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Wells Fargo Removing Some Restrictions in Customer Arb Agreements: CEO

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What You Need to Know

  • The bank will also update all consumer arb agreements to provide for reimbursement of filing fees where the customer prevails.
  • PIABA says the bank should do away with mandatory arbitration altogether.
  • CEO Charles Scharf also pointed to leadership changes at the bank.

Wells Fargo CEO Charles Scharf told senators Wednesday that the bank is in the process of removing “confidentiality restrictions in all types of customer arbitration agreements that have them, thereby increasing the transparency of the arbitration process.”

Scharf also told members of the Senate Banking Committee that Wells Fargo plans to update “all consumer arbitration agreements to provide for reimbursement of filing fees where the customer prevails” in order to ensure “the costs of filing for arbitration do not prevent consumers from bringing justified disputes to the bank’s attention.”

In a statement to ThinkAdvisor the same day, Wells Fargo said that “Wells Fargo Advisors follows the FINRA dispute resolution process rules, which already state that arbitrators may assess fees against either party even if Wells Fargo prevails.”

These changes, Scharf told the senators, follow Wells Fargo’s decision last year “to end the use of mandatory arbitration for future employee claims of sexual harassment. We are committed to maintaining a thoughtful approach to resolving disputes fairly and efficiently.”

PIABA Weighs In

David Meyer, president of the Public Investors Arbitration Bar Association, a group of lawyers that represent investors in disputes with the securities industry, told ThinkAdvisor Wednesday in an email that “removing the arcane confidentiality restrictions is appropriate and reflects basic decency but if WF truly was committed to resolving disputes fairly and efficiently, it would agree to permit its brokerage firms customers to choose between court and arbitration after a dispute arises and do away with pre-dispute forced arbitration altogether.”

Meyer added that the confidentiality restrictions referenced in Scharf’s testimony “relate to the employment arbitration agreements and, to a lesser extent, possibly the consumer agreements, but not to the brokerage accounts. There exists confidentiality concerns in the customer arbitration context but those issues arise post-filing and not based on the terms of the arbitration agreement.”

The Financial Industry Regulatory Authority’s arbitration forum, Meyer added, “is appropriate for many cases and it would continue to improve if it was a forum available as a choice rather than forced upon customers as the only available option to seek recovery for damages caused by the misconduct of financial advisors.”

New Leadership

Scharf said the bank had made “significant changes to our management team by elevating strong internal talent while bringing in people with the experience and skills necessary for our success.”

Since the fourth quarter of 2019, Wells Fargo, Scharf said, has “replaced more than 50% of our Operating and Management Committees and added at least 30 senior strategic hires in risk management, operational excellence, and other key areas across the company — including a new chief operating officer; chief financial officer; chief compliance officer; general counsel; head of sales practices; head of operations; head of wealth management; head of consumer lending; head of home lending; head of credit cards; and head of diverse segments, representation, and inclusion; among many others.”

The bank’s “broader group of senior leaders is also a new team,” Scharf said, adding that over 40% of Wells Fargo’s top leaders are new to the company or their roles since the start of 2020.

Wells Fargo’s Board of Directors “also appointed a new chairman and elected a new member to add additional financial services experience and support our transformation,” Scharf said.

The megabank, Scharf continued, is “also simplifying the company,” and has “identified certain businesses that aren’t core to our mission and decided to exit them, opting to focus on our customers and our core, scaled businesses.”

In the past months, Wells Fargo has announced “sales of, or our intention to exit, the student loan business, international wealth management, asset management, corporate trust, and direct equipment finance in Canada,” Scharf told the senators.