WASHINGTON -- During hours of tongue-lashing by members of a House committee two weeks ago, Rep. Brad Sherman, D-Calif., pressed Wells Fargo's CEO to undo a requirement imposed by many banks that prevent customers from being able to sue.
"Some of them want their day in court," Sherman said of Wells Fargo customers who cannot file class-action lawsuits against the bank for opening fake accounts in their names.
"Are you going to hold them to their forced arbitration and screw them out of that?" he said.
"I believe in arbitration. I think it's a fair way ...," said the Wells Fargo banker, John G. Stumpf, who was testifying before the House Financial Services Committee, before he was interrupted.
"Will you let them go to court if they want to go to court? Yes or No?" Sherman said later in the exchange.
"No but with an explanation," said Stumpf, before he was cut off again.
The controversy over millions of fake accounts opened by Wells Fargo is reigniting debate over a clause commonly included in banking agreements, in which customers agree not to file class-action lawsuits.
While banking groups say the clauses push disputes to cheaper and quicker arbitration, others including Ohio Sen. Sherrod Brown, the ranking Democrat on the Senate banking committee, said preventing wronged customers from going to court takes away their ability to be "made whole" and "prevent cases like this in the future."
A federal judge in California last September agreed with Wells Fargo when ruling that Shahriar Jabbari cannot file suit on behalf of himself and other Wells Fargo customers because of the clause.
Jabbari, according to court documents, opened a checking and a savings account at Wells Fargo in 2011. Upon going to a branch in Los Gatos, Calif., to check on an unauthorized charge, he discovered he had seven accounts.
The fake accounts were opened using his forged signature. One even misspelled his first name.
Jabbari said his credit rating dropped and he got calls from debt collectors because of fees he racked up in the accounts opened without his knowledge.
The latest controversy over bogus accounts isn't the only one Wells Fargo has tried to keep in arbitration.
Bank attorneys last month asked for three federal class-action lawsuits in Florida alleging excessive overdraft charges be thrown out because of the arbitration clause.
Brown said he'll soon introduce a bill allowing Wells Fargo customers to sue the bank for opening fake accounts, even if they've signed the arbitration agreements.
Minnesota Attorney General Lori Swanson also turned up the heat, writing to Stumpf to urge him not to enforce the prohibition against customers filing a class-action lawsuit against the bank.
The controversy could have broader implications, banking experts said.
It could bolster a ban on the clauses proposed by the Consumer Financial Protection Bureau, said Quyen Truong, a former deputy counsel at the bureau and now a partner at Stroock & Stroock & Lavan LLP, in an interview.
Consumer groups say the clauses are stacked in the favor of banks.
A study last year by the consumer bureau said bank and credit card customers generally don't realize they've given up their rights to file class-action lawsuits.
However, its proposal, which could be implemented early next year, has been controversial. It drew more than 6,000 comments, including opposition from banking groups that say defending thousands more lawsuits will cost billions of dollars.
In its study, CFPB said larger banks are more likely to include the clause in contracts than smaller ones.
According to a Pew Charitable Trusts study last year, nearly two-thirds of the nation's top 45 banks had such clauses, up from more than half in 2013.
The CFPB study found arbitrators ruled in 341 cases filed against banks and financial institutions in 2010 and 2011. Consumers won only 32 times.
In a letter to CFPB supporting the proposed ban on arbitration causes, the group Consumer Action noted some key differences between arbitration and class-action cases.
Customers' ability to get access to documents is more limited in arbitration, which can "make the proceedings one-sided and very unfair to customers," it said.
Arbitrators, unlike judges, are not required to follow legal precedent or explain their decisions.
Nor do they have power to order a business to stop unfair practices. Because the proceedings are confidential, regulators and the public cannot find out about the actions for which a company is being challenged, the group said.
"This forced arbitration system helps hide fraudulent schemes such as the sham accounts at Wells Fargo from the justice system, from the news media, and from the public eye," wrote Brown along with Massachusetts Sen. Elizabeth Warren and five other Democratic senators in a Sept. 23 letter to Stumpf, urging him to drop the clause.
Wells Fargo in a statement said the bank is working to "make things right" by ensuring its customers do not have any product or service they did not authorize. It is offering free mediation to resolve any disputes.
In a joint letter to CFBP that opposes the ban, the American Bankers Association, Consumer Bankers Association and Financial Services Roundtable said getting rid of the arbitration clause would lead to 6,042 additional class-action lawsuits in the next five years, at an "unprecedented and staggering" cost to banks of between $2.62 billion and $5.23 billion.
Arbitration, the groups said, is a faster, cheaper way to settle suits.
Consumers are the ones who will "truly suffer" from the proposed rule, the financial associations argued. Adding thousands more cases will clog the courts for all kinds of cases.
"As taxpayers, they will pay for the increased costs to the court systems required to handle the permanent surge of 6,042 additional class actions every five years," they said.
Kery Murakami is the Washington, D.C., reporter for CNHI's newspapers and websites.