SACRAMENTO – Senate Bill 33, which would require arbitration of a dispute between a bank and a plaintiff even if a complaint was thought to be without substantive merit, has drawn the ire of state capital lawmakers who predict it would be a job killer.
The bill would broaden the definition of a financial institution to “any individual or association regulated by a corporation’s code.”
California Sen. John Moorlach said in a Sept. 11 Northern California Record report the legislation is ambiguous and vague, creating confusion between who is a respondent and who is a consumer. He added that the bill could open the way to the creation of preported and fraudulent “contractual relationships.”
According to the California Chamber of Commerce, which opposes the bill, SB 33 has been amended eight times and still remains vague enough that it will likely create more litigation.
Critics of the bill said it would encourage lawyers pushing to avoid class action lawsuits. Class actions can take years to settle while arbitration cases, on average, take less than seven months according to a USA Today report. The payouts on arbitration cases are bigger, too, an average award of $5,400 for an arbitration as opposed to $32 for a class action.
However, proponents said the bill would benefit consumers who could sue banks for creating false accounts.
The legislation is designed to prevent mass fraud and identity theft and is motivated by the Wells Fargo Bank & Co. scandal in 2016, in which bank employees were accused of fraudulently creating fake accounts to hit sales goal figures and receive bonus company payments. Wells Fargo agreed to offer $185 million to federal and Los Angeles authorities to settle the allegations.
The bank's employees created as many as 2 million bogus unauthorized bank and credit card accounts the Northern California Record report said.
SB 33 was authored by Sen Bill Dodd (D-Napa) and sponsored by State Treasurer John Chiang. Governor Jerry Brown signed SB 33 on Oct. 4 and the bill will become law, unless challenged, Jan.1, 2018.
Doubts have been voiced whether the new law will hold up or be overturned by the U.S. Supreme Court, which has, in the past, voiced opposition to states that make laws which disfavor arbitration. Philadelphia attorney Alan Kaplinsky told the Los Angeles Times in October he believes the U.S. Supreme Court would eventually overturn SB 33.