Wells Fargo & Co. (NYSE:WFC) is under new pressure to answer for enrolling unknowing borrowers in costly auto insurance for years. It is believed that around 800,000 Wells Fargo auto borrowers were improperly charged for insurance from January 2012 to July 2016. The added cost of insurance reportedly pushed 274,000 customers into delinquency, and led to at least 20,000 wrongful repossessions.
The auto insurance problem had come to light internally in July 2016 after the auto lending business began receiving an unusually high number of complaints. Since 2012, the U.S. Consumer Financial Protection Bureau (CFPB) has received 1,826 complaints about Wells Fargo vehicle loans or leases. Wells Fargo told the Office of the Comptroller of the Currency and two other regulators about the problem “very promptly” after receiving the customer complaints and shut down the program in September.
There are questions as to why Wells Fargo did not disclose the problems sooner. An April report by the board of directors following an internal investigation into improper sales practices in its retail banking operation did not mention auto insurance problems. There was also no mention of the problems while executives were presenting at conferences, hosting calls to discuss quarterly results, or holding discussions during the bank’s day-long investor event in May.
Wells Fargo didn’t disclose the auto insurance issue in regulatory filings or financial statements because the lender didn’t consider it material, according to a person with knowledge of the matter. Franklin Codel, head of consumer lending, said Wells Fargo planned to delay public disclosure until it could notify affected customers and reimburse them. The company reportedly plans to return $80 million to 570,000 customers who qualify for a refund. Wall Street analysts expect the financial damage to go beyond the $80 million in reimbursements.
The latest news rattled investors and sent the company’s stock down 2.6 percent. New York City Comptroller Scott Stringer called the fiasco a full-blown scandal. He said, “It’s unbelievable, outrageous, sad, and yet quintessential Wells Fargo. This isn’t just a corporate debacle. It’s caused real human harm.”
The auto insurance issues come on the heels of a massive account scandal that rocked the company and led to the ouster of its longtime CEO. The accounts scandal erupted publicly in September after Wells Fargo paid $185 million in fines to regulators. That scandal has cost the bank at least $520 million in fines, remediation, consultants and civil litigation so far.