Wells Fargo faces angry
questions after new sales abuses uncovered
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[July 29, 2017]
By Dan Freed
NEW YORK (Reuters) - New revelations that
Wells Fargo & Co <WFC.N> spent years enrolling unknowing borrowers in
costly auto insurance has put the bank under new pressure to answer for
a months-long scandal over sales practices that have harmed millions of
The latest news that 800,000 Wells Fargo auto borrowers were improperly
charged for insurance rattled investors yet again, and sent its stock
down 2.6 percent on Friday.
Shareholders, analysts, lawmakers and consumer advocates demanded
answers about how the situation manifested, and why Wells Fargo did not
disclose the problems sooner, given existing turmoil over phony deposit
and credit card accounts opened in customers' names without their
"This is a full-blown scandal — again," said New York City Comptroller
Scott Stringer, who oversees public pension funds that hold roughly 11.6
million Wells Fargo shares. "It's unbelievable, outrageous, sad, and yet
quintessential Wells Fargo. This isn't just a corporate debacle. It's
caused real human harm."
Stringer called on the bank to install a new independent chair and
"immediately" disclose more information.
Wells Fargo first became aware of potential problems a year ago, when
the auto lending business began receiving an unusually high number of
complaints, Franklin Codel, head of consumer lending, said in an
The auto insurance program was quickly suspended, and the problem
escalated to senior management, the board and regulators, he said. Wells
Fargo planned to delay public disclosure until it could notify affected
customers and reimburse them.
"The problem with disclosing to the marketplace today or several months
ago is customers start calling and asking when they're going to get
their money," he said. "It's not a great customer experience to say,
'Yeah, we'll get back to you.'"
The bank was prompted to issue a press release on Thursday evening after
the New York Times reported that 800,000 of its auto borrowers were
charged for insurance they did not need from January 2012 to July 2016.
Wells plans to return $80 million to 570,000 customers who qualify for a
The latest revelations echo what happened at Wells Fargo branches across
the United States for years. Under pressure to hit aggressive sales
targets, thousands of employees signed up customers for deposit and
credit-card accounts without their permission over a period of several
As part of a $190 million regulatory settlement in September, Wells said
as many as 2.1 million phony accounts were opened. A class-action
lawsuit against Wells Fargo puts the figure at 3.5 million.
Matthew Preusch, an attorney with Keller Rohrback, which filed that
lawsuit, said his firm is looking into whether auto borrowers have
claims against the bank.
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A Wells Fargo branch is seen in the Chicago suburb of Evanston,
Illinois, U.S. on February 10, 2015. REUTERS/Jim Young/File Photo
"It's likely to result in consumer litigation," Preusch said.
Wells Fargo has previously said that it found no evidence of improper sales
practices outside its retail banking operation.
An April report by the board of directors following an internal investigation
did not mention auto insurance problems, nor did executives discuss them during
a day-long investor event in May, nor while presenting at conferences and
hosting calls to discuss quarterly results.
Behind the scenes, Wells Fargo's auto lending business has been going through an
overhaul to improve risk management and install fresh leadership. Dawn Martin
Harp, who headed the unit during the sales abuses, retired in April. Her deputy,
Bill Katafias, also departed this year.
"Both of those executives, in my view, were held accountable for their actions,"
Codel told Reuters, including "from a compensation perspective."
Katafias did not return a call to his office at auto lender CRB Auto, where he
is now CEO, and Martin Harp could not be reached.
Wall Street analysts expect the financial damage to go beyond the $80 million in
In a note on Friday, Piper Jaffray's Kevin Barker predicted the true cost would
be "multiples" of that figure, with lawsuits and further customer remediation.
The added cost of insurance pushed 274,000 customers into delinquency, and led
to at least 20,000 wrongful repossessions, according to the Times.
Since 2012, the U.S. Consumer Financial Protection Bureau (CFPB) has received
1,826 complaints about Wells Fargo vehicle loans or leases.
Many customer narratives in the regulator's public database detail being charged
for insurance when the car was already insured elsewhere, not being able to have
erroneous insurance charges removed, and problems with making payments.
One customer from 2014 called Wells immediately after realizing unneeded
insurance had been added to a financing package, but still was charged over
several months for the guaranty. When the customer asked for it to be removed,
Wells only promised to investigate.
"I feel I am being and have been scammed," the car buyer wrote to the CFPB.
(Reporting by Dan Freed in New York; Additional reporting by Ross Kerber in
Boston, Karen Freifeld in New York, and Lisa Lambert, Pete Schroeder, Sarah N.
Lynch and Patrick Rucker in Washington; Writing by Lauren Tara LaCapra; Editing
by Bernard Orr)
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