"Yeah, well, you know, that's just like your opinion, man." (The Big Lebowski)
If you’ve ever wondered how businesses can get away with making transparently false or deceptive claims about themselves or their products — “The Best Tasting Juice in America,” Wrigley’s gum is “for whiter teeth, no matter what,” etc., etc. — the answer is an all-purpose legal dodge known as the “puffery” defense.
Simply put, judges and regulators have ruled that when a business makes a claim that is either vague or so obviously inflated that people simply won’t believe it, that’s “puffery,” and not actionable in court.
Wells Fargo, which is struggling to rebuild its reputation for integrity after a string of scandals involving consumer rip-offs, is testing the limits of the “puffery” defense. In a legal filing last week aimed at getting a shareholder lawsuit dismissed, the company asserted that statements that the bank was working to “restore trust” among its customers and “trying to be more transparent” about its scandals — statements made by its chief executive, Tim Sloan — were, well, just puffery.
The filing says these were generic statements “on which no reasonable investor could rely.” Therefore, even though the bank’s stock price fell sharply when evidence emerged that they were false, investors don’t have grounds to sue for their losses.
“This is just another example of corporate actors making statements to the market, and then trying to avoid liability for the representations they made,” says Darren Robbins, the San Diego lawyer bringing the shareholder suit.
If it sounds like a strange thing for a bank to say when it’s trying to present itself as a paragon of rectitude — in essence, “We can’t be sued because no one believed us anyway” — just wait. It gets stranger.
Wells Fargo says that even though the statements by its management fall within the legal definition of puffery, that doesn’t mean they’re untrue. “Wells Fargo stands behind the statements it made regarding its commitment to transparency and rebuilding trust with its customers,” the bank told me by email. “These statements were true then and remain so today.”
The lawsuit at issue concerns a scandal that erupted in public in July 2017, when it became known that for years Wells Fargo had been charging auto loan borrowers for unnecessary insurance on their vehicles. The lawsuit seeks class certification for all investors who bought the company’s stock from Nov. 3, 2016 — when Sloan announced at an investors conference that he was “not aware” of any undisclosed scandals in sales practices — through Aug. 3, 2018, the day before the bank formally disclosed the auto-loan issues in an earnings report.
The scam at the heart of this case was massively abusive, according to internal reports and assertions in a consumer lawsuit filed last week. Wells Fargo saddled roughly 600,000 auto loan borrowers — disproportionately lower-income customers — with insurance to cover the vehicles that collateralized the loans.
Many borrowers, however, already had insurance, so they didn’t need the additional coverage. Some didn’t even know they were being charged because Wells Fargo didn’t itemize the insurance fees on their loan statements.
When customers made monthly payments on their loans, according to the consumer lawsuit, Wells Fargo applied them in a way that pushed as many as 275,000 customers into delinquency, resulting in some 25,000 improper repossessions. The bank didn’t always fully or promptly refund the fees and late charges it owed the victimized customers, and didn’t always clean up credit reports that had been sullied by its illicit behavior. (...)
The shareholder lawsuit focuses on the efforts by Sloan and his fellow executives to conceal the auto-loan scandal from the public. While they were trying to clean up the splatter from the bank’s most prominent scandal, in which sales representatives secretly opened millions of accounts for consumers in order to meet punishing work quotas, the executives consistently stated that they were investigating high and low to make sure the bank was otherwise clean and would fully disclose anything they discovered.
“We want to leave no stone unturned,” Sloan told investment analysts during a conference call in January 2017. “If we find something that’s important, we’ll communicate that…. I think given our desire to be very transparent, we’ll probably err on the side of overcommunicating as opposed to undercommunicating.”
Yet by then, Sloan had received a report from the consulting firm Oliver Wyman that laid out the auto-loan scandal in great detail.
by Michael Hiltzik, LA Times | Read more:
Simply put, judges and regulators have ruled that when a business makes a claim that is either vague or so obviously inflated that people simply won’t believe it, that’s “puffery,” and not actionable in court.
Wells Fargo, which is struggling to rebuild its reputation for integrity after a string of scandals involving consumer rip-offs, is testing the limits of the “puffery” defense. In a legal filing last week aimed at getting a shareholder lawsuit dismissed, the company asserted that statements that the bank was working to “restore trust” among its customers and “trying to be more transparent” about its scandals — statements made by its chief executive, Tim Sloan — were, well, just puffery.
The filing says these were generic statements “on which no reasonable investor could rely.” Therefore, even though the bank’s stock price fell sharply when evidence emerged that they were false, investors don’t have grounds to sue for their losses.
“This is just another example of corporate actors making statements to the market, and then trying to avoid liability for the representations they made,” says Darren Robbins, the San Diego lawyer bringing the shareholder suit.
If it sounds like a strange thing for a bank to say when it’s trying to present itself as a paragon of rectitude — in essence, “We can’t be sued because no one believed us anyway” — just wait. It gets stranger.
Wells Fargo says that even though the statements by its management fall within the legal definition of puffery, that doesn’t mean they’re untrue. “Wells Fargo stands behind the statements it made regarding its commitment to transparency and rebuilding trust with its customers,” the bank told me by email. “These statements were true then and remain so today.”
The lawsuit at issue concerns a scandal that erupted in public in July 2017, when it became known that for years Wells Fargo had been charging auto loan borrowers for unnecessary insurance on their vehicles. The lawsuit seeks class certification for all investors who bought the company’s stock from Nov. 3, 2016 — when Sloan announced at an investors conference that he was “not aware” of any undisclosed scandals in sales practices — through Aug. 3, 2018, the day before the bank formally disclosed the auto-loan issues in an earnings report.
The scam at the heart of this case was massively abusive, according to internal reports and assertions in a consumer lawsuit filed last week. Wells Fargo saddled roughly 600,000 auto loan borrowers — disproportionately lower-income customers — with insurance to cover the vehicles that collateralized the loans.
Many borrowers, however, already had insurance, so they didn’t need the additional coverage. Some didn’t even know they were being charged because Wells Fargo didn’t itemize the insurance fees on their loan statements.
When customers made monthly payments on their loans, according to the consumer lawsuit, Wells Fargo applied them in a way that pushed as many as 275,000 customers into delinquency, resulting in some 25,000 improper repossessions. The bank didn’t always fully or promptly refund the fees and late charges it owed the victimized customers, and didn’t always clean up credit reports that had been sullied by its illicit behavior. (...)
The shareholder lawsuit focuses on the efforts by Sloan and his fellow executives to conceal the auto-loan scandal from the public. While they were trying to clean up the splatter from the bank’s most prominent scandal, in which sales representatives secretly opened millions of accounts for consumers in order to meet punishing work quotas, the executives consistently stated that they were investigating high and low to make sure the bank was otherwise clean and would fully disclose anything they discovered.
“We want to leave no stone unturned,” Sloan told investment analysts during a conference call in January 2017. “If we find something that’s important, we’ll communicate that…. I think given our desire to be very transparent, we’ll probably err on the side of overcommunicating as opposed to undercommunicating.”
Yet by then, Sloan had received a report from the consulting firm Oliver Wyman that laid out the auto-loan scandal in great detail.
by Michael Hiltzik, LA Times | Read more:
Image: The Big Lebowski
[ed. See also: Jury delivers $25.5 million 'statement' to Aetna to change its ways (CNN)]
[ed. See also: Jury delivers $25.5 million 'statement' to Aetna to change its ways (CNN)]
