The politics of the megabank’s dirty forced-arbitration tactic.
As the shocking Wells Fargo scandal unfolds, congressional Republicans find themselves in a bind. They can passively leave the matter to prosecutors, doing nothing to deter future repetitions of the massive, systematic fraud engaged in by the national bank chain—and thus appear to condone that fraud. Or they can support reforms that would deter such fraud—but in so doing upset their party’s Big Business base.
Here’s a nice summary of the scandal, by The Washington Post’s Dana Milbank:
Wells Fargo pressured low-wage workers with unrealistic sales targets, so these workers created 2 million bogus accounts over five years, causing customers to be hit with fees and damage to their credit ratings.
Those bogus accounts were created under the names of real customers, without their knowledge or consent. Eventually, of course, the scam was exposed. And what has been done about it? Milbank again:
Some 5,300 workers have been fired and $185 million in penalties assessed to the bank, but not a single high-level executive has been sacked or even forced to give back the tens of millions of dollars in pay earned based on the fraud.
This week the Senate Banking Committee hauled Wells Fargo’s CEO up for a high-profile and well-deserved tongue-lashing. Progressive Sen. Elizabeth Warren, D-Mass., basically demanded the man resign, return the money, and report to jail.
But when it came to the most disturbing revelation of the entire hearing, Republicans were quiet.
It transpires that, to avoid lawsuits, the San Francisco-based megabank has been invoking boilerplate clauses in its customers’ bank account contracts that say the customer cannot sue the company but rather must take his complaint to private, binding arbitration. Arbitrators are notoriously less favorable to customer-plaintiffs than are juries.
And here’s the kicker: The clauses are not part of the fake accounts but rather of the underlying, authorized ones. As Sen. Sherrod Brown, D-Ohio, dryly summarized, “The bank invoked the fine print on a real account to block redress on a fake one, which [the bank itself] had created.”
Now that’s chutzpah.
But despite pressure from Brown, the embattled CEO refused to disavow the tactic. And Republicans did not condemn it.
To be sure, the company’s position is understandable. A jury would be more likely to side with the victims, at great expense to the company. An arbitrator, however, is hand picked—and paid—by the company. Sentence first, verdict afterward.
And unlike juries, arbitrators typically do everything in secret, don’t disclose their decision to the public, and don’t disclose their reasoning, even to the disputants. In other words, it’s a star chamber.
And to top it all off, we’re asked to believe signers of arbitration clauses “agreed” to this kangaroo court, pre-dispute—that they signed away their Seventh Amendment right to a jury trial, sight unseen. In truth, they probably didn’t know they were signing it, or had little freedom not to do so. Typically, forced-arb clauses are hidden in the fine print of contracts that are offered on a “take it or leave it” basis.
If the clauses were really optional, as the Seventh Amendment requires, Wells Fargo’s victims could be obtaining redress right now, on their own, in a court, rather than having to wait for a prosecutor to enforce the law.
But back to the Republicans. They support forced arbitration. They also want to dismantle the federal agency charged with regulating the financial industry, the Consumer Financial Protection Bureau. They can’t have it both ways.
To be credible, Republicans must soften their opposition to either regulation or litigation or both. But in so doing, they must naturally disappoint their Big Business allies, who hate both. And if they dither, they appear to condone Wells Fargo’s behavior, which is indefensible.
In other words, the scandal is pure gift to the Democrats.
If the GOP is wise, it will cut its losses and throw forced arbitration under the bus. That would be not only morally right but politically smart.
Among other things, it would put the party on the right side of an issue related to national security. That’s right: Last month the Military Coalition, which represents more than 5.5 million U.S. service members, reservists, and their families, formally petitioned Congress to ban the clauses, which unscrupulous employers and creditors exploit to block Americans in uniform from enforcing their federal right not to be fired, dispossessed, or otherwise cheated during a deployment.
Dear GOP: Friendly advice. When you’re on the wrong side of both Wells Fargo’s victims and the nation’s military families? Stop. You’re doing it wrong.
The unfolding scandal offers Republicans a golden opportunity to stand up for the little guy for a change, against corporate fraud. And the first, obvious step is to reject fraud’s best friend: forced arbitration.