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Wells Fargo (WFC) Asks Court to Cancel Account Scam Case
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The third largest U.S. bank by assets, Wells Fargo & Company (WFC - Free Report) , filed a motion in the U.S. District Court in Utah to instruct customers who have sued the bank for fraud, breach of contract and invasion of privacy, to settle their disputes in private arbitrations rather than in court. This motion follows the lawsuit that emerged in association with the scandal, and sought class-action status on behalf of thousands of customers in Sep 2016.
Notably, the lawsuit followed the bank’s $190-million settlement to resolve regulators’ claims of illegally opening millions of unauthorized accounts. However, spokesman for Wells Fargo refrained to comment on the filing.
The monetary fine by the regulators, including Consumer Financial Protection Bureau (CFPB), will have no material impact on Wells Fargo’s financials. However, the company continues to come under fire from several quarters, which tarnishes its reputation.
Following Wells Fargo’s advertising campaign to win back customers’ faith after the scandal, the bank has come up with the move of enforcing the mandatory arbitration clauses. Though the bank would stick to its arbitration policy, it is ready to offer mediation services to the affected clients.
As per mandatory arbitration rules which are laid down in account-opening agreements, do not permit customers in joining class actions or suing Wells Fargo. Notably, inserting mandating arbitration in financial products’ agreements was legalized by the Supreme Court in 2011. However, customers are not in the favor of arbitration rules as it deprives them from legal protection and the right to appeal.
Conclusion
After the disclosure of malpractices related to opening of around two million bank and credit card accounts without customers’ consent, Wells Fargo has been facing issues with clients as they are reluctant to conduct business with the lender.
The allegation led to many setbacks, including the bank’s shattered image, numerous lawsuits, triggered federal and state investigations, congressional hearings and the bank’s former CEO – John Stumpf – losing his job. (Read: Will Tim Sloan be the Turnaround CEO for Wells Fargo?)
However, the bank undertook many steps to restore its reputation post exposure of the scam. It initiated an internal probe and hired a consultant to review its sales practices. Moreover, management proposed to eliminate sales goals for its retail banking business earlier than planned.
While the current crisis at Wells Fargo will take some time to alleviate, we believe that continued growth in loans and deposits, and expansion moves should support its growth profile, going forward.
Wells Fargo currently carries a Zacks Rank #3 (Hold).
The Bank of New York Mellon Corporation (BK - Free Report) , with a Zacks Rank #2 (Buy), has been witnessing upward estimate revisions for the last 60 days. So far this year, the company’s share price has been up more than 18.8%.
Comerica Incorporated (CMA - Free Report) has been witnessing upward estimate revisions for the last 60 days. Further, the stock has surged over 50% so far this year. It currently holds a Zacks Rank #2.
Fifth Third Bancorp (FITB - Free Report) has been witnessing upward estimate revisions for the last 60 days. Also, the company’s shares have risen nearly 34.5% so far, this year. It currently carries a Zacks Rank #2.
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Wells Fargo (WFC) Asks Court to Cancel Account Scam Case
The third largest U.S. bank by assets, Wells Fargo & Company (WFC - Free Report) , filed a motion in the U.S. District Court in Utah to instruct customers who have sued the bank for fraud, breach of contract and invasion of privacy, to settle their disputes in private arbitrations rather than in court. This motion follows the lawsuit that emerged in association with the scandal, and sought class-action status on behalf of thousands of customers in Sep 2016.
Notably, the lawsuit followed the bank’s $190-million settlement to resolve regulators’ claims of illegally opening millions of unauthorized accounts. However, spokesman for Wells Fargo refrained to comment on the filing.
The monetary fine by the regulators, including Consumer Financial Protection Bureau (CFPB), will have no material impact on Wells Fargo’s financials. However, the company continues to come under fire from several quarters, which tarnishes its reputation.
Following Wells Fargo’s advertising campaign to win back customers’ faith after the scandal, the bank has come up with the move of enforcing the mandatory arbitration clauses. Though the bank would stick to its arbitration policy, it is ready to offer mediation services to the affected clients.
As per mandatory arbitration rules which are laid down in account-opening agreements, do not permit customers in joining class actions or suing Wells Fargo. Notably, inserting mandating arbitration in financial products’ agreements was legalized by the Supreme Court in 2011. However, customers are not in the favor of arbitration rules as it deprives them from legal protection and the right to appeal.
Conclusion
After the disclosure of malpractices related to opening of around two million bank and credit card accounts without customers’ consent, Wells Fargo has been facing issues with clients as they are reluctant to conduct business with the lender.
The allegation led to many setbacks, including the bank’s shattered image, numerous lawsuits, triggered federal and state investigations, congressional hearings and the bank’s former CEO – John Stumpf – losing his job. (Read: Will Tim Sloan be the Turnaround CEO for Wells Fargo?)
Further, in Oct 2016, the state of Illinois suspended $30 billion in investment activity with Wells Fargo for “predatory and illegal banking practices.” (Read More: Wells Fargo Loses Illinois State Business in Latest Setback)
However, the bank undertook many steps to restore its reputation post exposure of the scam. It initiated an internal probe and hired a consultant to review its sales practices. Moreover, management proposed to eliminate sales goals for its retail banking business earlier than planned.
While the current crisis at Wells Fargo will take some time to alleviate, we believe that continued growth in loans and deposits, and expansion moves should support its growth profile, going forward.
Wells Fargo currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
The Bank of New York Mellon Corporation (BK - Free Report) , with a Zacks Rank #2 (Buy), has been witnessing upward estimate revisions for the last 60 days. So far this year, the company’s share price has been up more than 18.8%.
Comerica Incorporated (CMA - Free Report) has been witnessing upward estimate revisions for the last 60 days. Further, the stock has surged over 50% so far this year. It currently holds a Zacks Rank #2.
Fifth Third Bancorp (FITB - Free Report) has been witnessing upward estimate revisions for the last 60 days. Also, the company’s shares have risen nearly 34.5% so far, this year. It currently carries a Zacks Rank #2.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>