Problem with Your Bank Account? Tell It to the... Arbitrator?

Boston College Law Review Volume 60 | Issue 6 Article 4 6-28-2019 Problem with Your Bank Account? Tell It to the... Arbitrator? Michael Koch Boston College Law School, Follow this and additional works at: https://lawdigitalcommons.bc.edu/bclr Part of the Banking and Finance Law Commons, Consumer Protection Law Commons, Contracts Commons, Dispute Resolution and Arbitration Commons, and the Torts Commons Recommended Citation Michael Koch, Problem with Your Bank Account? Tell It to the... Arbitrator?, 60 B.C.L. Rev. 1605 (2019), https://lawdigitalcommons.bc.edu/bclr/vol60/iss6/4 This Notes is brought to you for free and open access by the Law Journals at Digital Commons @ Boston College Law School. It has been accepted for inclusion in Boston College Law Review by an authorized editor of Digital Commons @ Boston College Law School. For more information, please contact . PROBLEM WITH YOUR BANK ACCOUNT? TELL IT TO THE . . . ARBITRATOR? Abstract: An increasing number of consumer financial products have begun to come pre-packaged with binding individual arbitration agreements. The Consumer Financial Protection Bureau’s rule forbidding these agreements sought to ensure that consumers damaged by their banks’ actions could have their day in court. When Congress chose to repeal the so called “Arbitration Rule” in 2017, it dealt a serious blow to consumers’ rights. Consumers are nearly universally precluded from joining class action claims against large financial institutions due to the widespread and largely unfettered use of class-action waivers in arbitration agreements. This Note argues that class-action waivers should be regulated to ensure that individuals with inferior bargaining power and legal resources are not subjected to poor treatment at the hands of their banks. INTRODUCTION Lawrence Mitchell opened a checking account with First Security Bank in April of 1982. 1 At that time, Mitchell did not think he had agreed to an arbitration clause when he opened that account. 2 When First Security Bank announced that it had agreed to merge with Wells Fargo Bank, N.A. (“Wells Fargo”) in 2000, Mitchell was still unaware that he was bound by an individual arbitration clause. 3 It was not until seventeen years later that Mitchell would find out that Wells Fargo did not share his understanding. 4 In September 2016, the Consumer Financial Protection Bureau (“CFPB”) entered a consent order against Wells Fargo. 5 The consent order recited four 1 Third Amended Class Action Complaint at 59, Mitchell v. Wells Fargo Bank, No. 2:16-cv00966-CW, 2017 WL 5905535 (D. Utah Nov. 29, 2017) (stating the facts of the claim). 2 Id. at 59–60. 3 See id. at 59–60 (alleging that Mitchell was not subject to an arbitration agreement on his First Security Bank account); Wells Fargo & Company and First Security Corporation Agree to Merge, WELLS FARGO (Apr. 10, 2000), https://archive.is/20121217225441/https://www.wellsfargo.com/ press/firstsec20000410 [https://perma.cc/UDE7-3C9G] (announcing that Wells Fargo & Company and First Security Corporation agreed to a merger between the two companies). 4 Class Action Complaint at 1, Mitchell, 2017 WL 5905535 (No. 2:16-cv-00966-CW); see Motion and Memorandum in Support of Motion to Compel Arbitration Pursuant to FAA §§ 3–4 at xxix, Mitchell, 2017 WL 5905535 (No. 2:16-cv-00966-CW) [hereinafter Motion to Compel Arbitration] (alleging that Mitchell signed up for online banking services in 2005, the terms of which included a dispute resolution clause). 5 Wells Fargo Bank, N.A., CFPB No. 2016-CFPB-0015, at 1 (Sept. 8, 2016), https://files. consumerfinance.gov/f/documents/092016_cfpb_WFBconsentorder.pdf [https://perma.cc/Q7NTJ968] [hereinafter Wells Fargo Consent Order]. The CFPB issues a consent order when it initiates an enforcement action because it believes an entity has broken consumer financial protection laws. En- 1605 1606 Boston College Law Review [Vol. 60:1605 types of Wells Fargo’s acts or practices that the CFPB determined to be unlawful: (1) creating unauthorized deposit accounts on behalf of existing customers without consent, (2) submitting credit card applications in existing customers’ names without their consent, (3) registering existing customers for online banking services without consent, and (4) obtaining and activating debit cards in existing customers’ names without consent. 6 It was later discovered that Wells Fargo had opened approximately 3.5 million additional potentially fake accounts in relation to the CFPB’s prior findings. 7 In the wake of the consent order, Mitchell and a group of other affected Wells Fargo customers filed a class-action lawsuit in the U.S. District Court for the District of Utah on behalf of themselves and other customers affected by the unlawful activities noted in the CFPB’s consent order. 8 Mitchell alleged that Wells Fargo violated Section 1036(a)(1)(B) of the Consumer Financial Protection Act. 9 Wells Fargo, in response, filed a motion and memorandum in support of a motion to compel arbitration based on arbitration agreements many of the plaintiffs, Mitchell included, did not remember signing. 10 The district court reserved ruling on the motion to compel pending resolution of several material questions of fact. 11 Wells Fargo’s attempt to compel forcement Actions, CONSUMER FIN. PROT. BUREAU, https://www.consumerfinance.gov/policycompliance/enforcement/actions/ [https://perma.cc/VT83-TDPL]. The CFPB is broadly empowered to investigate a variety of financial product- or service-providers where it suspects such providers may be violating federal consumer financial law. 12 U.S.C. § 5511(c)(4) (2012). To enforce compliance with these laws, the CFPB is empowered to initiate hearings as to whether it should issue a cease-anddesist order to covered persons and service-providers who have violated or are violating consumer financial laws. Id. § 5563(b)(1)(A). These cease-and-desist orders are referred to as “consent orders.” Wells Fargo Consent Order, supra, at 1. 6 Wells Fargo Consent Order, supra note 5, at 1. The CFPB concluded that the practices noted were violations of 12 U.S.C. §§ 5531 and 5536(a)(1)(B). Id.; see 12 U.S.C. §§ 5531, 5536(a)(1)(B) (defining and making unlawful “unfair, deceptive, or abusive acts or practices”). 7 Uri Berliner, Wells Fargo Admits to Nearly Twice as Many Possible Fake Accounts—3.5 Million, NAT’L PUB. RADIO (Aug. 31, 2017), https://www.npr.org/sections/thetwo-way/2017/08/31/ 547550804/wells-fargo-admits-to-nearly-twice-as-many-possible-fake-accounts-3-5-million [https:// perma.cc/CM76-HEMN]. 8 Class Action Complaint, supra note 4, at 1. 9 Id. at 8; see 12 U.S.C. § 5531(c)–(d) (defining unfair acts or practices and abusive acts or practices); 12 U.S.C. § 5536(a)(1)(B) (mandating that engaging in “unfair, deceptive, or abusive acts or practices” related to consumer financial products or services is unlawful). The complaint largely focuses on a practice referred to as “gaming” whi (...truncated)