Our attorneys are investigating allegations that Wells Fargo charged auto loan consumers for auto insurance that they did not want or need, and failed to refund insurance money owed to people who paid off their car loans early.
Have a car loan through Wells Fargo?
You may be impacted by our lawsuit investigation if:
- You have a car financed through Wells Fargo
- Wells Fargo took out an auto insurance policy on your car without your knowledge or when you already had one
- Wells Fargo failed to refud GAP insurance money to you when you paid off your car loan early
- Your car was repossessed
Speak with a consumer protection attorney.
All consultations free and confidential.
Wells Fargo's Force-Placed Insurance
Force-placed or lender-placed insurance is an insurance policy that a bank buys at the borrower’s expense, claiming the right to do so under the loan contract. Lawsuits have already occurred in the mortgage context over force-placed insurance clauses, which allow the bank to take out home insurance policies for consumers who don’t have them, without their approval. The bank then adds the cost of this insurance to the home loan amount, increasing the monthly payment.
As The New York Times reports, force-placed insurance clauses are “common in the mortgage arena,” but “not as common” for auto loans: representatives for Bank of America, Citibank, and JPMorgan Chase said their banks did not force-place insurance for auto loans.
However, the NYT recently reported that over “800,000 people who took out car loans from Wells Fargo were charged for auto insurance they did not need.” Wells Fargo allegedly forced insurance on these 800,000 people even though they already had their auto own insurance policies. According to the NYT, the “expense of the unneeded insurance, which covered collision damage, pushed roughly 274,000 Wells Fargo customers into delinquency and resulted in almost 25,000 wrongful vehicle repossessions.”
The NYT obtained these numbers from a 60-page Wells Fargo internal report, written by a management consulting firm for the bank’s top executir
Forced Insurance Earned Wells Fargo Commissions, Increased Interest Profits
The NYT reports that Wells Fargo began force-placing insurance on auto loan customers in 2006, issuing the policies through an insurance company called National General Insurance. National and Wells Fargo split the commissions on the insurance forced upon Wells Fargo borrowers, the NYT reports, until 2013.
Starting in 2013, Wells Fargo allowed National to keep the full commissions, but, according to the NYT, Wells Fargo still profited from the force-placed insurance because it increased some customers’ loan principal, which raised the amount of interest that Wells Fargo collected on their loans.
Customers Weren’t Notified When New Policies Were Placed
The report indicated that many of the 800,000 people did not seem to realize that they were being charged for force-placed insurance. The NYT suggests “this may have been because their payments were deducted automatically from their bank accounts and they did not spot the charges.”
The NYT reports that when a customer financed their car, National was supposed to “check a database” to see if the owner already had insurance coverage. If the database said the customer did not have insurance, National “would automatically impose coverage on the customers’ accounts,” the NYT reported. The paper further reported they would do this, even though “state insurance regulations required Wells Fargo to notify customers of the insurance before it was imposed.”
What is GAP Insurance?
In addition to force-placing auto-insurance policies on auto loan customers, Wells Fargo may have failed to properly return GAP insurance money to certain customers with car loans.
Short for guaranteed asset protection, GAP insurance is designed to make up the difference between the sale price of a car and its current market value. GAP insurance ensures borrowers won’t owe anything on their car in the event it is destroyed or stolen. Aptly named, GAP insurance makes up for the gap between the amount your regular car insurer will pay and the outstanding balance on your auto loan.
GAP insurance is typically not mandatory when financing a vehicle, although it may be required when leasing. But, auto dealers often vehemently encourage borrowers to pay for optional GAP insurance. At some dealerships, the car salesman may get a bigger commission if you select GAP insurance. At other dealerships, you may not be given an explicit choice about whether to get GAP insurance. The GAP insurance (and its cost) may be buried somewhere in the fine print of the auto loan agreement. You might have purchased GAP insurance without even being aware of it.
Federal Reserve Investigates Wells Fargo GAP Insurance
As reported by the NYT, regulators from the Federal Reserve are investigating Wells Fargo for “not refunding insurance money owed to people who paid off their car loans early.” As the NYT explains,
When borrowers pay off the loans early, they are entitled to a refund of some of the GAP insurance premium because the coverage they paid for is no longer needed.
Depending on how early they paid off the auto loan, borrowers could be entitled to refunds of between $400 to $600. Wells Fargo may owe many to numerous borrowers: according to the NYT, “tens of thousands of customers may have been affected by the bank’s actions on GAP insurance.”
Wells Fargo Uncovers ‘Issues’ with GAP Refund Process
In a statement, Wells Fargo admitted that “an internal review” of its “GAP refund process” had uncovered “issues related to a lack of oversight and controls” over the bank’s dealerships. A spokeswoman for Wells Fargo stated that the bank is currently assessing how many customers may have been affected by problems in the GAP refund process.
The NYT reports that laws in nine states specifically require that “customers get unused insurance money back.” Those states are: “Alabama, Colorado, Indiana, Iowa, Maryland, Massachusetts, Oklahoma, Oregon and South Carolina.”
GAP Refund Failures Harm Borrowers with Repossessed Cars
In addition, people with Wells Fargo auto loans who had their cars repossessed may have been harmed by the bank’s failure to refund GAP insurance money, the NYT explains, because the lack of reimbursement increased “what they owed, a figure that the bank reports to consumer credit bureaus.” The Times continues, “All 50 states require that the amount of unused [GAP] insurance be credited to those borrowers’ accounts, reducing the amount owed.”
Our Commitment to Excellence
Girard Gibbs LLP has earned Tier-1 rankings for Mass Tort and Class Action Litigation and has been named in the U.S. News – Best Lawyers “Best Law Firms” list for four consecutive years since 2013.
We have recovered over a billion dollars for our clients against the world’s largest corporations in cases concerning auto defects, drug and medical device injuries, data breaches, securities fraud, antitrust matters, and employment law violations.
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