Wells Fargo pushes wrongly accused N.J. pastor toward arbitration
A New Jersey pastor who was falsely arrested because of errors made by Wells Fargo employees may be forced to resolve legal claims against the bank in arbitration, renewing questions about banks' use of the process.
Jeff Edwards, the pastor of Parsippany United Methodist Church for the past 29 years, sued Wells Fargo in May to recoup costs related to his arrest, which was eventually dismissed after it became clear the bank had mistakenly identified the wrong person related to cashing fraudulent checks. But now the bank is seeking to move the case out of court, arguing that the pastor is bound by an arbitration clause he signed when he opened his account with First Union 22 years ago.
Wells Fargo is hardly alone. Large corporations have increased their use of arbitration clauses in recent years.
“The use of arbitration clauses is absolutely on the rise, spurred by a decade and a half of Supreme Court rulings that have permitted companies to use them more widely against consumers and workers,” said Remington Gregg, counsel for civil justice and consumer rights at Public Citizen, a nonprofit consumer advocacy organization based in Washington, D.C.
The Consumer Financial Protection Bureau attempted to ban banks and credit unions from using mandatory arbitration clauses in 2017, but its rule was overturned by Congress and President Trump. The agency estimates that 50% of credit card loans and 44% of insured deposits are subject to mandatory arbitration.
Apple and Goldman Sachs recently included an arbitration clause in the account opening agreement for Apple Card. JPMorgan Chase, which dropped arbitration clauses in 2009, announced a plan this year to reinstate them following the CFPB rule's defeat. Many other financial institutions have followed suit. Arbitration clauses are also common in auto loans, brokerage accounts and payday loans.
In theory, arbitration can be a win-win. The bank and the customer avoid the legal costs of a trial and a complaint could be brought to a speedy resolution. The banking industry points to studies it says prove consumers receive more in arbitration than in class-action lawsuits.
But consumer groups argue that banks and large corporations have the upper hand in arbitration, meaning that consumers are less likely to win recompense at all. The use of arbitration clauses also risks backlash against banks, because it's seen by many as conflicting with their customer-centric models.
Two bills introduced in Congress in February would prohibit companies from forcing arbitration on consumers and businesses, but the legislation is unlikely to pass in the near term because Republicans, who overturned the CFPB's arbitration rule without Democratic support, control the White House and Senate.
Yet the Edwards case could become a powerful anecdote for those hoping to curb the use of mandatory arbitration clauses, particularly because it involves Wells Fargo, which has seen the departure of two CEOs in three years as it has been rocked by multiple scandals.
Edwards deposited four checks in an ATM one afternoon in April 2018. Later, a photo of Edwards depositing his checks was falsely linked to a series of fraudulent checks deposited in the same machine on the same day. After the photo of Edwards was posted on a New Jersey State Police Facebook page, one of his parishioners pointed him to the page, telling him he had a twin.
The actual owner of the account into which the fraudulent checks were deposited was a 20-year-old woman.
In court, Wells Fargo failed to provide evidence that Edwards was the perpetrator and the case was dropped, but only after Edwards spent considerable time and resources defending himself against the charges.
The bank later admitted it was at fault and offered an apology. Edwards asked the bank to explain what happened and pay his legal fees; the bank refused.
Wells Fargo declined to comment beyond a statement: “Since this is an ongoing legal matter, we are unable to discuss publicly the specifics of this case. We once again apologize and regret the error that led to this situation involving Rev. Jeff Edwards. We continue to review our procedures to ensure something similar does not happen again.”
For his part, Edwards is angry the bank is now trying to take the case to arbitration.
“It's a frustrating sense of not being able to get justice and having it all postponed,” Edwards said in an interview. “They threatened my reputation and put me through a great deal of angst and anxiety about the threat and the uncertainty of where this all was headed. So I would like some compensation for that. I would like an explanation for how they could have allowed this to happen. And then there’s the fact that they made a mistake initially and they seemed to just double down when they were asked about the mistake. There should have been ample reason to call into question their initial discernment that I was the person who cashed the fraudulent checks.”
Edwards also said he worries that this could happen to someone who doesn't have the means to hire a lawyer or who has a criminal record.
“In my experience dealing with the state police, I was pressured to confess to something I did not do,” Edwards said. “I can easily imagine how someone would cave in to that, if they did not have my advantages.”
According to Wells Fargo, when Edwards first opened his bank account at First Union 22 years ago, there was a clause in a document he signed that said if there were any disputes about the account, they would go to arbitration. First Union bought Wachovia (adopting its name in the process) and was in turn bought by Wells Fargo in 2008 at the height of the financial crisis.
“Over the years Wells Fargo has expanded what that agreement covers to such an outrageous extent that it covers everything beyond the sort of things that logically would apply,” Edwards said.
Ernesto Cerimele, Edwards' attorney who works for Krovatin Klingeman LLC, said that most of the big banks have similar arbitration clauses in their account agreement.
“For the most part people aren't even aware that these arbitration clauses exist,” Cerimele said. “In a lot of these cases, the consumer doesn't even know that there is a contract. If someone goes to Best Buy and purchases a cellphone or a TV, there's nothing about that that suggests that someone is bound by arbitration. But in fine print on the back of a 100-page pamphlet in very, very small writing, there's an arbitration clause.”
When Wells Fargo was sued by consumers for opening accounts in their name without their knowledge and consent, it tried to compel arbitration, but the courts denied the motion. Cerimele said Wells Fargo’s arbitration clause has become more sweeping over time.
“The Wells Fargo arbitration clause as it's currently written would purport to bind the consumer not just related to account disputes, but to any conduct whatsoever on the part of the bank and any of its employees,” he said. “So by a literal reading of that arbitration clause, if Rev. Edwards was assaulted by a Wells Fargo employee and sought to file suit or assert a claim against that employee, that's technically covered by the Wells Fargo arbitration clause.”