Wells Fargo Dealer Services disclosed on Friday that it is now facing scrutiny over its guaranteed asset protection (GAP) insurance refund policies, in addition to last month’s revelation of that it would pay back consumers over errant collateral protection insurance.
Wells Fargo Dealer Services is a unit of Wells Fargo & Co., the giant San Francisco-based bank.
The Federal Reserve Bank of San Francisco is inquiring about the lender’s GAP insurance policy in nine states, and Wells Fargo itself disclosed that it has identified “certain issues” related to the practice in filings with the Securities and Exchange Commission on Friday.
Specifically, certain state laws require that consumers who purchased GAP insurance and paid off their loan early are entitled to a refund of a portion of the GAP insurance premium, according to a report from The New York Times on Monday. Those consumers may not have received the refunds they were owed.
Those states include Alabama, Colorado, Indiana, Iowa, Maryland, Massachusetts, Oklahoma, Oregon, and South Carolina. It is still unclear how many consumers are affected or how much they are owed.
“During an internal review, we discovered issues related to a lack of oversight and controls surrounding the administration of guaranteed asset protection products,” Wells Fargo Dealer Services told Auto Finance News in a statement. “We believe we can make the refund process more consistent for customers in the future and make things right for customers in the past. We promised to be transparent in our efforts to fix problems and build a better Wells Fargo, and our disclosure of this issue in our [SEC filing] is an outcome of that promise.”
This inquiry into GAP insurance is separate from the $80 million in remediation payments to 570,000 borrowers who were unknowingly charged for collateral protection insurance even though they had already purchased a policy elsewhere. That practice pushed some 274,000 borrowers into delinquency and caused 20,000 wrongful repossessions, Wells Fargo said last month. An internal report commissioned by the bank found 800,000 affected consumers and 25,000 wrongful repossessions.
Today, the California Department of Insurance opened an investigation into the lender’s CPI practices.
“These and other issues related to the origination, servicing and/or collection of indirect consumer auto loans, including related insurance products, may subject the company to formal or informal inquiries, investigations, or examinations from federal, state and/or local government agencies, and may also subject the company to litigation,” Wells Fargo wrote in its SEC filing.
Wells Fargo’s CEO Timothy Sloan addressed some of the regulatory hurdles the company faces from its auto insurance practices in a public letter to employees last week.
“To regain the trust we have lost, we must continue to be transparent with all our stakeholders and go beyond what has been asked of us by our regulators by reviewing 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,” he wrote. “We can expect more headlines as we fulfill our commitment to identify and fix problems and make things right for our customers.”
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