California investigating Wells Fargo over unneeded auto insurance policies
California’s insurance regulator is investigating Wells Fargo & Co. over the bank’s recent admission that it forced hundreds of thousands of auto loan borrowers to pay for insurance policies they didn’t need and often didn’t know about.
Insurance Commissioner Dave Jones said Tuesday that he had ordered the California Department of Insurance to investigate Wells Fargo and insurance provider National General Insurance Co. to see if the companies broke state laws.
“These most recent revelations by Wells Fargo are particularly troubling,” Jones said in a statement. He added that the department would “seek corrective action and penalties in the event that California’s consumer protection laws were violated.”
The bank and National General are already under investigation by the New York Department of Financial Services, which last week subpoenaed records related to the insurance policies.
Jones’ department is also continuing to investigate another allegation involving Wells Fargo, that the bank signed up customers for Prudential life insurance policies without their knowledge.
The auto insurance policies in question, for coverage called collateral protection insurance, are sometimes taken out by lenders when auto loan borrowers don’t have insurance of their own. But Wells Fargo acknowledged late last month — a day after the New York Times published a story citing an internal report — that more than 500,000 borrowers were either forced to pay for these policies despite having their own coverage or were not properly notified about the policies.
The bank said that for about 20,000 customers, the added cost of unnecessary or hidden insurance policies may have contributed to loan defaults and repossessed vehicles. Wells Fargo will pay about $80 million in refunds and other payments to borrowers, including special payments to those who lost their cars “as an expression of our regret for the situation,” the bank said in a statement.
A bank spokeswoman declined to comment on Jones’ investigation.
In a separate matter, the bank has also acknowledged problems with another type of auto insurance policy, the latest in a growing list of issues the bank has identified in the 11 months since a scandal over the unauthorized creation of checking, savings and credit card accounts spurred a wave of internal reviews.
In a Securities and Exchange Commission filing last week, the bank mentioned problems with guaranteed automobile protection, or GAP, insurance policies. These policies cover the difference between a car’s value and the amount a borrower owes on it — the idea being that if a borrower wrecks their car, the insurance policy covers the difference between their remaining payments due and any payout from the borrower’s regular insurance.
The policies are sold by dealerships and arranged through third-party insurance companies, but the cost of the policies is often wrapped into the car loan. If a borrower pays off the loan early, they no longer need the insurance and are supposed to get a refund.
That refund typically comes from the dealership, but in some states the lender is required to make sure refunds are made. In last week’s SEC filing, Wells Fargo said it had “identified certain issues related to the unused portion of guaranteed automobile protection waiver or insurance agreements” and that the issues “may result in refunds to customers in certain states.”
Wells Fargo spokeswoman Catherine Pulley said an internal review uncovered a “lack of oversight and controls” in the administration of the GAP insurance products. The bank is still trying to determine how many borrowers might have been affected.
“We believe we can make the refund process more consistent for customers in the future and make things right for customers in the past,” Pulley said. “We promised to be transparent in our efforts to fix problems and build a better Wells Fargo, and our disclosure of this issue … is an outcome of that promise.”
The New York Times reported Monday that the Federal Reserve is investigating the GAP insurance matter, though a Fed spokesman said other regulators would have “primary and direct oversight in the area” and that the Fed does not comment “on confidential, firm-specific matters.”
In a letter to Wells Fargo employees last week, Chief Executive Tim Sloan said the bank must review “all of our operations — leaving no stone unturned — so we can be confident we have done all that we can do to build a better, stronger Wells Fargo.”
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