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Binding Arbitration: Wells Fargo Taking Away Customers’ Rights

This article was written by in Banking, Featured. 36 comments.


February 14, 2012 update: The change in terms described here goes into effect tomorrow. It’s not too late to switch banks.

If you enter into an agreement with a company, and that company does something to wrong you, most of the time you can avail yourself of the American judicial system to correct the problem. This happens frequently, with both individual lawsuits and class action lawsuits. For example, Bank of America is dealing with several lawsuits stemming from shady fee practices and other policies enacted by Countrywide Financial, a company Bank of America acquired.

In order for bank to protect themselves from problems and major expenses like these is to take away their customers’ rights to a trial with a jury or a judge. This is legal, and you don’t even need to sign these rights away. Companies can change these terms of your banking agreement, and your continued patronage implies that you agree and are willing to waive your rights for the benefit of remaining a customer.

Wells FargoI make it a point to thumb through the mailed statements because banks will occasionally update terms and change fees, and it’s easy to miss this information if I were to only check my account online or in my Quicken software. A few days ago, I received my statement from Wells Fargo in the mail, and discovered a notice informing me that by remaining a customer at Wells Fargo beyond February 15, 2012, I would never be able to be included in a class action lawsuit or sue the bank myself. Any disputes would go through a binding arbitration process.

Binding arbitration has its benefits. It is often less costly, and businesses can generally get a sense for the result before moving forward. The benefits, plainly one-sided, end there.

Binding arbitration is usually detrimental to consumers. The costs for an individual often outweigh the potential reward, and potential rewards are low because binding arbitration often favors the large company over the individual, unlike juries and most judges. It’s easy to see why arbitrators favor big businesses; arbitration is a business, and if they favor a large corporation, that corporation will likely bring more business to the arbitrator.

A consumer initiating arbitration through the American Arbitration Association, the administer Wells Fargo identifies in its new terms, would be subject to fees, such as:

  • $250 for telephone consultation if the claim is less than $75,000, higher otherwise
  • $750 for in-person consultation of the claim is less than $75,000, higher otherwise
  • Up to $125 in additional fees if the claim is less than $10,000, up to $375 if the claim is less than $75,000, higher otherwise

The business would be subject to fees higher than those listed above for the consumer, but the total expense for a corporation could still be considerably less than dealing with a lawsuit. Not every arbitration organization follows the same pattern for fees, though. In some cases, the consumer could spend more money initiating arbitration than filing his or her own suit.

Also a detriment to the consumer, arbitrators are not required to follow an established process. This uncertainty can limit the consumer’s ability to argue. For example, arbitration does not include a discovery process, making it difficult for consumers to present evidence to support their cases. Also, the consumer does not have the ability to choose the arbitrator. The business selects the arbitrator, so it’s clear that this could easily be a biased approach to settling a disagreement.

Binding arbitration is reviled so much that Congress has been inspired to take action to determine whether binding arbitration clauses can be considered legal — in cellular phone contracts, only. So far, this effort has failed to produce any results beneficial for the consumer.

Bank of America and other banks have been the subject of a class action lawsuit alleging they have forced customers into mandatory binding arbitration agreements. The Supreme Court has ruled 5 to 4 in favor of companies’ options to put binding arbitration into customer agreements.

What a consumer can do about binding arbitration clauses

I’ve been a customer of Wells Fargo or its predecessors for most of my life. I’ve had my primary checking and savings accounts at this bank. But with this change, I am not wasting any more time in moving my money out of this bank. It’s not that I anticipate having any problems that require a lawsuit or arbitration, and if I am included in any class action lawsuit, I don’t expect to gain much.

Businesses and employers force binding arbitration on customers when the customers or employees are in a weaker position than the larger entity. For example, with unemployment high, many Americans feel lucky to have jobs. They’re willing to waive rights in order to be employed, and most do. Most customers will be unaware that by continuing to hold their accounts they waive their rights. Others will be aware and not consider this to be an issue worthy of going through the process of closing their accounts. Very few will use this as an incentive to move money elsewhere.

Banking institutions are everywhere, however, and customers have choices. For example, I could move all of my money held at Wells Fargo to Chase Bank. At one point, Chase included binding arbitration in its customer contracts for credit cards but has recently abandoned this approach. There is always a danger that the terms will change, particularly as more big banks want to protect the revenue they earn from fees. With a Chase branch within walking distance to me, this move makes sense, but it still isn’t a perfect solution.

