Wells Fargo Under Intense Investigation Following Auto Insurance Scandal
Californiaâ€™s insurance regulators have launched an investigation into Wells Fargo following the bankâ€™s confessionÂ that it forced hundreds of thousands of auto loan borrowers to pay for insurance policies they didnâ€™t need and, in many cases, were unaware of.
There’s also aÂ congressional investigation underway, where U.S. senators are asking the company basic questions like who was affected, how broadly, whether they get a refund, and why the hell this occurred in the first place.
Unlike JPMorgan Chase or Bank of America, Wells Fargo’s auto loan contracts allowed the lender to obtain collateral protection insurance on a customer’s behalf if they failed to buy liability coverage themselves â€” or if the bank assumed they hadn’t. It’s not common practice and, when it causes paying customers to default and have their vehicle repossessed, it’s not difficult to see why.Â
Samir Hanef, a longterm customer of Wells Fargo, serves as a case study for how badly this can go awry. According to CNN Money, he obtained an carÂ loan in June 2014 to purchase a used Honda Civic â€” paying $300 per month, even though the bill was $280.
InÂ March of 2016, Wells Fargo increased his monthly bill to $374 after addingÂ the collateral protection insurance without his knowledge. Having purchased insurance previously, Hanef claims not to have noticed the alterationÂ since his bill had gone unchanged for roughly two years. He continued paying his $300 a month until the bank repossessed his Civic in December.Â “My car was held as extortion and I was forced to pay for Wells Fargo’s mistake,” he told CNN.
“My insurance never lapsed,” he added. While the bank claims it sent notices about the new insurance fees, Hanef says he neverÂ noticed any.
Cases like this one have investigators up in arms. Wells Fargo is promising to make wronged consumers “whole” but it’s unclear who that applies to. At least 20,000 customers saw their vehicles repossessed but as many as ten times that defaulted on payments. There are also hundreds of thousands more charged for insurance they technically never needed, but the bank has been less clear on issuing them a refund.
Laws in nine states require that customers get unused insurance money back: Alabama, Colorado, Indiana, Iowa, Maryland, Massachusetts, Oklahoma, Oregon and South Carolina. However, Wells Fargo’s unsavory business practices has regulators in other states feeling that their citizens may also be deserving of reimbursement.
In a Securities and Exchange Commission filing last week, the bank expressed numerousÂ problems with guaranteed automobile protection (GAP) insurance policies. These policies cover the difference between a carâ€™s value and the amount a borrower owes on it. The concept is that, if a wrecks their vehicle, the insurance policy covers the difference between their remaining payments due and any payout from the borrowerâ€™s regular insurance.
Even though those policies are typically sold by dealerships and arranged through third-party insurance companies, the cost of the policies is almost alwaysÂ baked into the car loan. If a borrower pays off the loan early, they no longer need the insurance and are supposed to be reimbursed.
That refund typically comes from the dealership, but in some states require the lender to ensure the refunds are made. In last weekâ€™s SEC filing, Wells Fargo said it â€œidentified certain issues related to the unused portion of guaranteed automobile protection waiver or insurance agreements,â€ and that the issues â€œmay result in refunds to customers in certain states.â€ However, it did not specify which ones.
Insurance Commissioner Dave Jones said Tuesday that he ordered the California Department of Insurance to investigate Wells Fargo and insurance provider National General Insurance Co. to see if the companies broke any state laws.
“These most recent revelations by Wells Fargo are particularly troubling,” said Jones in a statement. “The department will investigate fully to determine the extent to which California consumers were affected by improper placement of force or lender-placed auto insurance and seek corrective action and penalties in the event that California’s consumer protection laws were violated.”
The bank is alsoÂ under investigation by the New York Department of Financial Services, which subpoenaed records related to the insurance policies last week.Â Wells Fargo hasÂ to provide the information by August 22nd.
Senator Elizabeth Warren and some of her Democrat colleagues want to speak to Wells Fargo CEO Tim Sloan and Chairman Stephen Sanger about the recent scandals personally. This week, they wrote a letter to Mike Crapo, the Republican chairman of the Senate banking committee, requesting a September hearing.
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August 11, 2017 at 11:57AM