Banking giant, Wells Fargo, recently announced they would remedy auto loans made to customers who were financially harmed as a result of Collateral Protection Insurance policies. Collateral Protection Insurance insures any property which is offered as collateral for loans made by the bank. CPI protects the interests of the lender, since the borrower typically agrees to purchase and maintain full-coverage insurance, listing the bank as the lienholder.
In the case of Wells Fargo, approximately 570,000 customers were identified who had CPI policies issued between 2012 and 2017, and who may have been charged CPI premiums even when they were paying their own vehicle insurance. In other cases, CPI premiums charged to Wells Fargo customers could have actually contributed to a default for the customer which led to repossession of their vehicle.
Financial Remediation Being Sent to Harmed Wells Fargo Borrowers
As much as $64 million in cash remediation will be sent to the customers identified as being harmed in the form of refund checks as well as $16 million in account adjustments. Franklin Codel, the head of Wells Fargo Consumer Lending, wants customers to know that “…our entire leadership team committed to build a better bank and be transparent about those efforts…”
The customers’ contracts for their auto loans require that comp and collision insurance must be maintained from the beginning of the loan through to the last payment. If neither the customer nor the insurance company offers proof that the borrower has paid for such coverage, Wells Fargo is legally allowed to purchase CPI on behalf of the customer. Unfortunately, after a thorough review of the practice, Wells Fargo determined that both the internal controls and the external vendor processes were simply inadequate to protect borrowers.
Many customers ended up being charged CPI premiums despite the fact they were already paying for their own full-coverage insurance in accordance with the loan contract. Based on these findings, the Wells Fargo CPI program was discontinued in September 2016. The remediation process is expected to progress as follows:
- Nearly 500,000 Wells Fargo customers had properly purchased their own vehicle insurance coverage, yet had been charged for CPI either for the entire term of their loan, or for at least a part of the term. These customers had the premiums and interest they paid for duplicate coverage refunded, and will also receive refunds related to specific fees and some additional interest.
- About 60,000 customers in five states which have specific disclosure and notification requirements failed to receive vendor disclosures as required by law prior to having CPI insurance placed on their loan. These customers will receive premiums, fees and interest, even if the CPI was required because the borrower had no insurance on their own.
- For about 20,000 Wells Fargo borrowers, the CPI costs may have contributed to default and subsequent repossession. These customers will receive compensation for the loss of their vehicle, as well as payment above and beyond actual financial harm as “an expression of our regret.” There will be about $16 million in restitution for this group of borrowers.
Wells Fargo has also vowed to work with the credit bureaus to correct any customer credit report which was harmed as a result of the CPI. The bank executives claim they have also taken additional steps to make sure third-party vendors have the required oversight to protect customers.
Wells Fargo has been plagued over the past few years with the discovery of practices which were definitely not in the best interests of its customers. In one particularly egregious example, Wells Fargo employees were opening accounts for customers without the customer’s knowledge or approval, in an effort to set up the most accounts. In another, Wells Fargo was caught re-sequencing ATM transactions from high to low (rather than as they come in) to increase overdraft revenue. In order to improve its rather tarnished reputation, Wells Fargo has been working to earn back the trust of customers—this latest remediation being one example.
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