Wells Fargo & Co. Chief Executive Tim Sloan spoke on a number of issues impacting the bank’s auto finance business during a presentation at the 2017 Barclays Financial Services Conference including the forced-insurance scandal, tightened underwriting tactics, and a possible increase in losses due to Hurricane Harvey.
When asked about whether the collateral protection insurance scandal is an industry-wide issue or isolated to the bank, Sloan said it was an issue with the company’s vendor oversight, despite the insurer in question — National General — claiming it was compliant.
“I think the collateral or protection insurance was an operational area,” Sloan said. “We had a vendor that was providing insurance in some cases, the customers they didn’t need it, and we should have caught that and we should have dealt with it. The same vendor hadn’t gotten the proper [CPI] authorizations in five states to provide the insurance we should have got that, we didn’t.”
The bank also continues to assess the impact of its guaranteed asset protection (GAP) refunds. In nine states, Wells Fargo admitted that it failed to properly refund consumers for their policies when they paid off their loan early.
“We’re going to remediate those customers as it relates to GAP insurance in nine states, that is a responsibility of any lender,” Sloan said. “We believe that most of our customers receive those refunds, but we can’t absolutely prove it and so we have got to go back and make sure that it’s right for those customers.”
Separately, Wells Fargo has been tightening its auto portfolio and Sloan presented updated numbers on those efforts. In the last year, Wells Fargo Dealer Services’ portfolio has declined by $4 billion, but the quality of loans has improved, Sloan argued. Average quarterly Fico at origination was 719 in the second quarter, up from 696 a year ago, and loan yields are up 20 basis points year over year.
The company was expecting loss rates to be less severe in the third quarter, but with Hurricanes Harvey and Irma damaging large markets for the lender, loss rates could be on the rise.
“Because of the changes that we made in our auto business, we experienced a slight decline in auto losses,” Sloan said. “I would caveat the expectations for the third and the fourth quarter in that, there are a lot of cars right now that are underwater in Texas and in Florida, and so there may be some issues there. We do not have a sizing of that right now, I don’t think anybody does.”
For more content like this, check out the 17th annual Auto Finance Summit, which will take place on Oct. 25-27 at the Wynn Las Vegas. To learn more about this year’s event — or to register — visit the Summit’s homepage here.
Correction: A version of this article previously stated that National General was the provider of GAP insurance in the nine states impacted. In fact, Wells Fargo claims that National General failed to get proper collateral protection insurance authorizations in five states. GAP coverage is provided by more than 200 different vendors across the lenders dealer network, a spokeswoman confirmed to Auto Finance News.Like This Post