Judges can now override contract clauses that require customers to settle through arbitration.
The bill, passed by the Democratic-controlled legislature, now requires the approval of Governor Jerry Brown, a Democrat, who is expected to sign it into law shortly.
Under the bill, judges could override contract clauses that require customers to settle disputes through arbitration in cases where a bank commits fraud using customers’ personal information.
Mandatory arbitration clauses, which have become standard practice since a 2011 U.S. Supreme Court decision, make consumers agree not to sue in the future as a condition of purchasing products or services.
Clauses inserted into Wells Fargo wfc account-opening agreements have blocked customers from taking the third-largest U.S. bank to court over last year’s disclosures that it opened millions of accounts without customer knowledge. Regulators fined the bank $190 million for the alleged deceit, of which $5 million was to be paid to customers.
The U.S. Consumer Financial Protection Bureau released a rule this summer ending forced arbitration clauses for banks and credit cards, but the rule is not retroactive and does not apply to Wells Fargo customers in the phantom accounts scandal, even those recently revealed as alleged victims.