I would prefer to switch to a credit union, but I’ve researched my options many times, and there are no credit unions convenient for me. Additionally, one of the largest and most popular credit unions, USAA, is as bad as Wells Fargo when it comes to members’ rights: USAA requires customers to waive their rights to a trial by judge or jury, just like the bank I intend to leave.

I’ll be moving my money out of this bank as soon as possible.

If you decide to move your business to a company that does not limit your rights, be sure to let the company know exactly why it is lowing your business. Unfair fee practices and binding arbitration could be only two of many reasons you’d be better off being a customer elsewhere.

Read the entire Wells Fargo notice below.

Wells Fargo Binding Arbitration

Photo: Neubie

Updated February 14, 2012 and originally published December 23, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 36 comments… read them below or add one }

avatar Invest It Wisely

Closing your account seems like the best way to handle it. That is what I would do, too.

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avatar shellye ♦107 (Cent)

Agreed…closing your account gives you the final say.

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avatar Spokane Al

I have noticed that when some companies institute arbitration as the method to resolve disputes, there is usually a paragraph in the fine print that provides the customer with a method to opt out of this process, without closing the account.

You may want to check for this in your agreement.

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avatar Luke Landes ♦127,460 (Platinum)

There’s no way to opt out in this particular case, or if there is, the bank is not making it evident in the legal terms. There is an exception for small claims court, but a judge in small claims court could easily order that the two parties submit to binding arbitration as stipulated in the agreement.

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avatar HvP

Thank you for posting this for everyone to see. People need to be outraged about this. Remember the uproar about Bank Of America charging monthly debit card fees and the consumer backlash? We need the same thing to happen here concerning binding arbitration clauses.

The very day I received my notice of the change to my Wells Fargo service I emailed them saying I did NOT accept those terms and specifically asked for a contractual method to opt out of the binding arbitration clause or I would be closing my account.

Their response?- “We understand that you are interested in closing your account. Here is how you can proceed.” And then they told me how to close my account. They obviously don’t want anyone that would dare to exercise their rights. Needless to say, I’m will not be banking with them as soon as I find an institution that won’t ask me to sign away my Constitutional rights.

- Jeremy, Mesquite, TX

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avatar Tom Murin

Actually, I have read recently that consumers win more ofter in arbitration than in court. I think you should research this a bit more. Litigation is expensive. This adds to the cost of doing business. To the extent that lower costs help the consumer – then mandatory arbitration makes sense. I believe this is too much ado about nothing really.

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avatar Luke Landes ♦127,460 (Platinum)

I’d be interested to see where you read this. All the research I’ve done on this topic indicates the consumer is often worse off with arbitration against a company than with a trial with judge and/or jury. The only entities I’ve found disputing this are companies that want to force binding arbitration on their customers. (“It’s for your own good, we promise!”) Having the choice of lawsuit, mediation, or arbitration is a often much better circumstance for the consumer.

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avatar Tom Murin

Flexo,
Here is the address of an interesting article:

http://www.aei.org/article/society-and-culture/the-current-state-of-consumer-arbitration/

I have a bit of a libertarian bent – I hope you have the same skepticism (“It’s for your own good….”) when it comes to the government forcing things upon us.

The deck is stacked against the consumer, I agree. I try to be a good one. I bank at a credit union (Navy Federal). I think they are outstanding.

I am very involved with the legal system and know very well how it works – it is certainly not fast no matter what the issue and many of those who “win” do not necessarily far very well at the end of the day when you look at the time and expense involved.

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avatar HvP

Reading the link you sent I’d say the results are ambiguous at best.
A more recent study published in the Journal of Empirical Legal Studies certainly makes a reasonably coherent case that the American Arbitration Association (the one specifically cited by Wells Fargo) shows evidence of systematic bias in favor of corporations in employment disputes.

See: http://onlinelibrary.wiley.com/doi/10.1111/j.1740-1461.2010.01200.x/full

Caveat emptor and all, but I’d say that all things being equal there is simply no rational reason to waive your Constitutional right to the public court system. It’s a non-starter in my book. And of course, things aren’t equal are they? The mechanism by which binding arbitration is thought to create corporate bias is simply the result of the very free-market economics that conservatives insist is supposed to make things fair – corporations are just shopping around for the best arbiters money can buy to go their way.

And on top of all of that, we have the untenable likelihood that consumers will no longer have a public record of corporate wrongdoings. They will all be sealed behind non-disclosure pacts and confidentiality agreements. The largest arbitration organization, the AAA, doesn’t even require a transcript to be kept of the proceedings. How can a free market possibly function in a future where no one knows anything about the methods or history of the companies we are meant to scrutinize? Are we just supposed to take them at their word now? Sure. :?

