Wells Fargo to refund $80 million to customers hit by car loan insurance
A Wells Fargo Bank is shown in Charlotte, North Carolina, U.S., September 26, 2016. REUTERS/Mike Blake – RTSPJOV
Wells Fargo & Co. said late Thursday it plans to refund certain auto-loan customers who may have been improperly charged for some auto insurance.
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The bank said it found 570,000 customers who may have been impacted from policies placed inbetween two thousand twelve and 2017, and that they will receive refunds or account adjustments totaling around $80 million.
Franklin Codel, head of Wells Fargo consumer lending, said the bank takes responsibility for its failure to manage the insurance program and apologized to customers. “Upon our discovery, we acted swiftly to discontinue the program and instantaneously develop a plan to make impacted customers entire,” he said.
The bank’s auto-loan problems come on the high-heeled slippers of Wells Fargo’s sales-practices scandal last year, where bank employees opened up to Two.1 million accounts using fictitious or unauthorized customer information.
Wells Fargo paid a $185 million fine in September 2016, its CEO abruptly retired, and it has continued facing many federal and state investigations since then. The bank has said it is cooperating with those. Wells Fargo agreed to a $142 million class activity customer settlement along with related customer refunds.
In regard to auto loans, Wells Fargo said customers’ contracts require them to maintain so-called collateral-protection insurance on behalf of the lender across the term of the loan. Wells Fargo purchased that insurance, known as CPI, from a vendor on the customer’s behalf if there was no evidence the customer already had the insurance, the bank said. That insurance protects against the loss or harm to a vehicle serving as collateral to secure a loan.
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The vendor is National General Insurance, a company the bank had partnered with for years, a person familiar with the matter said.
A spokeswoman for National General, Christine Worley, said it “feels certain with its compliance in this very regulated industry.” She added: “We have always refunded premiums directly to our financial institution customers in a timely manner and provided all necessary notifications in compliance with law and industry practice.”
Wells Fargo said that, in response to customer complaints in July 2016, it began a review of the program and third-party vendor practices. Based on that review, it discontinued the program in September 2016.
The Fresh York Times earlier reported the problems with Wells Fargo’s auto insurance, citing a report from consultant Oliver Wyman ready for the bank examining National General insurance policies sold to Wells Fargo customers from January two thousand twelve through July 2016. It found the insurance was often more expensive than auto insurance customers had already obtained on their own.
Wells Fargo said it has “gone through a comprehensive review using independent consultants” that determined “certain outer vendor processes and internal controls were inadequate.
For example, one result was that customers may have been charged premiums for this insurance even if they were paying for their own vehicle insurance. In some cases, those premiums could have contributed to a default that led to the vehicle’s repossession.
The bank has begun providing refunds to some customers and will send letters and refund checks to extra customers in August. The bank said it expected to finish the refunding process by the end of the year.
The bank will refund about $25 million to around 490,000 customers who had so-called CPI placed for some or all the time they had already had adequate insurance of their own.
It will refund $39 million to about 60,000 customers where customers didn’t receive total disclosures from Wells Fargo’s vendor that are required by the five states those customers are based in.
Another $16 million will be refunded to about 20,000 customers where the extra costs of this CPI insurance “contributed to a default that resulted in the repossession of their vehicle,” Wells Fargo said. It added that refunds will depend on each customer’s situation and will include payment “above and beyond the actual financial harm as an expression of our regret for the situation.”
The bank said it will also work with credit bureaus to correct customers’ credit records as applicable.