Arkansas officials ‘looking into’ allegations that Wells Fargo defrauded car loan customers

A spokesman for the Arkansas Insurance Department (AID) has confirmed to Talk Business & Politics that insurance regulators are looking into allegations that Wells Fargo illegally forced some of its Arkansas car loan customers to purchase auto insurance policies without their knowledge.

The ASID revelation is the latest in a series of unending scandals where the West Coast banking giant has been caught in illegal activity or settled lawsuits where it allegedly defrauded minorities, seniors, mom-and-pop businesses and active military personnel on mortgages, loans and other financial products, and opened millions of fake accounts in order to pad company profits.

In response to a Talk Business & Politics query asking for a tally of how many Arkansas consumers had been harmed by the alleged fraudulent Wells Fargo scheme, AID spokesman Ryan James responded that “we are aware of it and we are looking into it, and that’s all I can say.”

James would not comment on whether state insurance regulators have opened a formal probe of Wells Fargo’s nationwide car insurance scheme, only advising that state insurance regulators had first learned Arkansas consumers might be impacted by the bank’s latest scandal after a New York Times story published July 27.

Wells Fargo spokeswoman Natalie Brown also refused to respond to several questions from Talk Business & Politics concerning the company’s auto insurance program and other banking practices that may have financially harmed Arkansas consumers, referring a reporter instead to a company landing page that offered the company’s own bylined article explaining the scandal.

PREMIUM PROBLEMS
According to Wells Fargo Dealer Services (WFDS) division, the nation’s third-largest car lender in 2016, customers’ auto loan contracts require them to maintain comprehensive and collision physical damage insurance on behalf of the lender throughout the term of the loan. As permitted under those contracts, Wells Fargo said it would purchase car insurance from a vendor on the customer’s behalf if there was no evidence insurance was already purchased.

However, in July 2016, in response to customer concerns, Wells Fargo initiated a review of its Collateral Protection Insurance (CPI) program and related third-party vendor practices. Based on initial findings that external vendor processes and internal controls were inadequate, the company discontinued the program in September 2016, and has since enacted a remediation plan to address customers’ situations in “a thorough and thoughtful way.”

“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,” the company said in a statement.

In response to the New York Times article July 27, Wells Fargo submitted an 8K filing with the U.S. Securities and Exchange Commission as required by law, and also posted a news release on its website. However, the nation’s third largest bank by assets did not alert the media or public by putting that same information on the national wire as is the company’s normal practice. In the news release, the San Francisco-based banking giant said it planned “to remediate” auto loan customers of WFDS who may have been financially harmed by its CPI car insurance policies.

Wells Fargo said in the company review of CPI policies placed between 2012 and 2017, the banking giant identified nearly 570,000 customers who may have been impacted and will receive refunds and other payments as compensation. Altogether, nearly $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. Wells Fargo said it began last month reaching out to those customers with letters and refund checks.

ARKANSAS ANGLE
According to the New York Times article, there were up to 800,000 people affected by the Wells Fargo auto insurance scheme. That article also noted almost 100,000 of the CPI policies violated the disclosure requirements of five states — Arkansas, Michigan, Mississippi, Tennessee and Washington – requiring Wells Fargo to notify customers of the insurance before it was imposed.

“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 New York Times article said.

Although AID insurance officials declined to offer details on how many Arkansans may have been impacted by the auto insurance duping, James said the New York Times article was the basis of the agency’s decision to begin looking into those allegations more than a month ago.

“We are aware of the reporting of the New York Times of the 100,000 [customers] spread along five states, [but] that’s all that I can say,” the AID spokesman said.

Wells Fargo’s internal messaging put the number of people affected at only 60,000 customers, which was 40,000 customers less than the New York Times article cited.

“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,” the company said.

Wells Fargo’s Brown would not offer an explanation as to why there were discrepancies between the company numbers and the New York Times article on the consumers impacted by the auto insurance scheme nationwide, and in the five states that have specific notification and disclosure requirements coded into state law.

WRONGFUL REPOSSESSIONS
The Times article also said the CPI program forced roughly 274,000 Wells Fargo customers into delinquency and resulted in almost 25,000 wrongful vehicle repossessions, based on a 60-page report the newspaper had obtained detailing the practices of the company’s car loan subsidiary.

In its own marketing materials, Wells Fargo said it has already provided CPI-related refunds to some customers, and last month began sending letters and checks to customers who are due additional payments. That process is expected to be completed by the end of 2017, the company said. In addition, Wells Fargo officials said the company will also report corrected information to credit bureaus by those customers that were harmed.

“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, who replaced former company chairman and chief executive John Stumpf nearly a year ago after the company revealed it had opened more than 2 million unauthorized credit card and bank accounts to pad sales goals. “We are deeply sorry for any harm we caused our customers and remain committed to making impacted customers whole.”

In light of the car insurance scandal, Wells Fargo is scaling back its auto lending practice as U.S. car sales are weakening after an eight-year boon. According to Experian Automotive, Wells Fargo has dropped from the nation’s second-largest car loan originator in 2017 to the seventh spot as new vehicles sales fell 6% in July.  Chase, Ally and Capital One are the nation’s largest bank auto lenders.

The Arkansas State Bank Department (ASBD) does not regulate nationally-chartered banks such as Wells Fargo, but does receive and compile complaints against financial institutions that do business in Arkansas. John Ashby, ASBD’s financial analyst supervisor, said state banking regulators have not received any complaints about Wells Fargo.

“It’s possible someone has called, but we refer national bank complaints to the OCC,” Ashby told Talk Business & Politics.

Federal banking regulators at the U.S. Office of the Comptroller of the Currency (OCC), which is part of the U.S. Treasury Department, also would not comment on matters related to past or ongoing investigations of specific banks or their impact on Arkansas consumers.

“We do not compile state specific data regarding the remediation ordered in (our) enforcement actions,” said Bryan Hubbard, OCC’s deputy comptroller for public affairs.
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Editor’s note: This is the first of three stories about alleged issues involving customer loans through Wells Fargo.