California Governor Jerry Brown has signed legislation creating a new exception to mandatory arbitration within the California Arbitration Act. SB 33, introduced by Sen. Bill Dodd in December 2016, permits an existing customer of a bank to sue a depository bank when a fraudulent account is opened unknowingly in the consumer’s name. The exception specifically prohibits banks from requiring that disputes over such fraudulent accounts be sent to private binding arbitration based on a provision compelling arbitration contained in a contract consented to by the consumer.
Under the new legislation, commencing January 1, 2018, a court need not order the parties to arbitration where a bank or financial institution seeks to compel arbitration based on a clause in an original contract with a consumer compelling arbitration where a new account is created without the consumer’s knowledge or consent, using the consumer’s personal identifying information. The legislation provides that a court need not compel arbitration under the following circumstance:
The petitioner is a state or federally chartered depository institution that, on or after January 1, 2018, is seeking to apply a written agreement to arbitrate, contained in a contract consented to by a respondent consumer that was created by the petitioner fraudulently without the respondent consumer’s consent and by unlawfully using the respondent consumer’s personal identifying information, as defined in Section 1798.98 of the Civil Code.
SB 33, adding subsection (d) to Cal. Code of Civil Proc. § 1281.2. The full text of the Bill is available here. The Bill was co-sponsored by the California State Treasurer, the Consumer Federation of California, and the professional association Consumer Attorneys of California. Opposition to the bill by the California Chamber of Commerce and the California Bankers Association, among others, focused on the bill’s likely preemption by the Federal Arbitration Act, the ambiguity of its application, and its effect of allowing class action suits that favor attorneys over consumers.
Given the U.S. Supreme Court’s recent decisions upholding the Federal Arbitration Act and arbitration clauses generally, opponents of the Bill believe that it may ultimately be invalidated. The legislation similarly may not prevent Spokeo challenges.