State is prob­ing Wells Fargo

Bank is in­ves­ti­gated over un­needed auto in­sur­ance poli­cies.

Los Angeles Times - - BUSINESS - By James Ru­fus Koren

The bank is be­ing in­ves­ti­gated over auto in­sur­ance poli­cies it forced bor­row­ers to pay for.

Cal­i­for­nia’s in­sur­ance reg­u­la­tor is in­ves­ti­gat­ing Wells Fargo & Co. over the bank’s re­cent ad­mis­sion that it forced hun­dreds of thou­sands of auto loan bor­row­ers to pay for in­sur­ance poli­cies they didn’t need and of­ten didn’t know about.

In­sur­ance Com­mis­sioner Dave Jones said Tues­day that he had or­dered the Cal­i­for­nia Depart­ment of In­sur­ance to in­ves­ti­gate Wells Fargo and in­sur­ance provider Na­tional Gen­eral In­sur­ance Co. to see if the com­pa­nies broke state laws.

“These most re­cent rev­e­la­tions by Wells Fargo are par­tic­u­larly trou­bling,” Jones said in a state­ment. He added that the depart­ment would “seek cor­rec­tive ac­tion and penal­ties in the event that Cal­i­for­nia's con­sumer pro­tec­tion laws were vi­o­lated.”

The bank and Na­tional Gen­eral are al­ready un­der in­ves­ti­ga­tion by the New York Depart­ment of Fi­nan­cial Ser­vices, which last week sub­poe­naed records re­lated to the in­sur­ance poli­cies.

Jones’ depart­ment is also con­tin­u­ing to in­ves­ti­gate an al­le­ga­tion that Wells Fargo signed up cus­tomers for Pru­den­tial life in­sur­ance without their knowl­edge.

The auto in­sur­ance poli­cies in ques­tion, for cov­er­age called col­lat­eral pro­tec­tion in­sur­ance, are some­times taken out by lenders when auto loan bor­row­ers don’t have in­sur­ance of their own. But Wells Fargo ac­knowl­edged late last month — a day af­ter the New York Times pub­lished a story cit­ing an in­ter­nal re­port — that more than 500,000 bor­row­ers were ei­ther forced to pay for these poli­cies de­spite hav­ing their own cov­er­age or were not prop­erly no­ti­fied about the poli­cies.

The bank said that for about 20,000 cus­tomers, the added cost of un­nec­es­sary or hid­den in­sur­ance poli­cies may have contributed to loan de­faults and re­pos­sessed ve­hi­cles. Wells Fargo will pay about $80 mil­lion in re­funds and other pay­ments to bor­row­ers, in­clud­ing spe­cial pay­ments to those who lost their cars “as an ex­pres­sion of our re­gret for the sit­u­a­tion,” the bank said in a state­ment.

A bank spokes­woman de­clined to com­ment on Jones’ in­ves­ti­ga­tion.

In a sep­a­rate mat­ter, the bank has also ac­knowl­edged prob­lems with an­other type of auto in­sur­ance pol­icy, the lat­est in a grow­ing list of is­sues the bank has iden­ti­fied in the 11 months since a scan­dal over the unau­tho­rized cre­ation of check­ing, sav­ings and credit card ac­counts spurred a wave of in­ter­nal re­views.

In a Se­cu­ri­ties and Ex­change Com­mis­sion fil­ing last week, the bank men­tioned prob­lems with guar­an­teed au­to­mo­bile pro­tec­tion, or GAP, in­sur­ance poli­cies. These poli­cies cover the dif­fer­ence be­tween a car’s value and the amount a bor­rower owes on it — the idea be­ing that if a bor­rower wrecks a car, the in­sur­ance pol­icy cov­ers the dif­fer­ence be­tween the re­main­ing pay­ments due and any pay­out from the bor­rower’s reg­u­lar in­sur­ance.

The poli­cies are sold by deal­er­ships and ar­ranged through third-party in­sur­ance com­pa­nies, but the cost of the poli­cies is of­ten wrapped into the car loan. If bor­row­ers pay off a loan early, they no longer need the in­sur­ance and are sup­posed to get a re­fund.

That re­fund typ­i­cally comes from the deal­er­ship, but in some states the lender is re­quired to make sure re­funds are made. In last week’s SEC fil­ing, Wells Fargo said that it had “iden­ti­fied cer­tain is­sues re­lated to the un­used por­tion of guar­an­teed au­to­mo­bile pro­tec­tion waiver or in­sur­ance agree­ments” and that the is­sues “may re­sult in re­funds to cus­tomers in cer­tain states.”

Wells Fargo spokes­woman Catherine Pul­ley said an in­ter­nal re­view un­cov­ered a “lack of over­sight and con­trols” in the ad­min­is­tra­tion of the GAP in­sur­ance prod­ucts. The bank is still try­ing to de­ter­mine how many bor­row­ers might have been af­fected.

“We be­lieve we can make the re­fund process more con­sis­tent for cus­tomers in the fu­ture and make things right for cus­tomers in the past,” Pul­ley said.

The New York Times re­ported Mon­day that the Fed­eral Re­serve is in­ves­ti­gat­ing the GAP in­sur­ance mat­ter, though a Fed spokesman said other reg­u­la­tors would have “pri­mary and di­rect over­sight in the area” and that the Fed does not com­ment “on con­fi­den­tial, firm-spe­cific matters.”

In a let­ter to Wells Fargo em­ploy­ees last week, Chief Ex­ec­u­tive Tim Sloan said the bank must re­view “all of our op­er­a­tions — leav­ing no stone un­turned — so we can be con­fi­dent we have done all that we can do to build a bet­ter, stronger Wells Fargo.”

Pa­trick T. Fallon For The Times

IN­SUR­ANCE COM­MIS­SIONER Dave Jones, above in 2015, has or­dered the Cal­i­for­nia Depart­ment of In­sur­ance to in­ves­ti­gate Wells Fargo and Na­tional Gen­eral In­sur­ance Co. to see if the com­pa­nies broke state laws.

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