Wells Fargo at It Again, Stuck Over 800,000 Customers With Unnecessary Car Insurance

So now we see another way Wells Fargo achieved its amazing level of product cross-sells. As reported by the New York Times’ Gretchen Morgenson, not only did it sign up customers for accounts and credit cards without their knowledge, it also forced auto insurance onto them. And unlike the “fake accounts” scandal, where the actual monetary damage to customers was limited (although some suffered real credit score damage), Wells Fargo’s own hired gun, bank consultant Oliver Wyman, estimated that 274,000 were forced into delinquency and nearly 25,000 had their cars wrongfully repossessed from January 2012 through July 2016.

How did this come about? Wells would “automatically impose” auto insurance from National General on auto loan customers. National General was supposed to check if the borrower already had coverage but apparently didn’t. The insurance usually cost about $1000 a year, before any interest. Per Morgenson:

The insurance, which the bank required, was more expensive than auto insurance that customers often already had obtained on their own.

National General Insurance underwrote the policies for Wells Fargo, which began to require the insurance on auto loans as early as 2006. The practice continued until the end of September…

For borrowers, delinquencies arose quickly because of the way the bank charged for the insurance. Say, for example, that a customer agreed to a monthly payment of $275 in principal and interest on her car loan, and arranged for the amount to be deducted from her bank account automatically. If she were not advised about the insurance and it increased her monthly payment to, say, $325, her account could become overdrawn as soon as Wells Fargo added the coverage.

The report tried to determine how many Wells Fargo customers were hurt and how much they should be compensated. It estimated that the bank owed $73 million to wronged customers.

State insurance regulations required Wells Fargo to notify customers of the insurance before it was imposed. But the bank did not always do so, the report said. And almost 100,000 of the policies violated the disclosure requirements of five states — Arkansas, Michigan, Mississippi, Tennessee and Washington….

Requiring borrowers to be insured is common in the mortgage arena, where banks expect customers to carry enough homeowners’ insurance to protect the property backing their loans. The term for the practice is “lender-placed insurance.” Pressing such insurance on auto borrowers, however, is not as common: Representatives of Bank of America, Citibank and JPMorgan Chase said they did not offer the policies, though some smaller banks do.

Compare that $75 million with the $4 million or so in bogus charges in the fake accounts scandal.

And notice that Wells ordered charges to maximize the likelihood of defaulting on principal was called “pyramiding fees” in the days of foreclosure fraud. And Wells engaged in this practice then. Even Bank of America, which had acquired predatory Countrywide, didn’t stoop that low. Here are the details:

According to documents on a Wells Fargo website titled “understanding your auto loan,” the bank had strict rules about the order in which it would apply a customer’s car payment to costs associated with the loan: First to be deducted from a payment would be the interest owed on the car loan. Then the bank would deduct interest charged on the lender-placed insurance. The third deduction would be principal on the loan, followed by the amount of premium owed on the insurance.

This payment structure had the effect of increasing the overall interest borrowers paid on their loans, the Oliver Wyman report noted, because fewer dollars went to reducing the principal outstanding.

And repossessions were a profit center for Wells too:

If a car was repossessed, the bank might charge a reinstatement fee of as much as $500, so a borrower could face $1,500 in charges…

Wells Fargo was also aggressive in repossessing vehicles: Some customers endured multiple repossessions, the report said.

Morgenson also found many complaints in the Consumer Financial Protection Bureau’s database about Wells’ force-placed insurance, such as a borrower providing proof several times that he already had car insurance, yet repeatedly getting harassing calls from Wells employees insisting he owed insurance payments.

Amusingly, Wells’ PR department attempted to minimize what its own consultant found:

Wells Fargo took issue with some of the figures in its own report. In a statement, Jennifer A. Temple, a bank spokeswoman, said the bank determined only 570,000 of its customers may qualify for a refund and that just 60,000 customers in the five states had not received complete disclosures before the insurance placement. Finally, she said, the bank estimated the insurance may have contributed to 20,000 wrongful repossessions, not 25,000.

One has to wonder if the report was leaked to Morgenson because someone at Wells was unhappy about the bank’s plan to fail to compensate all customers that Oliver Wyman identified as harmed.

If you are still a Well Fargo customer, this article should serve as a reminder that you need to become an ex-customer, pronto, for your safety’s sake.

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48 comments

    1. Yves Smith Post author

      They got away with much more heinous foreclosure fraud, but since everyone was doin’ it, they were beneficiaries of the Administration’s “get out of liability almost free” program.

      1. voteforno6

        I had forgotten about that…it’s very difficult to keep track of the myriad of ways that Wells Fargo is terrible.

