More revelations of improper sales practices could add to the bank’s skyrocketing legal costs.
In the wake of recent allegations that it charged auto loan customers for insurance they already had, Wells Fargo revealed in a regulatory filing late last week that it was investigating more cases of improper sales practices. According to an ongoing review by a third-party consultant, some customers may have been subjected to unauthorized changes to mortgages, while others may have been wrongly locked out of accounts due to suspected fraud.The greatest of these alleged misdeeds involves the bank’s mortgage arm, which reportedly extended the terms of mortgage loans in default with the borrower’s approval. While lowering monthly payments, the New York Times reported that the practice resulted in higher total payments because the loans were stretched out across several decades. The beleaguered bank admitted the missteps may have caused hardships for its customers. In a statement to CNBC, it vowed to “rebuild trust” with customers and committed itself to “an ongoing effort to identify and address other areas or instances where customers may have experienced financial harm.”
Auto Loan Mix-up Prompts Class Action Lawsuit
In late July, Wells Fargo reported that as many as 570,000 auto loan customers were automatically charged for car insurance even though the borrowers already held a policy. Nearly half of those customers fell into delinquency, with approximately 20,000 having their cars repossessed illegally. A total of $80 million in refunds will be sent to those customers beginning this month.
Soon after that announcement, Bloomberg reported that an Indianapolis resident filed a class action lawsuit against the bank in San Francisco’s federal court, alleging that customers were forced to pay millions of dollars for unwanted car insurance. The lawsuit further claims that Wells Fargo received kickbacks from its auto insurance provider, National General Holdings Corp. National General is not named as a defendant in the suit, and Wells Fargo stopped sharing commissions with the insurer in 2013, according to the New York Times.
The plaintiff, Paul Hancock, obtained an auto loan from Wells Fargo in 2016. He claims that the bank continued to charge him for the duplicate auto insurance even though he informed it that he had coverage from another insurance company.
Legal Fees in the Billions
Prior to the auto loan scandal, Wells Fargo was fined a total of $190 million by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the Office of the Los Angeles City Attorney for opening 2.1 million customer accounts without permission. As a result of that discovery, the bank’s CEO resigned and more than 5,000 employees were fired. Lawmakers on Capitol Hill have also called for changes to the bank’s board of directors, as well as hearings into the bank’s recent consumer scandals.While the bank has yet to calculate cost of its many lawsuits and reviews, its total legal expenses may soar to $3.3 billion, according to a Reuters report. Despite these significant costs, Wells Fargo may not need to raise cash anytime soon, according to one analyst. “Wells, just like everyone in the banking system today, are so overcapitalized that [that] thought wouldn't even enter our heads,” Gerard Cassidy, a Banking Analyst at RBC Capital Markets, told CNBC’s Closing Bell.