Upfront: Fine Print

Napa Sen. Bill Dodd steps between consumers and lenders

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After suffering from identity theft, Sen. Bill Dodd took on banking-reform legislation and arbitration language in consumer-lending contracts.

By Tom Gogola

Napa’s Bill Dodd says that when he introduced his first bill (SB 33) as a freshly minted state senator early this past month, bankers and businessmen approached him in Sacramento and wondered, what the heck is this former Republican up to?

Dodd is also a former business owner who sat on the board of the Napa Community Bank. He says his bill sprang from the recent controversy at Wells Fargo—and from his own experience as a victim of identity theft. He’s aiming squarely at so-called forced arbitration clauses in contracts that bar consumers from suing lenders in court when there are charges of fraud or identity theft.

The Wells Fargo scandal involved employees at the California-based bank who were caught opening some 2 million bank accounts for existing Wells Fargo customers without their knowledge or consent, and then passing along millions of dollars in fees and charges to the unwitting customers. When customers got wise to the scam, they sued, but Wells Fargo successfully argued that the controversy should be settled through arbitration and not the courts. This “forced arbitration” clause is a standard part of lending contracts designed to protect lenders against expensive lawsuits played out in the courts.

The clause is just the sort of fine-print exercise in bank favoritism that has been scrubbed by multiple Obama-era consumer-protection reforms that pushed back against fees and hidden charges in contracts—where, as is often the case, says Dodd, “people don’t know what they are signing.”

His bill dovetails with other work he has done on identity theft and consumer-fraud issues while serving as an assemblyman, and also with federal-level efforts to reform the arbitration-clause backstop for banks and lenders through the besieged Consumer Financial Protection Bureau (CFPB). Last October, the CFPB announced its intention to scrub forced-arbitration language from lending contracts.

“I am not a fan of the clauses,” Dodd says. “In the end, they favor whoever is contracting out for the arbitrator, for obvious reasons. My bill essentially says that if a bank or financial institution [has] either defrauded or perpetuated consumer fraud on a customer … the bank would lose the ability to automatically go to the arbitration clause, and the employee or victim could have their claim heard in a court of law.”

Wells Fargo argued that because the defrauded customers had legitimate accounts with the bank, the arbitration clause in the customers’ contracts kicked in when charges of fraud emerged. Dodd says that a Wells Fargo whistleblower discovered the scam but “that person lost in arbitration.”

Dodd says that members of the banking industry have approached him and said, “We can’t believe you are doing this,” as they highlight court costs associated with out-of-contract lawsuits. Dodd’s identity-theft case ended favorably for him and for the bank that had let it happen, but the arbiter, he says, dropped all court and legal fees associated with the case.

Now, he says, when he’s approached by bankers, “I say to them, have you ever seen a time when you or your employee has committed fraud on customers or employees?” Their answer is typically no, to which Dodd responds that they then shouldn’t object to a bill that would adjudicate fraud in court instead of through arbitration.

“I am going to work on a bill that will make an arbitration system that is more fair,” says Dodd, “and if there’s a solution to arbitration that was equally fair to business and the consumer, I’m all in.” Until then, he says, he’s putting the emphasis on protecting consumers instead of the banks’ bottom line.

“I really do believe that the arbitration system favors the employers, favors the companies,” he says.

Dodd’s bill comes amid intense discussion over the fate of the CFPB, an agency spearheaded by progressive firebrand Sen. Elizabeth Warren. A similar attempt to enact Dodd’s proposed arbitration language at the CFPB has met strong opposition from Republicans, many of whom are hell-bent on destroying the agency.

In a recent interview with the Pacific Sun, Kevin Stein, deputy director of the consumer-rights nonprofit the California Reinvestment Coalition, said potential rollbacks at the CFPB were a “major concern, and an area where we will fight to protect the agency and the rules and access it gives to consumers to complain about unfair practices.”

Dodd says he’s not totally conversant in all the efforts undertaken at the CFPB, but he’s generally a fan of consumer protections, even as he echoes concerns that the agency’s purportedly big-foot approach to regulating big banks and lenders has also put the screws to community lenders.

Senate Bill 33 is the first and only bill that Dodd has introduced in his capacity as chair of the state’s Senate Banking and Financial Institutions Committee. The bill has gotten the support of state consumer-rights groups such as the Consumer Federation of California.

Dodd says he’s eager to work as a champion for consumer protections that are fair to consumers and lenders alike. “This is my first foray into this area,” he says, as he highlights that the arbitration-reform issue has been editorialized in newspapers ranging from The Boston Herald to The New York Times, and that California Rep. Brad Sherman recently co-sponsored a similar bill in Washington.

But Dodd says he didn’t sponsor the bill to get the positive press or to align with the CFPB.

“I’m doing this on my own,” he says.

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