FILE — A Wells Fargo bank branch in New York, . About one million people who took out car loans from Wells Fargo were charged for auto insurance they did not need, collision damage coverage that pushed roughly 274,000 Wells Fargo customers into delinquency and resulted in almost 25,000 wrongful vehicle repossessions, according to the internal report. (Sam Hodgson/The New York Times) SAM HODGSON/NYT
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 prepared for the bank’s executives.
The expense of the unneeded insurance, which covered collision damage, pushed roughly 274,000 customers into delinquency and resulted in almost 25,000 wrongful repossessions, according to the 60-page report, which was obtained by the New York Times. Among the Wells Fargo customers hurt by the practice were service members on active duty.
Wells Fargo, one of the largest banks in the United States, is struggling to repair its image 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 CEO and led to millions of dollars in fines.
The San Francisco 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.
Requiring borrowers to be insured is common for mortgages, where banks expect customers to carry enough homeowners’ insurance to protect the property backing their loans
We have a huge responsibility and fell short of our ideals for managing and providing oversight of the third-party vendor and our own operations, Franklin 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, prepared by consulting firm Oliver Wyman, looked at policies sold to Wells customers from . The insurance, which the bank required, was more expensive than fast auto and payday loans 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.
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 increased her monthly payment to, say, $325, her account could become overdrawn as soon as Wells Fargo added the coverage.
The report tried to determine how many Wells Fargo customers were hurt and how much they should be compensated. It estimated that the bank owes $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 Temple, a bank spokeswoman, said the bank determined that only 570,000 of its customers may qualify for a refund and that just 60,000 customers in the five states had not received complete disclosures before the insurance placement. Finally, she said, the bank estimated the insurance may have contributed to 20,000 wrongful repossessions, not 25,000.
Asked about the findings on auto insurance, Wells Fargo officials confirmed that the improper insurance practices took place and said that the bank was determined to make customers whole
Pressing such insurance on auto borrowers, however, is not as common: Representatives of Bank of America, Citibank and JPMorgan Chase said they did not offer the policies, although some smaller banks do.