Banking Lobbyists, After Wells Fargo Scandal, Couldn't Stop This Arbitration Bill
California's governor and Legislature in recent years have not been welcoming of many bills aimed at restricting the use of arbitration. That could soon change. Gov. Jerry Brown is considering whether to sign legislation that would allow judges to deny a bank's arbitration demand in any case that involves fraudulently created accounts.
September 14, 2017 at 05:14 PM
4 minute read
California's governor and Legislature in recent years have not been welcoming of many bills aimed at restricting the use of arbitration. That could soon change.
Gov. Jerry Brown is considering whether to sign legislation that would allow judges to deny a bank's arbitration demand in any case that involves fraudulently created accounts.
Lawmakers this week sent the governor the bill, SB 33, which was crafted in response to Wells Fargo's admission that its employees opened as many as 3.5 million sham banking and credit card accounts over the last 12 years in the names of existing customers. The legislation targets the bank's attempts to push related lawsuits into closed-door arbitration, citing clauses in legitimate contracts customers signed when they opened accounts.
Brown has not said publicly what he will do with SB 33. But the fact the bill even made it to his desk is remarkable. The state Assembly, which includes a powerful bloc of moderate Democrats, has been a minefield for arbitration-limiting legislation. Just last year, bills to shield civil rights claims and certain military veterans' lawsuits from mandated arbitration stalled in the lower house for lack of support.
The Wells Fargo fraudulent-account scandal “was more than the legislature could allow to go unchecked,” said Richard Holober, executive director of the Consumer Federation of California.
Wells Fargo has lobbied lawmakers on SB 33, according to records filed with the secretary of state's office. But the bank has left public criticism in the hands of trade groups, including the California Bankers Association, the state Chamber of Commerce and the Civil Justice Association of California.
Opponents of the legislation said the statute would be pre-empted by the Federal Arbitration Act and that litigants already have potential defenses to compelled arbitration in such cases.
“We believe that this measure will prompt a wide range of claims used to defeat otherwise valid arbitration agreements,” Simone Lagomarsino, president and chief executive of the California Bankers Association, wrote in the Sacramento Bee in May. “We continue to believe that arbitration is a better alternative to class action litigation that enriches trial attorneys and ultimately fails to benefit the consumer.”
Wells Fargo's advocates also said the bank has already been punished.
The bank last year agreed to pay $185 million in fines to federal agencies and the city of Los Angeles, which was one of the first public entities to investigate the fake accounts. This year, Wells Fargo reached a $142 million settlement with customers. Several states, including California and Illinois, also suspended investment work with the bank.
Supporters of the bill, including organized labor and consumer groups, said the legislation is narrowly tailored. Original language applying provisions to all financial institutions was pared back to specifically cover “state or federally chartered depository institution[s].” The language, too, would only apply to motions to compel filed by banks after Jan. 1, 2018.
Former Consumer Attorneys of California President Brian Kabateck testified before the Assembly Judiciary Committee this summer about “the real problem” the bill addressed: reducing any fear among judges who might have felt pressured to send a dispute to arbitration to avoid running afoul of any rules.
“What we're trying to do is make it very clear that there is a specific situation where courts can deny forced arbitration,” he said.
Brown's positions on arbitration bills are unpredictable.
Last year, he signed bills barring employers from forcing California workers to arbitrate claims out of state and giving arbitration parties access to shorthand reporters. But a year earlier, he vetoed legislation that would have outlawed workplace arbitration agreements as a condition of employment.
“While most evidence shows that arbitration is quicker and more cost-effective than litigation, there is significant debate about whether arbitration is less fair to employees,” Brown said in vetoing a bill he called too far-reaching. “If abuses remain,” he wrote, “they should be specified and solved by targeted legislation, not a blanket prohibition.”
Brown has until mid-October to decide the fate of SB 33.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllFTC Sues Cash-Advance Fintech Dave, Says It Deceives the 'Financially Vulnerable'
Greenberg Traurig Initiates String of Suits Following JPMorgan Chase's 'Infinite Money Glitch'
DOJ Files Antitrust Suit Against Visa Alleging It Thwarts Payment-Processing Rivals
Trending Stories
Who Got The Work
J. Brugh Lower of Gibbons has entered an appearance for industrial equipment supplier Devco Corporation in a pending trademark infringement lawsuit. The suit, accusing the defendant of selling knock-off Graco products, was filed Dec. 18 in New Jersey District Court by Rivkin Radler on behalf of Graco Inc. and Graco Minnesota. The case, assigned to U.S. District Judge Zahid N. Quraishi, is 3:24-cv-11294, Graco Inc. et al v. Devco Corporation.
Who Got The Work
Rebecca Maller-Stein and Kent A. Yalowitz of Arnold & Porter Kaye Scholer have entered their appearances for Hanaco Venture Capital and its executives, Lior Prosor and David Frankel, in a pending securities lawsuit. The action, filed on Dec. 24 in New York Southern District Court by Zell, Aron & Co. on behalf of Goldeneye Advisors, accuses the defendants of negligently and fraudulently managing the plaintiff's $1 million investment. The case, assigned to U.S. District Judge Vernon S. Broderick, is 1:24-cv-09918, Goldeneye Advisors, LLC v. Hanaco Venture Capital, Ltd. et al.
Who Got The Work
Attorneys from A&O Shearman has stepped in as defense counsel for Toronto-Dominion Bank and other defendants in a pending securities class action. The suit, filed Dec. 11 in New York Southern District Court by Bleichmar Fonti & Auld, accuses the defendants of concealing the bank's 'pervasive' deficiencies in regards to its compliance with the Bank Secrecy Act and the quality of its anti-money laundering controls. The case, assigned to U.S. District Judge Arun Subramanian, is 1:24-cv-09445, Gonzalez v. The Toronto-Dominion Bank et al.
Who Got The Work
Crown Castle International, a Pennsylvania company providing shared communications infrastructure, has turned to Luke D. Wolf of Gordon Rees Scully Mansukhani to fend off a pending breach-of-contract lawsuit. The court action, filed Nov. 25 in Michigan Eastern District Court by Hooper Hathaway PC on behalf of The Town Residences LLC, accuses Crown Castle of failing to transfer approximately $30,000 in utility payments from T-Mobile in breach of a roof-top lease and assignment agreement. The case, assigned to U.S. District Judge Susan K. Declercq, is 2:24-cv-13131, The Town Residences LLC v. T-Mobile US, Inc. et al.
Who Got The Work
Wilfred P. Coronato and Daniel M. Schwartz of McCarter & English have stepped in as defense counsel to Electrolux Home Products Inc. in a pending product liability lawsuit. The court action, filed Nov. 26 in New York Eastern District Court by Poulos Lopiccolo PC and Nagel Rice LLP on behalf of David Stern, alleges that the defendant's refrigerators’ drawers and shelving repeatedly break and fall apart within months after purchase. The case, assigned to U.S. District Judge Joan M. Azrack, is 2:24-cv-08204, Stern v. Electrolux Home Products, Inc.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250