Wells Fargo Announces Plan to Remediate Customers for Auto Insurance Coverage

Insurance Weekly News

By a News Reporter-Staff News Editor at Insurance Weekly News -- Wells Fargo & Company (NYSE: WFC) announced a plan to remediate auto loan 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 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, 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 2017, Wells Fargo 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."

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 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. 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.

In response to customer concerns, in July 2016 Wells Fargo 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 2016. 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," said Codel. "Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole."

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