Over half a million Wells Fargo auto loan clients who received improper charges for auto insurance will be given refunds amounting to approximately $80 million. Some of those practices happened between 2012 and early this year. In an apology, Wells Fargo’s consumer lending head Franklin Codel said the bank took responsibility for the malpractice.
“Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole,” Codel said.
Collateral protection insurance
According to Wells Fargo, the contracts signed by customers requires them to obtain, on the lender’s behalf, collateral protection insurance during the loan period. In this instance Wells Fargo obtained the insurance on behalf of the customers in situations where the customers didn’t already have such kind of insurance. As the name suggests collateral protection insurance offers protection against damage or loss to a motor vehicle which is being used as loan collateral. Complaints from customers over the practice first surfaced last year in July and Wells Fargo then undertook a review which led to the discontinuation of the program two months later.
Some customers have already received the refunds while others will receive their refund checks next month. The refunding process is expected to be complete before the year ends. A total of $25 million will be refunded to about 490,000 clients who already possessed collateral protection insurance. Another $39 million will be refunded to around 60,000 clients who were not given full disclosure by the bank’s vendor as the rules require in five states where the clients are resident in.
Fake accounts scandal
An additional $16 million will also be paid out to approximately 20,000 clients who, as a result of the costs of the collateral protection insurance, defaulted on repayments thereby lead to motor vehicle repossession. The auto-loan insurance problem comes in the wake of the fake accounts scandal at Wells Fargo which saw the lender fined $186 million last after more than two million bank accounts were found to have been opened using either unauthorized or fictitious customer information.
Besides the fine, the chief executive officer of the lender was abruptly retired. The lender is also still facing state and federal investigations. And as a result of the scandal, Wells Fargo is also eliminating around 70 jobs, mostly senior executives. In a memo that was sent to employees of the lender last week, it was indicated that the number of area and regional presidents would be reduced to 91.