In today’s business world, it comes as no surprise companies make claims about their products or services that may not hold up under intense scrutiny. However, when it comes to banks, customers generally want to believe they can trust those who are managing their money. Yet according to a recent legal argument by Wells Fargo, consumers should have known all along the bank was misleading them in numerous ways.
In legal arguments made earlier this month in federal court, lawyers for Wells Fargo used this reasoning as the basis for their argument in an attempt to keep the bank from falling victim to court sanctions for lying to its shareholders. And while it sounds preposterous to think this type of argument may hold up in a court of law, the fact is it just might work in the case of Wells Fargo.
Ever since word started leaking out in Fall 2016 that numerous Wells Fargo employees established millions of fake accounts customers were not aware of, the company has been on an aggressive public relations campaign to regain customer trust and convince customers they can once again trust Wells Fargo to manage their money in a safe manner. However, according to lawyers representing the bank, various public apologies made by company executives have simply been gross exaggerations that any reasonable customer should never believe.
Strangely enough, there is actually a legal doctrine that does protect corporations from liability regarding false promotional statements. Referred to as “puffery,” it has been in existence since the late 1800s, when a English company used it to argue its case that any guarantees it made to customers were “mere puff” that were not supposed to be taken literally.
And while this may sound like ancient law that no longer applies in today’s sophisticated business world, the Federal Trade Commission has actually written a detailed policy statement on deception, which states a company would not be held liable for what is deemed to be “obvious hyperbole.” For example, the FTC policy would protect the company America’s Best Eyeglasses, since it would state that no reasonable person would actually believe glasses from this company are indeed the very best in America.
However, legal experts do admit that the concept of “puffery” generally applies only to advertising, not to statements made by a company to its investors. Based on comments made to investors on numerous occasions by Wells Fargo CEO Tim Sloan and board chairman Stephen Sanger, trust and transparency were the key components of their messages to consumers following the revelations concerning fake accounts. Yet even after these statements were made, additional revelations came to light concerning more illegal practices in which the company engaged. Among these were discovering Wells Fargo charged more than 600,000 auto loan customers for insurance they did not want, forcing more than 25,000 customers to have their vehicles repossessed. Along with this, loan terms of mortgage borrowers in bankruptcy were routinely changed, and mortgage applicants had their records falsified so the company could charge additional fees.
Due to these practices, Wells Fargo in April 2018 agreed to pay more than $1 billion in fines to settle with affected customers. However, based on their legal arguments, if the court chooses to side with Wells Fargo, a dangerous precedent may be set. According to many corporate legal experts, a ruling in favor of Wells Fargo would then essentially mean no company could ever be held responsible for any statements or actions aimed toward consumers. If this is the case, a variety of complex legal, ethical, and philosophical questions will then need to be addressed.
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