And what about a person’s right during trial to examine the evidence against oneself? Or the penalty for perjury? What happens if evidence is tampered with or fraudulently invented? These are not only grounds for dismissal in a public court of law but also have criminal repercussions for the guilty party. What is admissible as evidence in an arbitration? Is hearsay admissible? Polygraphs? Witchdoctors? I ask because I don’t know, and I don’t know because it isn’t codified into law.

That’s why we have laws, so that we have a public standard by which we have ALREADY AGREED to cooperate. Why are corporations now trying to invent a new layer of complexity to a system that we already have? Why?

Because it substantially benefits them is the only answer I can reasonably think of.

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avatar HvP

Tom, where is the public record for a company’s arbitration disputes? All disputes in which a company has been a participant in the public court system are matter of public record and contribute to case-law on the relevant issues. And in most cases the relevant allegations, the minutes of the trial, the evidence presented, and the findings of the court are available for public access.

None of this is true for cases heard by arbitration services as they are considered private and sealed by non-disclosure pacts. Non-disclosure pacts are just as bad as arbitration clauses. Add to that any case that is settled out-of-court. Out-of-court settlements are usually concealed behind non-disclosure agreements and also do not contribute to the public record or case-law. As a matter of legal precedent, they never existed.

Corporations don’t really want a free-market – for how can a consumer actually make an informed decision if there is no public record on which to judge said corporations.

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avatar DonnaFreedman ♦65 (Newbie)

I wonder how many people completely missed this because they didn’t read paperwork? And will continue to miss it because they don’t read newspapers, PF sites or online news portals, either?

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avatar Andrea @SoOverDebt

I was just thinking the same thing. Banks send out privacy policies and different notices so often, a lot of people probably toss them without reading. I’ve been guilty of throwing away notices from my credit card issuers – my statements are electronic so I usually assume it’s something random.

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avatar Luke Landes ♦127,460 (Platinum)

I get so much paperwork in the mail, I often miss these things. I eventually get around to opening what I miss, but maybe only once a year. It’s a good reminder to keep things simple so you don’t receive and need to keep track of notices from 40 different companies.

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avatar Darwin's Money

I’d seen an expose on binding arbitration with credit card companies and phone companies where basically, the arbitrators were bought by the companies. It makes total sense in that the companies won’t use an arbitrator that routinely rules against them, so there’s no incentive to rule for the plaintiff (other than ethics, which usually takes a backseat to lucrative arb jobs). This isn’t surprising at all; I’m actually surprised they didn’t always have this clause in there. All the more reason to just try to find a smaller local bank or one that’s less scammy at least. I use TD these days, not sure what their stance is on arbitration but I find their hours and service to be adequate and they’re never involved in all the nonsense the other big banks are.

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avatar Ginger @ Girls Just Wanna Have Funds

TD Bank is just as shady. I went through some issues with them earlier this year and won but I shut my account and never looked back.

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avatar Luke Landes ♦127,460 (Platinum)

Other than cashing in more than just the coins I deposited at a TD Bank Penny Arcade, I haven’t had any problems with TD. I suppose that’s a good problem to have, but it probably wasn’t good for the poor guy before me who didn’t realize his count was $30 short. I like that TD is open on Sundays and that a branch is close to me. But I haven’t used the account much in the past year. Only for cashing in the coin jars.

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avatar Ginger @ Girls Just Wanna Have Funds

When they are good, they are great but if you have to deal with the call center, you’re screwed. Even the branch manager relayed this to me that it is an ongoing internal problem and most ppl end up leaving after dealing with the call center.

I like them for all the reasons you mentioned and thought about going back but that ordeal left a sour taste and I’m not likely to go back. They called asking me to come back and open up an account but meh Im not sure how much use it would get and I’d end up paying fees which I dont with my current bank.

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avatar qixx ♦1,890 (Half-Dollar)

Just another reason i’m glad to be done with Wells Fargo. Their fees, terms, and conditions have gotten worse with almost every statement over the last 6 months. There was only one statement in my last six (before moving around Bank Transfer Day) that did not have some form or policy change on it.

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avatar HvP

Things just got VERY interesting.

