Wells Fargo, one of the largest banks in the United States, is attempting to repair its image following a scandal in which its employees made millions of credit card and bank accounts that customers had never requested. Over 800,000 people who took out car loans from Wells Fargo were charged for auto insurance they did not need. Some of these people are still paying for it, according to an internal report generated for the bank’s executives, reports The New York Times.
The cost of the unneeded insurance, pushed approximately 274,000 Wells Fargo Customers into delinquency and resulted in nearly 25,000 wrongful vehicle repossessions, according to a 60-page report, obtained by The Times. This toppled Wells Fargo’s chief executive and resulted in millions of dollars in fines. Military service members on active duty were among those Wells Fargo customers victimized by the bank’s practice.
Wells Fargo’s Response
Wells Fargo officials confirmed that the wrongful insurance practices took place and said the bank was determined to “make customers whole,” when asked about the findings on auto insurance. “We have a huge responsibility and fell short of our ideals for managing and providing oversight of the third-party vendor and our own operations,” said Franklin R. Codel, the head of consumer lending at Wells Fargo, in an interview. “We self-identified this issue, and we made the right business decisions to end the placement of the product.”
Wells Fargo is also accused of having made incorrect adjustments to the terms of the home loans of customers who were in bankruptcy, which the bank denies, reports The Times.
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Consulting Firm Reports
The reports prepared by a consulting firm, looked at insurance policies sold to Wells Fargo customers from January 2012 through July 2016. The insurance required by the bank, was more expensive than auto insurance that customers frequently already had obtained on their own.
National General Insurance underwrote the policies for Wells Fargo, which started to require the insurance on auto loans in 2006. The practice went on until the end of September. Delinquencies arose rapidly for borrowers because of the way the bank charged for the insurance. If a customer agreed to a monthly payment for a certain amount in principal and interest on a car loan, and arranged for that amount to be deducted automatically from their bank account, if they were not advised about the insurance and it increased their monthly payment, that account could become overdrawn as soon as Wells Fargo added the coverage.
The report attempted to determine how many Wells Fargo customers were affected and how much they should be compensated. It estimated that the bank owed $73 million to wronged customers.
State insurance rules required Wells Fargo to inform customers of the insurance before it was imposed, but the bank did not always do so, according to the report. Nearly 100,000 of the policies violated the disclosure requirements of five states including Arkansas, Michigan, Mississippi, Tennessee, and Washington, The Times reports.
It is common in the mortgage business to require borrowers to be insured, where banks expect customers to have enough homeowners’ insurance to protect the property backing their loans. This is called “lender-placed insurance.” This type of insurance on auto borrowers, is not as commonplace. Bank of America, Citibank, and JPMorgan Chase representatives said they did not offer the policies, though some smaller banks might.
National General, in the Wells Fargo arrangement, receives all the commissions on the insurance it sold to the bank’s borrowers. However, for a time, the bank shared in those revenues. According to the report, Wells Fargo stopped sharing in the commissions in February 2013. Wells Fargo borrowers sustained financial damages higher than the costs of the insurance, the report said. The damage also involved repossession costs, late fees, charges for insufficient funds, and damage to consumers’ credit reports.
Consumer Financial Protection Bureau
Consumers have, in recent years, complained to federal regulators about lender-placed insurance on auto loans, the Consumer Financial Protection Bureau’s database shows. Many complaints targeted Wells Fargo. In one case, a Wells Fargo customer reported providing proof to the bank on three occasions that the car was already insured, and the new insurance was not necessary. The customer continued receiving calls from bank employees demanding payment of insurance charges, The Times reports.
The reports also noted that Wells Fargo was aggressive in repossessing vehicles with some customers enduring multiple repossessions. In the fall of 2016, Wells Fargo Dealer Services had an issue with regulators and it agreed to pay $4 million in a settlement with the Justice Department over illegally repossessing cars of military service members. Following that settlement, three top executives left the Dealer Services division, reports The Times.
Legal Information Concerning Consumers
If you or someone you know has been affected by improper business practices, you may have valuable legal rights. Parker Waichman LLP offers free, no-obligation case evaluations. We urge you to contact our attorneys at 1-800-YOURLAWYER (1-800-968-7529).