Wells Fargo charged customers for unneeded auto insurance — then repossessed their cars
Wells Fargo & Co. charged hundreds of thousands of auto-loan borrowers for insurance they did not ask for or need, in some cases causing those customers’ cars to be repossessed — the latest in a long list of bad practices for which the bank is trying to atone.
An internal bank investigation spurred by customer complaints found that, between 2012 and 2017, about 570,000 borrowers may have been wrongly pushed into these auto insurance policies, the San Francisco bank said in a news release.
Wells Fargo plans to give them $80 million in refunds and compensation.
The issue centers on so-called collateral-protection insurance policies, which are similar to auto insurance policies commonly taken out by vehicle owners to cover costs of damage to their vehicles.
Wells Fargo and other lenders typically require that auto-loan customers have such policies. Some lenders will buy a policy on customers’ behalf and pass along the cost if customers do not show they have secured their own auto insurance coverage.
In this case, though, Wells Fargo acknowledged that it improperly bought such policies on behalf of customers who already had their own insurance, and sometimes failed to properly notify those customers that it was doing so.
“We take full responsibility for our failure to appropriately manage the [insurance] program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us,” Franklin Codel, head of Wells Fargo Consumer Lending, said in a statement. “Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”
Wells Fargo said it began a review of the insurance policies in July of last year and stopped issuing the policies in September.
The bank made its announcement shortly after the New York Times published an article late Thursday, based on a February report from a consulting firm hired by the bank.
That report found that more than 800,000 customers may have been erroneously charged, but upon further review Wells Fargo concluded fewer customers were affected and would qualify for refunds.
The bank said some customers may already have received refund checks, and all affected customers should be compensated by the end of the year.
Most of them — about 490,000 — had their own insurance but were stuck with bank-issued policies as well. They will get refunds totaling $25 million.
In 60,000 other cases, Wells Fargo said it did not follow state notification and disclosure laws. Refunds to those customers will total $39 million.
The bank said some 20,000 customers lost their vehicles because the cost of the unnecessary insurance pushed borrowers into default on their loans. Those customers will get refunds, plus additional payments to compensate them for the loss of their vehicles. The compensation will total $16 million, or an average of $800 per customer.
“The payment amount will depend on each customer’s situation and also will include payment above and beyond the actual financial harm as an expression of our regret for the situation,” the bank said in its statement.
The bank will also work with credit bureaus to correct customers’ credit records. A bank spokeswoman said she did not know, though, whether the bank will take the additional step of compensating borrowers for higher interest rates they might have paid on other types of debt because of damage done to their credit scores.
That’s something the bank agreed to do in a $142-million class-action settlement over its creation of as many as 3.5 million unauthorized checking, savings and credit card accounts. Wells Fargo is still working to regain the public’s trust lost after that scandal came to light last year.
In September, the bank agreed to pay $185 million in fines to regulators after acknowledging its workers, trying to meet onerous sales quotas, signed customers up for accounts they never wanted or asked for. The bank’s practices were first uncovered by a 2013 Los Angeles Times investigation.
The scandal pushed the bank’s former chairman and chief executive, John Stumpf, to resign last year, led to sweeping changes in how the bank pays its employees and sparked a shareholder revolt that nearly cost some of the bank’s longtime board members their jobs.
Since then there’s been a steady stream of disclosures about additional problematic practices at the bank.
It has faced allegations that workers signed customers up for Prudential insurance policies without authorization, improperly modified mortgages for borrowers in bankruptcy and that it stuck mortgage borrowers with fees that should have been covered by the bank.
Scott Siefers, an analyst at investment bank Sandler O’Neill, said there’s likely more to come as the bank continues to review its practices and root out problems.
“A company of Wells Fargo’s size and scope and scale, there’s just a lot going on,” he said. “When you have so many things you can look into and you’re consciously looking for problems, odds are you’re going to find some.”
Wells Fargo is the nation’s third-largest bank by assets, and the largest mortgage lender. It also is a major auto lender, with nearly $58 billion in consumer vehicle loans on its books.
Siefers said the steady trickle of bad news continues to hurt the bank, though he believes it’s unlikely that another scandal on the scale of the unauthorized accounts matter will surface — or that anything, at this point, could significantly damage the bank’s already tarnished reputation.
“The flow of news is not what you want to see,” he said, “but how much worse can it get?”
Wells Fargo shares closed Friday at $53.30, down 2.6% for the day. That’s more than other bank stocks as measured by the KBW Nasdaq bank index, an industry benchmark that fell 0.3%.
Times staff writer James Rufus Koren contributed to this report.
4:10 p.m.: This article was updated with comments from analyst Scott Siefers and background on Wells Fargo’s accounts scandal.
This article was originally published at 10 a.m.