Wells Fargo Compelled Unwanted Auto Insurance on Borrowers
More than 800,000 people who took out car loans from Wells Fargo were charged for auto insurance they did not need, and some of them are still paying for it, according to an internal report ready for the bank’s executives.
The expense of the unneeded insurance, which covered collision harm, shoved harshly 274,000 Wells Fargo customers into delinquency and resulted in almost 25,000 wrongful vehicle repossessions, according to the 60-page report, which was obtained by The Fresh York Times. Among the Wells Fargo customers hurt by the practice were military service members on active duty.
Wells Fargo, one of the largest banks in the United States, is fighting to repair its picture after a scandal in which its employees created millions of credit card and bank accounts that customers had never requested. That crisis, which came to a head last year, toppled Wells Fargo’s chief executive and led to millions of dollars in fines.
The bank also stands accused of having made improper adjustments to the terms of the home loans of customers who were in bankruptcy, which Wells Fargo denies.
Asked about the findings on auto insurance, Wells Fargo officials confirmed that the improper insurance practices took place and said the bank was determined to make customers entire.
“We have a meaty responsibility and fell brief of our ideals for managing and providing oversight of the third-party vendor and our own operations,” Franklin R. Codel, the head of consumer lending at Wells Fargo, said in an interview. “We self-identified this issue, and we made the right business decisions to end the placement of the product.”
The report, which was ready by the consulting rock hard Oliver Wyman, looked at insurance policies sold to Wells customers from January two thousand twelve through July 2016. The insurance, which the bank required, was more expensive than auto insurance that customers often already had obtained on their own.
National General Insurance underwrote the policies for Wells Fargo, which began to require the insurance on auto loans as early as 2006. The practice continued until the end of September.
Christine Worley, a spokeswoman for National General, declined to comment.
For borrowers, delinquencies arose quickly because of the way the bank charged for the insurance. Say, for example, that a customer agreed to a monthly payment of $275 in principal and interest on her car loan, and arranged for the amount to be deducted from her bank account automatically. If she were not advised about the insurance and it enlargened her monthly payment to, say, $325, her account could become overdrawn as soon as Wells Fargo added the coverage.
The report attempted to determine how many Wells Fargo customers were hurt and how much they should be compensated. It estimated that the bank owed $73 million to wronged customers.
State insurance regulations required Wells Fargo to notify customers of the insurance before it was imposed. But the bank did not always do so, the report said. And almost 100,000 of the policies violated the disclosure requirements of five states — Arkansas, Michigan, Mississippi, Tennessee and Washington.
Wells Fargo took issue with some of the figures in its own report. In a statement, Jennifer A. Temple, a bank spokeswoman, said the bank determined only 570,000 of its customers may qualify for a refund and that just 60,000 customers in the five states had not received accomplish disclosures before the insurance placement. Ultimately, she said, the bank estimated the insurance may have contributed to 20,000 wrongful repossessions, not 25,000.
“We take total responsibility for these errors and are deeply sorry for any harm we caused customers,” Ms. Temple added.
Requiring borrowers to be insured is common in the mortgage arena, where banks expect customers to carry enough homeowners’ insurance to protect the property backing their loans. The term for the practice is “lender-placed insurance.” Pressing such insurance on auto borrowers, however, is not as common: Representatives of Bank of America, Citibank and JPMorgan Pursue said they did not suggest the policies, however some smaller banks do.