After a recent report alleged that Wells Fargo had charged its auto loan customers for unnecessary and unwanted insurance — resulting in 25,000 repossessed vehicles — the bank now faces a lawsuit from one of those borrowers.

The potential class action [PDF], filed in a California federal court, claims Wells Fargo worked with National General Insurance to bilk millions of dollars from unsuspecting customers, by forcing them to pay for auto insurance they neither wanted nor needed.

According to the lawsuit, Wells Fargo received kickbacks from National General after the bank charged more than 800,000 borrowers for Collateral Protection Insurance, often failing to disclose the insurance plans were added to customers’ auto loans.

The Alleged Scheme

The insurance, which the bank required on auto loans beginning in 2006, was automatically added to customers’ tabs through Wells Fargo’s Dealer Services unit.

When a customer came to Wells Fargo for an auto loan their information was sent to National General. While the company was supposed to check to see if the customer already had insurance, that didn’t always happen, says the plaintiff.

Instead, a new insurance policy — often more expensive than the auto insurance customers had already acquired — would be added to the borrower’s account.

The Harm

Wells Fargo’s “latest-revealed scheme sustained financial damages beyond the costs of the unlawful auto insurance,” the suit states. “The financial harm included inflated premiums, delinquency charges, late fees, repossession costs, increased interest rates, and damage to customers’ credit reports.”

The plaintiff cites a New York Times report in claiming that 274,000 Wells auto loan customers were unable to pay for this insurance, with their loans eventually going delinquent. As a result, the bank illegally repossessed nearly 25,000 vehicles, alleges the lawsuit.

The Times noted that the delinquencies and repossessions were a consequence of the way Wells Fargo charged for the insurance. In some cases, customers who agreed to have their monthly loan payments deducted from their bank account automatically weren’t notified that the insurance payment would be added to that amount. As a result, some accounts could become overdrawn.

A Specific Case

In the case of the Indiana man named as plaintiff in the lawsuit, the man says the bank issued a CPI loan for a vehicle purchased in Feb. 2016.

Starting in May 2016, the man was charged $598 for the loan. However, he repeatedly contacted Wells Fargo to inform the company that he already had required insurance through Allstate, according to the complaint.

Despite this, the lawsuit claims Wells Fargo did not credit the man’s account for the unlawful charge or otherwise refund the funds collected. Instead, the bank continued to charge the man for the policy, causing him to incur late fees.

Making It Right

Wells Fargo admitted last week that it was aware of the issue, and had been for nearly a year. The company said that it initiated a review of the CPI program and related third-party vendor practices back in July 2016, discontinuing the CPI program in Sept. 2016.

“Since then, the company has gone through a comprehensive review using independent consultants to ensure the remediation plan it develops addresses customers’ situations in a thorough and thoughtful way,” the bank said in a statement.

However, it had not addressed the issue publicly until last week. At that point, Wells Fargo said it would refund customers who were financially harmed by CPI policies issued between 2012 and 2017.

The bank said it identified approximately 570,000 customers who may have been impacted by the scheme. In all, approximately $64 million in cash remediation will be sent to customers in the coming months, along with $16 million of account adjustments, for a total of approximately $80 million in remediation.

“We take full responsibility for our failure to appropriately manage the CPI 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.”

Wells Fargo notes that while it has been providing CPI-related refunds to some customers, beginning next month it will send letters and refunds checks to customers who are due additional payments.

As for the lawsuit, it seeks restitution, disgorgement of all profits and three times damages incurred by all plaintiffs.

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