Through my research on this, I just found out that in August of 2010, Wells Fargo lost a class-action lawsuit in the state of California for intentially reversing the order in which funds are debited from cusomer accounts from “low to high” to “high to low” in order to maximize the number of overdraft fees that can be charged.

http://media.oregonlive.com/business_impact/other/Order%20after%20Trial.pdf

Example: If you have $100 in your account, and make nine $10 debit purchases and then one $110 debit purchase then traditionally the nine $10 purchases would clear bringing your balance to $10 and the $110 purchase would incur an overdraft fee (if sorted in chronological order or if sorted low to high.) But in 2001 Wells Fargo intentionally changed their practice to sort debits and checks from the previous day in order from high to low. The $110 debit would now be posted first, incurring a overdraft fee immediately and further separate additional overdraft fee for EACH AND EVERY debit transaction for that day. Even if they were made at a time before the account had actually reached zero balance!

And because debit purchases were never declined for insufficient funds the customer wouldn’t know. Even if the customer was mostly keeping up with their ledger all day long most would expect their debits to be deducted in the order that they were made. Granted, the $110 purchase would be irresponsible, and no one would suggest that it shouldn’t be penalized, but Wells Fargo has essentially been penalizing every lesser transaction from the day as well even if they were made before the account was depleted!

I find it difficult to believe that this move to prevent class-action lawsuits by their customers isn’t connected to similar practices (past, present and future) they anticipate being sued over. And to think, I would never have found any of that out if it was concealed behind the non-disclosure pacts of “private binding arbitration.”

Be vigilant!

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avatar Ginger @ Girls Just Wanna Have Funds

This underscores the reason why we need to read the fine print when they show up in the mail. Wells Fargo is one of the shadiest banks out there and they will certainly feel the burn of the fall out once this goes viral.

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avatar Christine T.

Ug I have my mortgage with them, not so easy to change that . . .

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avatar Steph

I know, me too…

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avatar Ginger @Girls Just Wanna Have Funds

Sign the Petition!

Wells Fargo: Allow Wells Fargo customers to pursue litigation in a court of law

link

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avatar Mark

How ironic that change.org, which hosts the petition, has a binding arbitration clause in its terms of service…

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avatar Yana

This makes me glad that I left Wells Fargo this year due to new hoops to jump through to have my account fee-free. The package account I already had required me to have a savings account that I didn’t need, but I’d agreed to that at the start. I don’t like when my original terms change, and I do vote with my wallet. I have to admit, though, that I don’t read all those things and this particular arbitration clause could be included in other accounts I have elsewhere. I’m glad you mentioned Chase and its lack of forced arbitration. It is one of my newer banks, but I’ve proceeded with caution with them because for some reason, I don’t entirely trust them. However, they have given me excellent service and recently I’ve noticed that they give exceptional attention to all their customers in the branch, which I visit weekly.

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avatar Paul @ The Frugal Toad

Other issues with Binding Arbitration are:
1) Limited right of appeal – I haven’t read the document, yet, but with arbitration parties give up the right of appeal.
2) Limited evidence process – arbitrator controls the evidence process. There are no subpoenas, or discovery process as there is in litigation. This means that one party does not have to disclose to the other party evidence that will be presented during arbitration. This also means that you have no right of subpoena which would make presenting a case much more difficult.

Pros of arbitration are speed and cost. Legal fees are the main reason why arbitration is preferred over litigation by corporations. Arbitration starts as soon as the arbitrator is chosen and usually takes less than a year whereas litigation can take years.

I would say arbitration is biased towards speedy resolution of the claim which would benefit Wells Fargo more than it would benefit it’s customers.

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avatar Anna Silva

Question to the author, Flexo: regarding your comment that the credit unions in your area are not close to or convenient to you, where do you live or work? I’m in New York City. Initially, the search for credit union was not the easiest, but I did find about a handful of credit unions that most or everyone can join. Besides, most Credit Unions have Shared Branching Network, you can make deposit/withdrawal at the live-tellers of other Credit Unions (provided you have your CU card, account #, etc so they can properly credit/debit your account). Most Credit Unions are in CO-OP ATM network that allow you to get cash at over 28,000 ATM nationwide. Some Credit Unions allow customers to deposit checks remotely via smartphone or computer scanner. With technology, it’s not as important to have physical branches within a 2 block distance.

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avatar Luke Landes ♦127,460 (Platinum)

Anna,

Thanks for the thoughts! I am in central New Jersey, and I’ve used the Find a Credit Union service to locate nearby branches. I did forget about the network of branches and ATMs at which banking would be free. It turns out I may have some good choices.

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avatar July A

Hi, thanks for this article! I have a joint acct with my dad and we received the arbitration agreement notice and an Oct-Dec statement in the mail today. We’re closing it tomorrow not b/ of the notice but b/ of their new $3 monthly service fee!

