using Wells Fargo’s arbitration clauses, they can charge you $35 as an overdraft fee for spending more than what was in your account. However, by reordering the transactions from highest to lowest, wherein the $60 item was placed first, Wells Fargo can charge you three separate overdraft fees, one for each attempt. In theory, Wells Fargo could earn an additional $70 just by changing the transaction order. Multiply this by millions of customers (with more money than the example described earlier), and this equates to a lot of money.
Apparently, this was a common technique used by many banks for years. The federal court has called this processing method as deceitful and consolidated a national class-action lawsuit against more than 30 different banks. Most banks agreed to settle with the plaintiffs, with a total restitution amount of $1.1 billion for overdraft abuse. However, Wells Fargo held its ground and — using arbitration clauses — fought its way up to the U.S. Supreme Court. Despite the fact that they lost (they were told to pay $203 million to its customers in California), the bank still “won” since they did not have to address complaints made by customers in other states. This brilliant legal maneuvering keeps Wells Fargo free of accountability and allows them to keep up its deceptions for years to come.
Take this into consideration: A recent study on the situation concluded that in the last eight years, only seven arbitration cases against Wells Fargo won. This is out of just 48 that made it to the final hearing. Moreover, most cases end up being dropped due to costly legal representation and hearings. Federal judge Richard Posner of the Seventh Circuit Court of Appeals wrote in a ruling, “The realistic alternative to a class action is not 17 million suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.” (Related: Huge number of Americans opting out of banking system – and the media says that’s bad!)
The shady behavior of Wells Fargo is also seen in their own numbers. A Federal Deposit Insurance Corporation (FDIC) analysis made last year showed the bank recording a 16 percent increase in overdraft fees, the largest uptick among 600 banks during the first quarter compared to the same period the year earlier. Our country’s largest bank, Bank of America, only reported a six percent increase.
A new ruling has overturned the federal ban on arbitration clauses which prevents customers from joining class-action lawsuits against any bank. According to these new guidelines, Congress could kill regulations within 60 legislative days of the lawsuit’s release. This new regulation will not affect Wells Fargo’s case, as it will not be applied retroactively.
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Tagged Under: banking scandal, banking system, banksters, corruption, overdraft fees, Wells Fargo