        1. Ned

          When you see their logo, the Wells Fargo stagecoach,
          think not of the safety of the strongbox up top, guarded by honorable men with shotgun—
          but of you the passenger being robbed by masked men.

          “Wells Fargo, a way to get taken for a ride and robbed.”

          1. wilroncanada

            Wells Fargo slogan:
            There’s a coach leaving in an hour; make sure you’re under it.

          2. Mike G

            Wells Fargo isn’t the stagecoach line anymore, it’s the masked outlaws who hold it up and make off with the strongbox.

  1. TomDority

    Just speculating,
    Must have been a black belt/six sigma project gone typically well….with results showing how money could be saved by omitting pesky checks and balances……an error any company can make since it is so complex

    Just kidding

    Fraud, fraudulent conveyance, pernicious intentional harm….take the gloves off limits to recovery controlled by actual damages

    Let Wells Fargo insure and free and clear title to new vehicles to all scamed.

    Obviously Wells Fargo has not learned anything from previous fraudulent episodes

    1. tegnost

      They learned they can get away with pretty much anything and have their shareholders pay a little fine

  2. PKMKII

    If you are still a Well Fargo customer, this article should serve as a reminder that you need to become an ex-customer, pronto, for your safety’s sake.

    Ah, but there’s the rub, you’re not supposed to cancel whatever your oldest credit card is, lest your credit score takes a hit. Which means I can’t jettison the bastards.

    1. Clive

      Your mileage may vary and the final decision is always down to the individual, but this is an Old Wives’ Tale. It might have been true once, but not now. What can actually hamper your credit score is lack of a “healthy churn” (industry-speak, not mine). If you keep old lines of credit going more-or-less in perpetuity, it can be seen as a sign that you think you can’t get new credit elsewhere.

      While you can have too much churn, too little is just as bad in the eyes of the scoring algorithms.

      1. Vatch

        I occasionally get new credit card numbers because of fraud. Sometimes I don’t know what the fraud was, because it didn’t affect me at all; I just get a new card, with a note saying that there was a breach somewhere. Does that count as “healthy churn”?

        1. Clive

          Most common cause of that is that somewhere in the card issuance chain (card details allocation at the card issuer, card manufacturer, card packaging and card shipment) there’s been a compromise and the card PAN / expired date / security number and even cardholder address have fallen into the wrong hands. The supply line has gotten to be be long and fragmented, so there’s more hand-offs for data compromise to creep in.

          The entire batch gets cancelled as a precaution, which can be thousands or even tens of thousands of cards.

          It’s not a new account, just a card renewal, which gets triggered so there’s no credit reference agency footprint generated. So no churn there!

    2. lyman alpha blob

      Why not?

      I haven’t had a credit card in decades and still have a very high credit score. Didn’t have a credit card when I started looking to buy a house so in order to show some credit activity, I got an Overdraft Line of Credit (aka an ODLOC) with my credit union. This is credit attached to your checking account so that if you bounce a check, you are only charged interest on the amount you overdrew (plus sometimes a small fee). At the time I took it out, my CU didn’t charge the fee at all so I could purposely overdraw by say $100 and just pay it back plus under a dollar in interest and establish some credit history. They’ve since changed policy and there is now a $5 fee plus interest for each instance that you use the ODLOC but it still beats the heck out of a $35+ fee for each check.

      All banks and credit unions that I’m aware of have ODLOCs as an option but guess what, they probably won’t tell you that because this product is actually beneficial to the customer and saves them quite a bit in fees they might otherwise have had to pay to the bank.

      Been a while since I worked at a bank but IIRC you get get a line like this for up to a few thousand dollars so it functions as a low limit credit card. The APR is in the neighborhood of 15% on these credit lines which is less than many credit cards I’d imagine.

      What’s not to like? As long as you’re not hugely spending beyond your means you’ll never need a credit card again if you have one of these.

      1. bob

        There has been a lot here about those “credit lines” attached to checking accounts. The banks loved them. Huge money makers. Fees, fees, fees

        They even admit to gaming the timing of payments records to maximize the hit on the credit line. Charges that should have gone through first, are held if a larger charge is made later, to get 2 overdraft fees.

        Lots here on NC prior on the abuses.

  3. voteforno6

    Reading the underlying article, this stood out:

    Among the Wells Fargo customers hurt by the practice were military service members on active duty.

    Active duty service members would’ve had access to USAA insurance, which I’m guessing is infinitely better than the policies foisted on them by Wells Fargo.

    1. Bottom Gun

      It is. I have no idea why any service member or veteran touches Wells Fargo with a barge pole, particularly when USAA is available.

  4. Arizona Slim

    Whatever happened to the Move Your Money campaign? Really popular about a decade ago, and then it disappeared.

