Remediating auto loan customers impacted by insurance coverage charges

After self-identifying an issue related to Collateral Protection Insurance policies, Wells Fargo is working to make things right for auto loan customers who may have been financially harmed.

August 4, 2017

Wells Fargo recently announced a plan to remediate auto loan customers of Wells Fargo Dealers Services who may have been financially harmed because of issues related to Collateral Protection Insurance (CPI) policies.

Initially triggered by an elevated number of customer complaints about the CPI program, Wells Fargo took a closer look at its own practices — including oversight of a third party who administers the program on the bank’s behalf — during the summer of 2016.

Upon review, Wells Fargo found shortcomings in this oversight, as well as the processes used by the vendor to determine when the insurance required by the customer’s loan contract lapsed. In addition, Wells Fargo found some customers did not receive complete disclosures, some customers paid insurance premiums when they didn’t need to, and the overall process for customers to confirm they had their own insurance was too difficult.

With this insight, Wells Fargo quickly discontinued the program — rather than changing it — in order to focus completely on developing a remediation plan for customers who had been financially harmed.

“We are deeply sorry for any harm we caused our customers and remain committed to making impacted customers whole.” — Tim Sloan

“The lesson we’ve learned — and take full responsibility for — is letting our oversight of our vendor lapse and not ensuring stronger internal controls,” said Franklin Codel, head of Wells Fargo Consumer Lending. “We let our customers down by not reviewing our own practices often enough and double checking the work a vendor was doing on our behalf.”

Since self-identifying the issue last year, Wells Fargo — with the help of independent consultants — has reviewed policies placed since 2012, finding approximately 570,000 customers who may have been impacted. These customers will receive refunds and other payments as compensation.

In total, approximately $64 million in cash remediation will be sent to customers in the coming months, along with $16 million in account adjustments, for a total of approximately $80 million in remediation.

Making things right for auto customers

Auto loan contracts require the borrower to maintain comprehensive and collision physical damage insurance throughout the term of the loan. CPI insurance protects against loss or damage to a vehicle, serving as collateral to secure a loan, and helps ensure that borrowers can pay for damages to a vehicle.

As permitted under those contracts, Wells Fargo purchased CPI from a vendor on the customer’s behalf if there was no evidence — either from the customer or the insurance company — that the customer already had the required insurance.

"This situation is an example of looking for issues, finding them, and making things right for customers.” — Franklin Codel

Wells Fargo’s review determined, however, that some customers may have been charged premiums for CPI even if they were already paying for their own vehicle insurance, as required. And in some cases, the CPI premiums may have contributed to a default that led to their vehicle’s repossession.

“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 Codel. “We are working hard to build a better bank and be transparent about our progress. This situation is an example of looking for issues, finding them, and making things right for customers.”

Wells Fargo has already started providing CPI-related refunds to some customers and, beginning in August, will proactively send letters and refund checks to customers who are due additional payments. The process is expected to be complete by the end of the year and is as follows:

  • Approximately 490,000 customers had CPI placed for some or all of the time they had adequate vehicle insurance coverage of their own. Wells Fargo refunded the premium and interest for the duplicative coverage at the time the customer made the company aware of their other insurance. These customers will receive additional refunds of certain fees and some additional interest. Refunds for this group total approximately $25 million.
  • In five states that have specific notification and disclosure requirements, approximately 60,000 customers did not receive complete required disclosures from Wells Fargo’s vendor prior to CPI placement. In these cases, even if CPI was required, customers will receive a refund including premiums, fees, and interest. Refunds for this group total approximately $39 million.
  • For approximately 20,000 customers, the additional costs of CPI could have contributed to a default that resulted in the repossession of their vehicle. Those customers will receive additional payments as compensation for the loss of their vehicle. The payment amount will depend on each customer’s situation and also will include payment above and beyond the actual financial harm as an expression of regret for the situation. Refunds for this group total approximately $16 million.

For each of these categories, Wells Fargo will also report corrected information to credit bureaus, if applicable.

“Auto lending is an important business to Wells Fargo because it’s vital for our customers to have access to affordable vehicle financing that enables their everyday lives,” said CEO Tim Sloan. “We are deeply sorry for any harm we caused our customers and remain committed to making impacted customers whole.”

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