27 Apr Wells Fargo Fined $1 Billion for Insurance and Mortgage Abuses
Last week brought news that Federal regulators have fined financial giant Wells Fargo $1 billion for wrongly forcing auto loan customers to purchase insurance they didn’t need, and for charging fees to mortgage loan customers for missed deadlines that were Wells Fargo’s fault. The record-setting fine comes on the heels of a finding by the Federal Reserve in February that Wells Fargo committed “widespread consumer abuses” by, among other things, opening up to three and a half million fake customer accounts.
Here is what Wells Fargo did to earn its latest fines:
Wells Fargo’s Mortgage Fee Abuses
In a Consent Order issued on April 20, the Consumer Financial Protection Bureau found that Wells Fargo had wrongfully charged customers fees to extend an “interest rate lock” period. Like many banks, Wells Fargo offered mortgage loan customers the option of paying a fee to “lock” an interest rate for a certain period of time. A lock protects against interest rates rising during a fixed period of time between when the customer applies for the loan and when the loan closes. If the loan doesn’t close within the lock period, the lock can be extended for an additional “extension fee”.
According to the Consent Order, Wells Fargo’s internal policy was to charge an extension fee whenever a delay in closing was the customer’s fault or because of certain property-related issues, but not to charge the fee if Wells Fargo was at fault for the delay. In practice, however, Wells Fargo quickly recognized that its policy was far too vague to give its loan officers adequate guidance on determining “fault”. As a result, over a three year period, Wells Fargo knowingly charged numerous mortgage customers an extension fee when it was the bank’s fault that their loans had not closed.
Wells Fargo’s Auto Insurance Abuses
The Consent Order also found that Wells Fargo forced hundreds of thousands of auto loan customers to purchase auto insurance they didn’t need. When customers took out secured auto loans from Wells Fargo, the loan terms required that they maintain physical damage insurance on the vehicle. Wells Fargo hired a third-party vendor to make sure these customers actually carried the required insurance. Whenever the vendor wasn’t able to confirm that a customer had the necessary insurance, Wells Fargo automatically billed that customer for a “forced” insurance policy. With premiums of over $1,000, the forced insurance wasn’t cheap.
The problem was that Wells Fargo’s vendor didn’t do a very good job of figuring out if customers had the insurance they needed. As a result, Wells Fargo charged hundreds of thousands of customers for forced insurance even though they had their own insurance on their cars. Worse, when it became clear to Wells Fargo and its vendor that those customers should not have been charged for unnecessary coverage, the bank failed to execute a clear and consistent refund policy. Many customers never received refunds they were due. And, even worse still, Wells Fargo later acknowledged that over a five year period at least 27,000 of those wrongfully-charged customers defaulted on their illegally inflated auto loan payments and had their vehicles repossessed.
Lessons Learned from Wells Fargo’s Fine
We understand how you could view the findings in the Consent Order as evidence that banks like Wells Fargo are just plain evil. And, it’s certainly possible some of Wells Fargo’s employees and contractors knew they were doing wrong and harming people.
But, we read the Consent Order as just another example of how individual consumers get hurt when big financial institutions do a sloppy job, when oversight is lax, and when no one is held accountable. It’s not that anyone necessarily wanted to do wrong. It’s just that Wells Fargo was too disinterested and disorganized to treat its customers right.
At R&A Associates, we know how frustrating it feels when you’re one of those poorly-treated customers. Whether you’ve received a foreclosure notice on your house even though the mortgage is current, or have been charged fees you never agreed to pay, the effort it takes to sort things out can seem overwhelming.
That’s where we come in. We have years of experience helping our clients protect their rights from being trampled by financial institutions. If you find yourself on the wrong end of a foreclosure proceeding, or in any other dispute with your bank over an issue that feels similar to the ones above, contact us today.