Wells Fargo is to reimburse around $80 million to auto loan customers of Wells Fargo Dealer Services who may have been financially harmed due to issues related to the wrongful selling of auto Collateral Protection Insurance (CPI) policies.
Customers’ auto loan contracts require them to maintain comprehensive and collision physical damage insurance on behalf of the lender throughout the term of the loan.
Wells Fargo would purchase CPI from a vendor on the customer’s behalf if there was no evidence — either from the customer or the insurance company — that the customer already had the required insurance.
In response to customer concerns, in July 2016 Wells Fargo initiated a review of the CPI program and related third-party vendor practices, and based on the initial findings decided to discontinue its CPI program in September 2016.
The review found that certain external vendor processes and internal controls were inadequate.
As a result, customers may have been charged premiums for CPI even if they were paying for their own vehicle insurance, as required, and in some cases the CPI premiums may have contributed to a default that led to their vehicle’s repossession.
Wells Fargo reviewed policies placed between 2012 and 2017 and identified approximately 570,000 customers who are in line for around $64 million of cash remediation along with $16 million of account adjustments.
Franklin Codel, head of Wells Fargo Consumer Lending, which includes the Dealer Services unit, said: “In the fall of last year, our CEO and our entire leadership team committed to build a better bank and be transparent about those efforts.
“Our actions over the past year show we are acting on this commitment. We take full responsibility for our failure to appropriately manage the CPI program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us.
Wells Fargo has already begun providing CPI-related refunds to some customers and is sending send letters and refund checks to customers who are due additional payments.
The process is expected to be complete by the end of the year.
As an outcome of this review, Wells Fargo says it has taken additional steps to tighten oversight of third-party vendors in Dealer Services.
Last year Wells Fargo was fined $100 million by the Consumer Financial Protection Bureau (CFPB), after it uncovered the bank was secretly opening unauthorized deposit and credit card accounts.
The agency found sales targets and compensation incentives led employees to boost sales figures by covertly opening accounts and funding them by transferring funds from consumers’ authorized accounts without their knowledge or consent, often racking up fees or other charges. According to the bank’s own analysis, employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers.
As well as the $100 million fine, Wells Fargo paid full restitution to all victims, plus an additional $35 million penalty to the Office of the Comptroller of the Currency, and another $50 million to the City and County of Los Angeles.