Senators Slam Wells Fargo Over Arbitration Agreements in Scathing Letter

NEW YORK -- In a letter shared with ABC News, six senators have slammed Wells Fargo bank for its use of forced arbitration clauses in its customer account agreements, which the senators say enabled the company to keep its accounts scandal out of the public eye and the courts for years, and asked embattled CEO John Stumpf to provide information so that they can “better understand the situation at Wells Fargo” and "prevent similar fraudulent practices in the future."

Arbitration, mandated in some if not all basic agreements that customers sign when they open accounts at the bank, "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," the senators wrote.

The senators also write, “These clauses eliminate consumers’ ability to bring a claim in open court or to band together in a class action, before any dispute has arisen. Forced arbitration clauses deny access to the courts even when consumers are seeking to enforce their rights under fundamental state and federal laws”.

"Arbitration proceedings are kept secret, so that other customers are deprived of the knowledge that their experiences might be part of a more widespread problem," according to the six senators.

The letter was written by Patrick Leahy (D-VT), Sherrod Brown (D-OH), Dick Durbin (D-IL), Al Franken (D-MN), Richard Blumenthal (D-CT) and Elizabeth Warren (D-MA).

"It is particularly unacceptable that forced arbitration clauses in contracts for real customer accounts were used to deny customers access to the court system to challenge Wells Fargo’s creation of sham accounts," the group wrote. "We have serious concerns that your forced arbitration policies thrust consumers into a system with little transparency or oversight."

The letter is the latest in a series of headaches for the company, which faces allegations from regulators that employees opened or applied for accounts without customers' knowledge or permission.

On Thursday, a group of senators, some of whom also signed today’s letter, asked the Department of Labor to open an investigation into Wells Fargo's employment practices, and on Tuesday, Stumpf appeared before the Senate Banking Committee, facing blistering questions over the accounts scandal.

Separately on Thursday, Stumpf resigned from his position on the Federal Advisory Council, the San Francisco Federal Reserve Bank told ABC News. The council generally meets with the Federal Reserve four times a year to advise it on banking and economic issues.

In a consent decree between the bank and the Consumer Financial Protection Bureau, the bank has not admitted to or denied any wrongdoing.

Arbitration clauses are common in many contracts that consumers sign regularly, attorney David I. Greenberger, an employment law expert at the Bailey Duquette firm in New York City, told ABC News. In many cases, they can benefit consumers by allowing parties to settle disputes more quickly and cheaply than if they go through a sometimes long and drawn-out court battle.

Increasingly, however, concerns have grown that they can be used to keep details out of the public eye, since arbitration proceedings are typically not made public.

"The original purpose, from my view ... was that it would allow for a faster, more efficient and more expedient process for the parties to resolve their dispute,” Greenberger said.

"It has changed over time and I think you can now, in some forms, question whether it’s faster...or [more] expedient," Greenberger told ABC News. "It’s become a way in which disputes can be kept private and kept from being aggregated in the class context."

A Wells Fargo spokeswoman told ABC News: "We are reviewing the letter and will respond to the senators who requested this information but have no further comment at this time."