    1. anon

      Whatever happened to criminal prosecutions for fraud? Every county, state and federal prosecutor takes an oath that should compel them to act in these cases. Those that are too stupid to understand that are incompetent and should resign, those that are so corrupt they refuse should themselves be prosecuted for official misconduct (and if retired stripped of their pensions and licenses to practice law).

      1. Curt.J

        A little hard to write a speaking fee check to a former president if you are behind bars.

    2. Carla

      It’s really hard to find any community bank or credit union that hasn’t been greatly crapified since the first decade of this century, at least here in the Great State of Ohio (wholly owned subsidiary of the FIRE sector). Many of them nickel- and dime- you to death with fees. Credit unions in California seem to be stronger and less predatory toward the average “member” than here, and so it’s possible that “move your money” is a more meaningful campaign in some states than others.

      1. John Parks

        Fees and more fees caused me to take my business account from Wells Fargo. The fees were just on checking account administrative fees (they said “transactions”) but the number of checks I wrote averaged less than 30/month. I was charged over 90 bucks a month on one account. I went to a local credit union and they pay me interest of 50/month on my account balance. That is a $140.00 per month swing in my favor. (Almost 1700.00 per year) I still have my card with WF because of the “cash back” credits I get but the account still gets charged 14/month for the one transaction I make to take care of the business credit card payment. The card issuer gives me 2-300/mo in cash back that my credit union can’t match.

  5. jfleni

    RE: Wells Fargo at It Again, Stuck Over 800,000 Customers With Unnecessary Car Insurance.

    How long does it take before WELLS-****off is finally judged to be a menace to everybody, and and treated accordingly?

  6. Sue

    “..such as a borrower providing proof several times that he already had car insurance, yet repeatedly getting harassing calls from Wells employees insisting he owed insurance payments”

    I am going through this every year with my mortgage reps. No matter I provide them with proof I have plenty of homeowners insurance coverage or my insurance carrier does so, they keep harassing me ,and regardless, they add the “lender-placed insurance” to my account. It was a nightmare to have them reverse all insurance related posted transactions. Very frustrating, year after year dealing with them.

  7. Jason Boxman

    They recently offered a new account bonus, which I took full advantage of. Once the minimum account length threshold has passed, I’ll close it and recover the funds needed to prevent the monthly fee from kicking in. In a few 1,000 years I will have recovered my share of the ’08 WallStreet bailout. Thanks Obama!

    1. tegnost

      They opened a fake secured credit card for me (as in they removed money from my account without my knowledge). You’re dancing with the devil. They also did it to my boss, we’re talking pervasively fraudulent behavior that would put you or me behind bars. No one should trust them. No one.

  8. FluffytheObeseCat

    Has Wells Fargo experienced any notable loss of retail business since their systemic fraud practices hit the news? I haven’t read any article(s) about their customer retention rates or heard of any hits showing in their P & L statements. If there are going to be discernible effects, they should be visible in published reports by now. Their stock was essentially untouched by the false accounts scandal.

    Despite the apparent lack of repercussions, if extreme, anarchic caveat emptor becomes the norm in all retail industries throughout the U.S., it will eventually damage the economy. I suspect a shrewd minority of consumers already buy less – overall – in the way of goods and services than they might wish to, based on their legitimate fear of being without recourse when swindled. Once a given family (or other) consuming unit has been damaged by significant fraud, the decision makers within the unit will do like Mark Twain’s famous cat, and never “sit on a stove again”, whether it’s flaming hot or not.

  9. polecat

    Wells Fargo’s banking charter should immediately be revoked !! They are beyond redemption !

  10. shinola

    “Representatives of Bank of America, Citibank and JPMorgan Chase said they did not offer the policies…”

    Oh, really?

    In 30+ years of writing auto insurance, I never once encountered any bank or other entity making auto loans that would not “force place” physical damage insurance if the borrower did not obtain it on their own (and roll the premium cost into the loan).

    I suppose that it could be a “technically accurate” statement – the banks don’t actually offer or issue the insurance. The coverage is placed through a 3rd party insurance co. such as National General.

  11. fco

    Would a call for pulling out accounts be detrimental for the employees of Wells Fargo? I’d rather see a concerted effort to replace the CEO’s… board members etc.( including maybe some harsh time behind bars?)

    1. NotTimothyGeithner

      Yeah, this is one of the costs of a boycott.

      The bus drivers of the Montgomery Bus system were affected even if they weren’t racist themselves. Without the fares, the operating budget collapsed. Many whites who rode the bus faced the potential loss of a bus system. The lunch counters which faced sit-ins weren’t anti-black. They were simply following unjust laws of Jim Crow. They were actually black friendly establishments, and yes, their bottom line was hurt. In the end, the owners of the establishments made a decision of whether they were full of family blog or whether they were on the side of justice. No, these weren’t millionaire or Clinton Foundation donors.

