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.