Arriving within two weeks of reporting its auto financing originations dropped 45 percent year-over-year, Wells Fargo late on Thursday announced a plan to remediate auto finance customers of Wells Fargo Dealers Services who may have been financially harmed due to issues related to auto collateral protection insurance (CPI) policies.
Wells Fargo explained that it reviewed policies placed between 2012 and 2017 and identified approximately 570,000 customers who may have been impacted and will receive refunds and other payments as compensation.
In total, the bank said approximately $64 million of cash remediation will be sent to customers in the coming months, along with $16 million of account adjustments, for a total of approximately $80 million in remediation.
Starting in August, Wells Fargo said it will proactively reach out to impacted customers with letters and refund checks.
“In the fall of last year, our CEO and our entire leadership team committed to build a better bank and be transparent about those efforts,” said Franklin Codel, head of Wells Fargo Consumer Lending, which includes the dealer services unit. “Our actions over the past year show we are acting on this commitment.”
The moves arrived after Wells Fargo reported its auto finance originations came in at $4.5 billion during second quarter, down 17 percent from prior quarter and down 45 percent from prior year. The bank said “proactive steps to tighten underwriting standards resulted in lower origination volume.”
Whenever originated, Wells Fargo indicated that customers’ vehicle installment contracts require them to maintain comprehensive and collision physical damage insurance on behalf of the bank throughout the term of the contract. As permitted under those contracts, Wells Fargo would purchase 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.
The bank reiterated that CPI insurance protects against loss or damage to a vehicle serving as collateral to secure an installment contract and helps ensure that borrowers can pay for damages to a vehicle.
In response to customer concerns, Wells Fargo said that beginning last July it initiated a review of the CPI program and related third-party vendor practices. Based on the initial findings, the company discontinued its CPI program in September.
Since then, the company has gone through a comprehensive review using independent consultants to ensure the remediation plan it develops addresses customers’ situations in a thorough and thoughtful way.
Wells Fargo’s review determined that certain external vendor processes and internal controls were inadequate. As a result, customers may have been charged premiums for CPI even if they were 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,” Codel said. “Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”
Wells Fargo already has been providing CPI-related refunds to some customers and, beginning in August, will 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.
“We refunded the premium and interest for the duplicative coverage at the time the customer made us aware of their other insurance,” Wells Fargo officials said. “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 disclosures from our vendor as required 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 the 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 our regret for the situation. Refunds for this group total approximately $16 million.
For each of these categories, Wells Fargo added that the bank will also work with the credit bureaus to correct customers’ credit records, if applicable.
Also as an outcome of this review, Wells Fargo has taken additional steps to tighten oversight of third-party vendors in dealer services.
“This is consistent with a broader effort to strengthen how the dealer services business manages risk and serves customers, which has included other recently announced actions to centralize operational functions and provide more consistency for customers, tighten credit standards and implement a new structure,” Wells Fargo officials said.