Wells Fargo Under Intense Investigation Following Auto Insurance Scandal
California’s insurance regulators have launched an investigation into Wells Fargo following the bank’s confession that it forced hundreds of thousands of auto loan borrowers to pay for insurance policies they didn’t need and, in many cases, were unaware of.
There’s also a 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 — 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.
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 car loan in June 2014 to purchase a used Honda Civic — paying $300 per month, even though the bill was $280.
In March of 2016, Wells Fargo increased his monthly bill to $374 after adding the collateral protection insurance without his knowledge. Having purchased insurance previously, Hanef claims not to have noticed the alteration 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. “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 never 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 numerous problems with guaranteed automobile protection (GAP) insurance policies. These policies cover the difference between a car’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 borrower’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 always 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 week’s SEC filing, Wells Fargo said it “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.” 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 also under investigation by the New York Department of Financial Services, which subpoenaed records related to the insurance policies last week. Wells Fargo has 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.
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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Isn't it time to simply declare Wells Fargo a criminal enterprise and be done with it.
Isn't GAP insurance just another way to try to launder the risk in sub-prime lending? Shouldn't the risk just be a part of the loan? If you're a bank, and someone is too risky to lend money to, then GAP insurance is just your way of convincing someone else to take the risk of the loan defaulting. Of course, that person gives the bill for the insurance to the person getting the loan. Shouldn't the lender just ask a higher rate? It's not like people really shop around for good rates when the dealer has that hook in their mouth.