Attorney General Josh Shapiro announced that Wells Fargo Bank N.A., the nation’s biggest bank, will pay $575 million to resolve claims that the bank violated state consumer protection laws by: (1) opening millions of unauthorized accounts and enrolling customers into online banking services without their knowledge or consent, (2) improperly referring customers for enrollment in third-party renters and life insurance policies, (3) improperly force-placing and charging more than 850,000 auto finance customers for unnecessary and duplicative insurance policies, (4) failing to ensure that customers received refunds of unearned premiums on certain optional auto finance products, and (5) incorrectly charging customers for mortgage rate lock extension fees.
Attorney General Shapiro’s Bureau of Consumer Protection co-led the investigation and negotiation of the settlement. As a result of this settlement, Wells Fargo will be forced to change its corporate behavior to ensure that these types of abuses will not happen again. Additionally, the company will be forced to pay a sum of money to consumers who were harmed – though that amount is confidential under the terms of settlement- and pay the Commonwealth of Pennsylvania $16.5 million, which will be remitted to the Pennsylvania Treasury.
“Wells Fargo is paying over half a billion dollars to the states because of conduct that caused widespread harm on a national level, in bank accounts, auto loans, and mortgages,” said Attorney General Shapiro. “This bank opened millions of accounts for customers who didn’t know about them, charged auto finance customers for insurance policies they didn’t want or need, and charged mortgage customers over $100 million in unwarranted fees. With this settlement, we are holding Wells Fargo accountable and changing corporate conduct to protect consumers.”
Unrealistic Sales Goals Led to Millions of Unauthorized Accounts
Wells Fargo has identified more than 3.5 million accounts where customer accounts were opened, funds were transferred, credit card applications were filed, or debit cards were issued without the customers’ knowledge or consent. The bank has also identified 528,000 online bill pay enrollments nationwide that may have resulted from improper sales practices at the bank. In addition, Wells Fargo improperly submitted more than 6,500 renters insurance and/or simplified term life insurance policy applications and payments from customer accounts without the customers’ knowledge or consent.
The states alleged that Wells Fargo imposed aggressive and unrealistic sales goals on bank employees and implemented an incentive compensation program where employees could qualify for credit by selling certain products to customers. The states alleged that these sales goals and incentive compensation created an impetus for employees to engage in improper sales practices in order to earn financial rewards. Those sales goals became increasingly difficult to achieve over time, the states alleged, and employees who failed to meet them faced potential termination and career-hindering criticism from their supervisors.
Wells Will Pay Its Customers Over $385 Million for Unnecessary and Duplicative Auto Insurance
Wells Fargo’s auto loan and lease agreements required the borrower or lessee to maintain collision and comprehensive insurance for the vehicle. The states allege that, despite evidence that many customers already had the required insurance, Wells Fargo improperly charged premiums, interest, and fees for force-placed collateral protection insurance (CPI) to more than two million auto finance customer accounts. (Many of those customers may not have suffered financial harm, however, because the policies were cancelled before the customers paid the charges). Many customers complained about unnecessary CPI charges, but Wells Fargo and its vendors maintained their flawed CPI process from 2005 to 2016.
Wells and its vendor charged some customers for unnecessary insurance even though these customers had provided Wells Fargo’s dealer-partners information about their existing insurance. Wells Fargo has agreed to provide remediation of more than $385 million to approximately 850,000 auto finance customers. The remediation will include payments to over 51,000 customers whose cars were repossessed, and for whom the unnecessary CPI charges could have led to the repossessions. The CFPB and OCC are working to ensure that the auto finance customers are fully remediated by Wells Fargo.
Wells Will Pay Auto Finance Customers $37 Million in Refunds, Mortgage Customers $100 Million
Additionally, the states alleged that Wells Fargo failed to ensure that customers received proper refunds of unearned portions of optional Guaranteed Asset/Auto Protection products sold as part of auto finance agreements. As a result, the bank has agreed to refund auto finance customers more than $37 million.
Finally, the states alleged that Wells Fargo improperly charged mortgage loan consumers for rate lock extension fees even when the delay was caused by Wells Fargo, a practice contrary to the bank’s policy. Wells Fargo has agreed to refund over $100 million of such fees.
Wells Has Previously Agreed to Pay $2.3 Billion in Related Settlements and Consent Orders
Wells Fargo has previously entered into consent orders with federal authorities – including the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) – related to its alleged conduct. Wells Fargo has committed to or already provided restitution to consumers in excess of $600 million through its agreements with the OCC and CFPB as well as through settlement of a related consumer class-action lawsuit and has paid over $1.2 billion in civil penalties to the federal government and to the City and County of Los Angeles. The bank also recently agreed to a $480 million settlement of a related securities class action. Additionally, under an order from the Federal Reserve, the bank is required to strengthen its corporate governance and controls and is currently restricted from exceeding its total asset size.
To date, this settlement represents the most significant engagement involving a national bank by state attorneys general acting without a federal law enforcement partner. It sends a message that state attorneys general are on the lookout for harmful conduct by providers of consumer financial services, regardless of whether the provider is a national bank, a state-chartered bank, or a nonbank.
As part of its settlement with the states, Wells Fargo has agreed to implement within 60 days a program through which consumers who believe they were affected by the bank’s conduct, but fell outside the prior restitution programs, can contact Wells Fargo to be reviewed for potential redress. Wells Fargo will create and maintain a website for consumers to use to access the program and will provide periodic reports to the states about ongoing restitution efforts.
More information on the redress review program, including Wells Fargo escalation phone numbers and the Wells Fargo dedicated website address for the program will be available on or before February 26, 2019. Please click here to view the states’ agreement with Wells Fargo.
The Bureau of Consumer Protection’s work on this investigation was led by Assistant Directors John M. Abel and Nicholas F. B. Smyth, and Deputy Attorney General Brandon Bingle.