      I know Shrub used the line, but there does come a point where “you are with us or against us” is a decision people have to make. Wells Fargo, like HMOs who hide behind doctors and nurses, hides behind friendly tellers. Kings behind soldiers. And so on so forth.

      When King described the great “white moderate” as the stumbling block of progress, he meant your attitude (also the black ministers; it was a dog whistle too.). People are being defrauded. I know the little tellers are dependent on their jobs, but they are part of the fraud.

      What is your proposal for a concerted effort to replace the CEOs without affecting the business? I hate to quote the bible, but “there is nothing new under the sun.” If the bottom line is affected, the CEOs won’t change. Its the same in politics with expecting Democrats to learn their lesson.

    2. NotTimothyGeithner

      The arrest of a CEO would probably crush the valuation of a company and hurt its potential to attract new customers which would also harm the little people at a company.

      1. fco

        NotTimothyGeithner, the arrest of CEOs will probably make people more confident on regulators who ought to do the jobs they were meant to do. Wouldn’t you be ecstatic? I know I will. (not that someone will end up in jail, but that regulators do their job)…hmmm, maybe I should be frustrated with the regulators, it is their lack of enforcement that allow fraud to happen.

        1. NotTimothyGeithner

          In the regulators, yes, not the company. Those are two different things. Its a nice try at deflection.

          Do you have an idea of how to bring pressure onto a company without affecting its profits? =

          1. fco

            NotTimothyGeithner (EvenThoughIWishYouWere), are you really trying to make me think on a Friday afternoon? Why don’t you just tell me the answer :) ? (but if you insist, my naive answer is “no, I don’t have a stinkin clue, but I’m judging it must be terribly difficult to bring pressure onto a company, especially if your investments/retirement/future job depend on its profits).

            1. fco

              And one more thing NotTimothyGeithner, nowadays, there are just too many “you are with us or against us” scenarios that I feel it may be an easy way out of things. An easy deflection of sorts, instead of hammering out options and safeguards for those who are inadvertently affected by binary choices.

  12. Tim

    Apparently it’s impossible to pull a banking license in this country.

    Can states do it?

    Having the potential to lose your right to do business would certainly be a good motivator to abide by the law, and could likely be done without destroying the asset of those that have been banking with them.

    Wells Fargo would be a good bank to make an example with.

    But I’m sure they have changed their ways and are infinitely sorry.

  13. DiModica's Dumb Steer

    If HSBC was able to transact with Middle East nation-states considered to be terrorist sponsors, and launder somewhere in the neighborhood of a billion dollars for Mexican cartels without so much as a slap on the wrist, I somehow doubt this will register much outrage in Congress (other than what’s expected).

    Their entire C-Suite would have to march up to Washington, pull a full Shkreli, and gleefully take a dump on the tables of the House and Senate before anyone even considered sanctions that would harm the bank, let alone something so major like pulling their banking charter.

    Neither HSBC nor Wells (nor any subsidiaries, partners. spin-offs, or otherwise) should be allowed to transact in the US after all the crap they pulled.

  14. Off The Street

    Wells Fargo cross-selling has some precedent in their merger years ago into Norwest Bank, one of the masters at that practice. (The surviving entity kept the Wells name.). There is some benefit to cross-selling where the customer enjoys greater convenience and one-stop shopping, but that line can be crosses or obliterated when dark forces pursue their economic moat strategies with abandon. Where was the board, along with folksy ol’ Mr. Buffett, when the issues in the intervening years cropped up? I hope that the various regulators wring them out.

  15. Tyronius

    The major banks pay for the campaigns of the politicians who then choose the regulators who look the other way when blatantly fraudulent activities are uncovered. If they attempt to hold the banks accountable, the politician, fearing loss of campaign funds or even being primaried by an opponent funded with those same campaign contributions, will discipline it remove the ‘offending’ regulator.

    So in this way, Citizens United seems to have wrecked any kind of moral or legal accountability in both the regulated industries and those who are charged with regulating them.

    Major customers, the 1%, get treated with much more care because their business is far more significant than that of the average prol, and because they’re more likely to be well connected.

    Sooooooo the average consumer no longer matters.

    I’m right to keep my money under my mattress instead of in a bank and hold no loans at all…

    Until the Feds come and take my cash savings because since it’s cash I must be up to no good. I can then spend money I no longer have on a long legal battle to beg for my own money back- minus fees, of course.

    Catch 22! Where is Joe Heller when we need him?

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