Fed up with the bank: CA bill seeks to invalidate contract clause

You live with the contractual terms you knowingly agreed with.

Although there are certain limited exceptions to that dictum (select permutations, if you will; public policy restraints come readily to mind), most adults who execute contracts in California and nationally know that they are tasked with abiding by the material terms and conditions stated therein.

Take arbitration clauses, for example, which often appear in fine print in agreements consumers ink with credit card companies, banks and other entities. Those provisions bar recourse to a court in the event of a dispute, driving it instead to private arbitration.

If you contractually agreed to such an outcome, a court is likely to view your request to ignore it unfavorably.

What, though, if that so-called “mutual consent” so often referenced as the lifeblood of contracts is entirely lacking? What if a bank opens up an account for you without your knowledge, you sue in response, and the bank defends by noting an arbitration-only clause? Are you barred from litigating your dispute in court?

That is what is centrally at issue in California right now concerning an argument and attendant legislative bill focused squarely on Wells Fargo and its infamous debacle of the recent past marked by a massive bank fraud perpetrated on consumers.

As many of our readers will well remember (with it likely being the case that some of them were personally affected), the bank simply opened up new accounts for customers without telling them.

And now, when those individuals file suit, the company is successfully keeping cases out of courtrooms by citing arbitration clauses buried in the account language.

Bank critics find that action to be both illogical and in bad faith. The only arbitration clause customers agreed to, they note, was in the original account they opened. Given that they never agreed to subsequent accounts, how can the bank argue that forced arbitration applies to them?

A recent California Senate bill seeks to invalidate arbitration clauses in cases where fraudulent accounts were opened.

Seemingly, passage of the legislation will ultimately lead to federal-court review and possible overturning, given that — as noted by one legal commentator on SB 33 — the U.S. Supreme Court “has been really clear that a state cannot single out arbitration for special treatment.”

It might soon be clear enough whether SCOTUS will make an exception where arbitration clauses are linked with fraudulently opened accounts.