Having car insurance is helpful, and in most cases it’s mandatory. But having coverage you didn’t sign up for can wreak havoc on your finances.
Wells Fargo recently announced that it will pay about 570,000 auto loan customers around $80 million after many insured borrowers were forced to purchase unnecessary coverage. About 20,000 people who defaulted on their loans as a result had their cars repossessed, the bank said in a press release.
The news comes weeks after a judge gave an initial OK to a settlement with Wells Fargo customers over unauthorized bank and credit card accounts opened in their name. And it comes months after borrowers in bankruptcy sued Wells Fargo for modifying mortgages without permission.
Customers may have already had insurance
Here’s how the auto insurance program went astray, according to the bank:
- Auto loan customers are required to maintain insurance coverage throughout the term of the loan.
- If Wells Fargo found no evidence the borrower had purchased coverage, it would purchase collateral protection insurance on their behalf.
- Some customers “may have been charged premiums” even though they had their own auto insurance.
- Those premiums “may have contributed” to a loan default and subsequent repossession.
A report from Oliver Wyman, a global consulting firm, says more than 800,000 debtors were affected by issues with the program, which Wells Fargo ended in September 2016. Many customers were hit with overdraft fees and late payments, and some — who had funds automatically withdrawn from their accounts — never realized they were paying for additional insurance.
To avoid facing a similar situation, review bank statements and anything you receive from your lender. If you have automatic bill pay, taking those extra precautions is particularly important.
“I think there’s a false sense of security that comes with putting something on autopay that tends to lead people not to pay as close of attention to that account as they should,” says Chris Kukla, an executive vice president at the Center for Responsible Lending.
Wells Fargo will begin sending letters and issuing refunds in August. Reimbursing everyone — including thousands of customers who should have received full disclosures but didn’t — will likely continue through the end of the year.
While you’re waiting for your refund, request a free copy of your credit reports. The bank said it would contact credit reporting agencies and address credit problems.
Repossessions and delinquencies can lower your credit score. But once they’re removed, John Ulzheimer, credit expert and president of the Ulzheimer Group, says they should no longer hurt you.
“The minute Wells has that stuff deleted, then the credit scores are going to adjust appropriately and that’s it,” he says. “No more problems.”
Some auto loan customers have arbitration agreements in their contracts. That means getting your day in court may be difficult.
But it’s not impossible. A potential class action lawsuit filed in San Francisco claims Wells Fargo engaged in fraud and racketeering.
Subpoenas also have been sent by New York state regulators. They request information from the company that issued the unnecessary insurance, Wells Fargo and its consultant Oliver Wyman.
And in a regulatory filing with the U.S. Securities and Exchange Commission, Wells Fargo said issues with its auto lending practices may result in “formal or informal inquiries, investigations or examinations from federal, state and/or local government agencies, and may also subject the Company to litigation.”
The bank’s board of directors is conducting a review of its structure and operations. A separate review of its sales practices was recently expanded.
Taking matters into your own hands
A new Consumer Financial Protection Bureau rule — which the House of Representatives voted to repeal — would make it easier for individuals to join together and sue banks. But even if the rule is implemented, it would only apply to future contracts, not existing ones.
For now, Wells Fargo auto loan customers should file complaints with the CFPB and the Office of the Comptroller of the Currency, says Ed Mierzwinski, the federal consumer program director and senior fellow for the U.S. Public Interest Research Group.
Contacting your state’s attorney general is another option.
“If they receive multiple complaints from consumers in their state, that attorney general can often intervene with the lender to try to make things right,” Kukla says. “So at least if people call in to their attorney general, oftentimes if they are acting on behalf of even a couple of consumers, they may have some leverage as well.”