Im a credit union member here in Las Vegas thats based in Utah and I’ve been happy with them so far, so I will be recommending my dad. Good luck with ur search if you haven’t found one yet

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avatar Anna Silva

I’m glad I actually reminded you about the Shared Branch network and the CO-OP ATM surcharge-free network. By the way, there is a Credit Union near my home that I’m not a member of. I noticed their ATM machine allows me to make check deposits at their machines, in addition to using live-tellers. They accept my ATM check deposits because they are member of the CO-OP network and the Shared Branch network, but I would prefer to deposit checks via smartphone to make sure it’s not lost.

Recently, Chase and Citibank ATMs in New York City, Long Island and Westchester County, NY have been hacked. Thieves installed devices to skim the ATM/Debit card data and hidden cameras to capture on video how you enter you PIN. Then they quickly made ATM/Debit card with knowledge of your PIN to take out as much cash from your account as possible. I used to think the Big Banks’ ATM machines were safe, no more.

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avatar Donnel Fenton

customer of WFB since 1968 received their constitutional abusive “Forced Arbitration”
agreement. I lined/striked out the wording intialed it sent it back with letter that I a
American will Never give up my due process rights, Forever. They will accept it as an
opt out or I will pull my mid six figure account! Already found banks(El Dorado Bank in
Nevada, California) that is aware and refuse to use weasel wording. Will WFB et al
care if we withdrawl our funds-NO, because they can go to politicians and get more
Tarper $$.

Last ten years every new car purchase agreement that had Forced mediation/arbitration clauses I X’d them out, when a dealer complained I walked- went to an American
dealer. They X’d it for me and rolled (sold)the car.

The Tarper banks steal our money, now they want to cancel our Constitution.

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avatar thouroughly_disgusted

Hi,
I just opened my mail from Wells Fargo and saw the mandatory arbitration notice. I immediately went online to see if there was any discussion about it and found this conversation. Thanks for taking the time to post and for people’s thoughts. This is a SIGNIFICANT change and I note that it only applies to “consumer” accounts not “business” accounts. Hmmm . . . What’s going on? How come I as a US citizen no longer have a voice and access to the courts. (See Rebuilding Justice: Civil Courts in Jeopardy and Why You Should Care ny Rebecca Love Kourlis, former Colorado trial judge and Dirk Olin, legal affairs journalist.)

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avatar tucsonbob

USAA is not a credit union, it is a Federal Savings Bank and Insurance Company holdings. The largest credit union in the country, Navy Federal CU, offers some excellent perks for their members.

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avatar Kathryn Cook

I was ill in 2007 when I lost my ATM card then my home was robbed and subsequently my entire acct. w/Bank of America was cleaned out and I am left w/overdraft chgs. from the ATM withdrawals of over $300.00. In this period while I was in the hospital Wells Fargo Foreclosed on my home I found out about ALL of this from My Daughter after I got out and was homeless. They foreclosed for less then $45,000.00 Do I have any recourse? I cant even get a bank account.

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avatar Cory

Arbitration is not always a bad thing since in the case of using consumer rules the bank will be footing the bill for pretty much everything. Now if you have a business account and then I agree it is a bad thing because you will be sharing the cost of arbitration.

This is also a 2 sided coin for them since if they ever decide to try and sue you over fees owed or whatever you can then force them into arbitration. And in many states arbitration fess are not allowed to be added to any awards.

And finally right now AAA will not accept any bank initiated arbitration requests unless the consumer agrees so it is very possible to get your case to a more favorable arbitration organization such as JAMS.

The only people who should be truly upset over this are class action lawyers since they will not make as much money, but if you really want to hurt a company then every member of a class action suit filing an arbitration demand will really hurt them financially since it is very possible to make a bank spend well over $10K to complete arbitration proceedings. And if you would like some good reading about this look at the ATT v. Conception supreme court case where ATT successfully got out of a class action, then they were inundated with arbitration demands and it ended up costing them much more than if they just settled the class action suit

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avatar David J. Crandall

ATTENTION CUSTOMERS/FORMER CUSTOMERS OF WACHOVIA OR WELLS FARGO:
We are looking for copies of Consumer Loan Agreements / Consumer Credit Agreements from Wachovia or Wells Fargo effective between 2009-2013. If you or anyone you know has a copy of this type of agreement with Wachovia or Wells Fargo, please sent it ASAP to e-mail address: djcrandall@crandalllaw.com or fax number: 540-400-0616. Thank you.

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