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Wells Fargo insists its imaginary clients agreed to arbitration

Whatever you think about mandatory arbitration clauses, they require consent. The First Amendment implies that people generally have the right to “petition the Government for a redress of grievances.” In other words, in the U.S. it’s fundamental that participants in mandatory arbitration have legally waived their right to bring the case to court.

If you’ve been following the news, you’ve undoubtedly heard about the scandal at Wells Fargo. Under immense performance pressure, Wells Fargo employees opened some 2,000,000 accounts, often on behalf of existing customers, without the customers’ consent. Many of the victims were charged fees on those accounts, a fact that has brought on a storm of litigation.

Or arbitration, if Wells Fargo has its way. According to The New York Times, the bank is attempting to enforce the mandatory arbitration clauses in the paperwork for the unauthorized accounts. Amazingly, they’re winning in many cases.

How could customers have consented to arbitration clauses in accounts they never knew about?

The Times describes private arbitration as “a secretive legal process that often favors corporations.” That description is hyperbolic, but it wouldn’t be surprising if many people feel that way. Arbitration is capable of helping parties resolve disputes in an efficient, cost-effective manner. Unfortunately, contract terms requiring mandatory arbitration can undermine that goal by making it impossible for groups of plaintiffs to form class actions against defendants with vastly greater litigation resources.

Wells Fargo’s tactic is unlikely to improve the general public’s impression of arbitration -- or rebuild the public’s trust in the bank. Nevertheless, it has been successful in some cases.

The argument the bank has employed is basically this: The fraudulent accounts were typically opened for existing customers. Those customers may not have seen the agreements for the fraudulent accounts, but they did see the agreements for the legitimate accounts they opened -- and those, too, contain mandatory arbitration clauses.

Some judges have accepted this argument, which it has used in similar disputes over the years. The very fact that such disputes have been arbitrated, however, may have kept the scandal under wraps for as long as ten years.

Moreover, enforcing mandatory arbitration clauses in this situation may dissuade victims from seeking redress at all -- “blunting,” as the Times says, “one of most powerful tools that Americans have in challenging harmful and deceitful practices by big companies.”

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