Wells Fargo acknowledged Friday that for six years about 570,000 of its customers were charged for auto insurance they didn’t need, potentially driving some to default on their loan and have their cars repossessed.
The San Francisco bank said it would start refunding about $80 million, or about $140 each, to customers next month.
The revelation quickly sparked a backlash from lawmakers still angry after Wells Fargo admitted last year that thousands of its employees had created millions of fake credit card and bank accounts for customers without their knowledge to earn bonuses and meet sales goals.
“No wonder so many hard-working Americans believe the system is rigged against them in Wall Street’s favor,” Sen. Sherrod Brown (Ohio), the ranking Democrat on the Banking Committee, said in a statement. “Wells Fargo has a lot of explaining to do, and we cannot let up until every single customer is made whole.”
Sen. Elizabeth Warren (D-Mass.), a fierce Wall Street critic, renewed her call for the Federal Reserve to force Wells Fargo’s board of directors to resign. “There are surely deep risk management problems at a bank when it opens millions of fake customer accounts and charges nearly a million customers for a financial product they don’t need — all over roughly the same five-year period,” Warren said in a statement. “The Wells Fargo Board is ultimately responsible for that failure, and the Federal Reserve should remove Board members who served during that time period.”
Wells Fargo said the most recent scandal is centered on its auto lending business. Customers’ loan contracts require them to maintain auto insurance and allow the bank to buy it for them if there is no evidence that the customers have a policy, the bank said.
But after receiving some complaints from customers, the bank launched a review of the program in July 2016. The review found that “certain external vendor processes and internal controls were inadequate,” the bank said in a statement. As a result, customers were being charged for auto insurance premiums even though they already had another policy. In some cases, the bank said, the “premiums may have contributed to a default that led to their vehicle’s repossession.”
Wells Fargo said it has discontinued the program.
“We take full responsibility for our failure to appropriately manage the [auto insurance] program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us,” Franklin Codel, head of Wells Fargo consumer lending, said in a statement. “Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole.”
The problem was first reported by the New York Times.
The bank’s stock price fell about 2.6 percent Friday.
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