Wells Fargo Faces Auto-Loan Headache -- WSJ
09 August 2017 - 5:03PM
Dow Jones News
Bank's new regulatory scrutiny concerns insurance sold through
auto dealerships
By Emily Glazer
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 9, 2017).
Wells Fargo & Co. is facing more regulatory scrutiny related
to auto-insurance practices.
The latest questions concern guaranteed asset protection the
bank sold through car dealerships, a person familiar with the
matter said.
The San Francisco Federal Reserve made an inquiry about control
breakdowns related to those matters, the person said. The Office of
the Comptroller of the Currency is also probing the practices,
people familiar with the situation said.
The insurance products offer consumers additional protection
beyond standard auto insurance policies and are often financed as
part of the customer's loan.
For instance, if a customer has an accident and the vehicle is
totaled, so-called GAP insurance could help pay off the loan
balance not covered by the customer's primary insurance.
The San Francisco Fed, one of several regulators overseeing
different parts of San Francisco-based Wells Fargo, focuses on
safety and soundness of banks, such as compliance and controls. The
latest inquiry didn't trigger a new investigation and was part of
the overall supervisory process, the person added.
Wells Fargo spokeswoman Catherine Pulley said in a statement:
"During an internal review, we discovered issues related to a lack
of oversight and controls surrounding the administration of
guaranteed asset protection...products."
Borrowers are entitled to a refund of some of the GAP insurance
if loans are paid off early.
Ms. Pulley added the bank is working to make the customer refund
process "more consistent for customers" and pointed to the bank's
disclosures about these issues in its most recent quarterly filing
in efforts to be more transparent.
Ms. Pulley declined to comment on how many customers might be
impacted or when these issues began.
The New York Times earlier reported the San Francisco Fed's
inquiry into Wells Fargo on the matter.
This is the most recent headache for Wells Fargo. The bank said
in late July it is refunding around $80 million to as many as
570,000 auto loan customers over other insurance practices known as
collateral protection insurance. The Wall Street Journal reported
Friday that the Office of the Comptroller of the Currency is
considering taking further action in light of those insurance
revelations, although it isn't clear yet what form that could
take.
That is on top of the bank's sales-practices scandal that
erupted about a year ago and resulted in a settlement,
congressional hearings and the departure of then-Chief Executive
John Stumpf. Several investigations related to that settlement
continue; the bank has said it is cooperating.
In the bank's quarterly filing with the Securities and Exchange
Commission, disclosed Friday, Wells Fargo said issues related to
auto loans "may subject the company to formal or informal
inquiries, investigations or examinations" from federal, state or
local government agencies, as well as potential litigation. The
bank said the scrutiny included questions about origination,
servicing, collection of loans and related insurance products.
The bank gave further detail, writing that it "has identified
certain issues related to the unused portion of guaranteed auto
protection waiver or insurance agreements....which may result in
refunds to customers in certain states."
Laws in nine states require customers get refunds for unused
coverage periods and the holder of the contract ensures the refund
is made properly. Wells Fargo is evaluating its internal controls
to confirm if the refunds weren't adequate, the person said.
The bank's auto division, Wells Fargo Dealer Services, is
adjusting its so-called GAP insurance products to ensure customers
get the appropriate refunds or claim benefits if loans end early or
if they file claims, the person said.
Wells Fargo is taking over management of issuing refunds to
customers with GAP products whose loans end early, the person said.
Typically, that has been handled by the dealerships.
In June, the bank began issuing GAP refunds in several states
where customers paid off their loan early, the person said. The
bank plans to expand that effort across the country.
Ryan Tracy contributed to this article.
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
August 09, 2017 02:48 ET (06:48 GMT)
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