The Wells Fargo Auto Insurance Scandal
Wells Fargo is one of the largest banks in the United States. However, of late, it has also become one of the most infamous banks. A couple of years back Wells Fargo was in the news since its sales executives opened up fake accounts without the knowledge of the customers simply to meet the sales targets! Wells Fargo has also faced the ire of the judiciary since its lending practices were found to be flawed and predatory.
In 2018 and 2019 itself, Wells Fargo has paid out more than $2 billion to settle lawsuits against malpractices which were commonplace in the banks operations. The latest in the series of lawsuits is an auto insurance lawsuit. This time Wells Fargo has agreed to pay more than $375 million dollars to its customers in order to make up for the loss that they have already faced as a result of the banks malpractices. In this article, we will have a closer look at what the Wells Fargo auto insurance scandal is and what its effects are.
The Details of the Auto Insurance Scandal
Wells Fargo had been forcibly selling expensive car insurance to many of their auto loan customers. Most of the times, this insurance was being sold to customers without their consent or even their knowledge. To make matters worse, if customers failed to pay the insurance premium on time, Wells Fargo was found to be charging horrendous fees and even penalties to these customers.
The activities undertaken by Wells Fargo were responsible for plunging more than 250,000 customers into delinquency. About 25000 or more of Wells Fargos customers had their cars repossessed since they couldnt bear the additional financial burden which was imposed by Wells Fargo.
Over a period of time, the bank executives decided to scrap the program, which was causing these massive losses to customers. However, the program was allowed to continue for over four years, and there is proof which shows that the bank executives were fully aware that the program was unethical and decided to turn a blind eye. This is the reason why this is being called a scandal and not simply malpractice.
Why was Wells Fargo Able to Forcibly Sell Insurance?
Wells Fargo was able to forcibly sell insurance to the customers because of the clauses that they had sneaked into the contracts. As per these contracts, the customer was required to maintain comprehensive coverage for the car for the entire duration of the auto loan. Hence, if the vehicle was involved in a collision or if there was any other damage to the car, Wells Fargos loan could be secured by the insurance money.
The customers were also supposed to intimate the bank that they had purchased such insurance. If they failed to intimate the bank, it would simply assume that no such insurance was purchased. This would enable the bank to purchase insurance on behalf of the customer. Needless to say, Wells Fargo had chosen a very expensive vendor to purchase this insurance form. In fact, the insurer was also found to be guilty and has been asked to pay close to $8 million as compensation to many customers.
The problem was that many of these customers were simply not aware of this clause. Hence, some of them were only buying third-party insurance for their vehicles. Many customers were buying comprehensive coverage but did not inform the bank about the purchase. Hence, when Wells Fargo purchased insurance for these customers, the purchase was needless and amounted to double insurance! To make matters worse, the terms were not clear, and they were even charging interest on the insurance premium even though the customers were not aware of the same.
How Wells Fargo Justifies the Sale of these Policies
Wells Fargo has been claiming that it had no role to play in the scandal. It has mentioned that the entire process was outsourced to third-party vendors. They, therefore, believe that it was the result of incompetence and unfair trade practices of the vendors, that Wells Fargo was dragged into the scandal. Wells Fargo agrees that its actions have caused damage to the customers. However, they do not agree that they intended to cause this damage. According to them, this was an accident, and since they are responsible, they are willing to pay for it.
How Wells Fargo Plans to Compensate the Customers
The admission of the fraud has once again brought negative publicity to Wells Fargo bank. Given the serious erosion in the brands image, Wells Fargo is looking to ensure that the customers are well compensated and the matter is put to rest. This is the reason that Wells Fargo has ordered an audit for the banks customers who were forcibly sold this insurance. The program continued for five years between 2012 and 2017.
Wells Fargo is likely to audit all the customer accounts to find out the financial loss that they have caused to them. It is estimated that Wells Fargo has already found more than 600,000 customers who were negatively affected by the program. The search is still going on, and the number may still become larger.
The bottom line is that Wells Fargo is now desperate to redeem its name from all the scandals that it finds itself involved in. It is very likely that the bank will compensate each and every affected customer to generate positive public relations.
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