Wells Fargo will spend $80 million to address improper charges of more than a half million of the bank’s auto-loan customers between 2012 and 2016, according to a press release from the bank. Of the $80 million, $64 million will be in cash repayments while the remainder will be account adjustments. The problems stem from the banks use of collateral protection insurance policies (CPI), which enrolled many customers in unnecessary insurance plans with the bank and its partners. The charges led to financial hardship for many of the wrongly enrolled customers.
According to The New York Times, an internal report from 2016 showed that the excessive insurance charges affected more than 800,000 customers, resulting in 274,000 account delinquencies and 25,000 vehicle repossessions. Natalie M. Brown, a vice president in the bank’s consumer-lending communications department, says that the total number of affected customers cited by The Times
is from a preliminary report that overestimated the share of policies that were ultimately deemed inappropriate. The final tally, she says, is closer to 570,000. Another spokesperson said that the number of repossessions was closer to 20,000. The bank declined to provide the report to The Atlantic.
“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,” said Franklin Codel, the head of Wells Fargo Consumer Lending which oversees auto lending. “Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”
Although the bank is ultimately responsible for the harm done to its customers, its main failing in this instance was that it did not adequately oversee the vendors that provided the insurance coverage and underwrote the policies. After complaints about inappropriate charges began to surface, the bank launched an internal investigation. It found that many customers had been pushed into additional and unwarranted coverage, despite already having independent collision policies in place that were often cheaper than those offered by the bank. The inquiry also found that Wells Fargo did not always adequately notify customers that they had been enrolled in these insurance policies. For many, uncovering the policies took some time since they were automatically enrolled in the insurance and the charges were automatically deducted from their accounts. Among those hurt, The Times, reports, were active-duty military service members.
The bank will begin reaching out to customers and paying restitution in August.