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Is a contractual arbitration clause bullet proof in all instances?

One lawmaker is at the forefront of debate and legislative action relevant to recommended limits on -- in fact, outright invalidation of -- arbitration clauses between consumers and financial institutions in some instances.

And, reportedly, U.S. Sen. Sherrod Brown D-Ohio) is having a hard slog of it getting any support for his bill on Capitol Hill.

Here's what Brown and a few other federal and state legislators across the country are endorsing, as noted in a recent national news article: "a federal law that would prohibit the application of arbitration clauses to fraudulently opened bank and credit card accounts."

That express goal was reportedly spurred by details of the not-long-ago Wells Fargo bank scandal, pursuant to which bank employees unilaterally opened up legions of new accounts for customers without their knowledge of any changes.

When some of those consumers subsequently sued the bank after discovering they were defrauded, they were -- and have consistently been -- kept out of court by virtue of the arbitration clause they agreed to in their original account executed with the bank.

Would-be reformers find that to be disingenuous if not flatly evil, given that contractual rights and duties are customarily understood to exist only when contracting parties have knowingly agreed to the material terms and conditions of their contract.

You can't "use some other arbitration agreement … and bootstrap it onto a relationship the customer never knew existed," says one commentator who worked on a reform bill in one state.

Yet that is precisely what Wells Fargo has been doing, and reportedly quite successfully.

As noted in the above-cited media report, there is currently a strong presumption in the federal court system of the validity and enforceability of arbitration clauses. Critics of an absolute acceptance would like to see an exception carved out for cases involving financial accounts that a consumer was completely unaware of.

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