Another scandal hits Wells Fargo as the banking giant gets caught overcharging customers for auto insurance.
Wells Fargo announced that it will spend $80 million repaying auto loan recipients after years of charging customers with unneeded auto insurance. A third-party report obtained by the New York Times revealed that the bank charged as many as 800,000 customers for coverage obtained through it, even if the customers already had auto insurance.
The issue stems from collateral protection insurance (CPI) sold to Wells Fargo auto loan holders. Since Wells Fargo requires auto loan recipients to have auto insurance, National General Insurance, the company underwriting Well Fargo’s policies, researched whether its borrowers owned car insurance; if they did not, National General then charged them for needed coverage, adding to the premiums and interest on the loans.
Many Wells Fargo customers with auto insurance, however, were also charged without their knowledge, with the bank automatically subtracting the fees from their bank accounts. In addition, Wells Fargo breached disclosure regulations in Arkansas, Michigan, Mississippi, Tennessee, and Washington by not informing customers beforehand of the lender-placed insurance policy. About 100,000 policies in those states violated the disclosure requirement, a third-party report done for the bank by consulting firm Oliver Wyman found.
Affected Customers in Dispute
Due to the overcharges, approximately 274,000 Wells Fargo auto loan customers fell into delinquency, with nearly 25,000 having their vehicles illegally taken, according to Oliver Wyman. Although the bank initiated the review, a Wells Fargo spokesperson told the New York Times that the Wyman report’s numbers were higher than its own calculations. The bank said that only 570,000 customers qualify for refunds, which the bank will begin next month, and that only 20,000 auto loan holders saw their cars wrongfully repossessed.
Well Fargo further determined that 60,000 customers in the five states where prior disclosure is required were not given notification. It also announced that it will correct any customer’s credit history if that person was falsely deemed delinquent.
After receiving complaints, Wells Fargo launched a review in July 2016 of policies written between 2012 and this year, and notified its regulatory agency, the Office of the Comptroller of the Currency, of the investigation at that time. It discontinued the CPI program in September, effectively acknowledging that its oversight was lax. “Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole,” Franklin Codel, Head of Consumer Lending for Wells Fargo, said in the statement.
Another Blow for Wells Fargo
The auto loan insurance overcharges dovetail with another major misstep by Wells Fargo. Last year, regulators slapped the bank with a $190 million fine after its retail banking staff opened some 2.1 million unauthorized clients accounts. That scandal led to the firing of 5,300 employees as well as the resignation of its CEO.
Last week, the bank announced plans to slash about 70 senior executives positions in its community bank division. A report in Bloomberg noted that the division, which includes the retail banking unit, has seen its profits tumble because of the fine.
Be On the Lookout for Your Clients
In light of this recent news, make sure any client holding an auto loan with Wells Fargo checks their monthly bill for duplicate insurance policies. If your client has been charged for coverage, cancel the Wells Fargo policy immediately and request a refund.
As the New York Times report points out, lender-placed auto insurance policies are uncommon in the auto loan industry. It’s not standard practice for other major banks such as Bank of America, Citibank, and JPMorgan Chase. Some smaller banks might mandate it, however, so it’s always advisable to review an auto loan to ensure that a client isn’t paying for two insurance policies.