Wells Fargo (WFC.N) is walking a tricky tightrope in dealing with the scandal caused by employees opening close to 2 million bank and credit card accounts in the names of customers without authorization.
On one hand, the bank is airing new commercials, trying to win back the trust of its customers. On the other hand, it is trying to do major damage control on the fallout from multiple investigations.
Wells Fargo was already taken by surprise on Friday by additional restrictions imposed by the Office of the Comptroller of the Currency after agreeing to a settlement, which included a $185 million in penalties and $5 million to customers. It has yet to see final consequences from the U.S. Department of Justice and California Attorney General.
In the latest attempt to keep settlements from skyrocketing, Wells Fargo filed a motion yesterday in Utah’s U.S. District Court asking that bank customers be required to settle their disputes by private mediation, rather than in court.
Such arbitration favors the bank in the following ways:
- Details of corporate misconduct are concealed from regulators because documents and hearing transcripts are not available to the public like court documents are.
- Settlement of the cases in arbitration does not set precedents for future cases against the bank.
Advocates for the customers, of course, claim that such an order would be unfair. Not only would it be more difficult for customers to find lawyers willing to help recover the smaller sums of money of individual claims, but they would also be deprived of the protections a court proceeding offers, such as right to appeal.
The basis for Wells Fargo’s suit is that customers waive their right to court proceedings and agree to arbitration in the documents they sign when opening accounts. However, in this instance, the bank is offering to provide free mediation services.
The problem for Wells Fargo is that, in this instance, customers didn’t sign anything to open the accounts in question. While it may seem that this case has been dragging on for a while, this is probably just the beginning.