By Gretchen Morgenson and Emily Glazer
Wells Fargo & Co. is having trouble doing right by the
customers it has wronged.
The big bank acknowledged that it recently sent out 38,000
erroneous communications to customers that it forced to buy
unneeded auto insurance.
In some cases, according to two people briefed on the matter,
Wells Fargo has also sent refunds to people who weren't the bank's
customers; notified those who were harmed of incorrect amounts to
be paid; and told people of coming refunds though they had never
gotten the insurance.
In another matter, Wells Fargo has yet to begin a broad-based
reach out related to refunds for as many as 110,000 customers who
were charged improper fees to extend interest-rate commitments they
received from Wells Fargo on their mortgages, people familiar with
the matter said.
Wells Fargo will soon require mortgage customers to agree to a
refund through the mail before sending them money, and estimates
half or fewer will do so, the people said.
Catherine Pulley, a Wells Fargo spokeswoman, said in a
statement: "We are focused on making things right for our customers
and ensuring this large-scale remediation happens correctly and as
quickly as possible."
She said a Wells Fargo vendor working on the auto-insurance
matter caught a coding mistake that resulted in 38,000 customers
receiving a letter they didn't need with no checks included. Wells
Fargo is working with the vendor "to ensure these customers receive
the appropriate communication -- including any refunds they're
eligible for," she said. Ms. Pulley added that the bank is
currently aware of one non-customer having received a check.
The problem mailings and refund delays are happening as the bank
continues to grapple with regulatory scrutiny following its
sales-practices misconduct.
For those actions and others, the Fed earlier this month took
the unprecedented action of restricting the bank's growth until "it
sufficiently improves its governance and controls."
That punishment followed a rebuke issued to Wells Fargo last
fall by the Office of the Comptroller of the Currency. Citing
repeated deficiencies, the regulator warned the bank that it would
likely face enforcement proceedings because of them.
The OCC and the Consumer Financial Protection Bureau, another
regulator, are aware of the refund delays with mortgage customers
and have been pressing the bank about them, a person familiar with
the matter said. The regulators have also been involved with
auto-lending refunds, approving different phases of the
mailings.
A spokesman for the OCC declined to comment. The CFPB declined
to comment.
Last summer, the bank said it had forced nearly 600,000
customers who financed their car purchases with Wells Fargo to pay
for collision coverage they didn't need. The practices pushed
274,000 customers, among them active military service members, into
delinquency on their auto loans, according to an internal report
commissioned by the bank, and resulted in 20,000 wrongful car
repossessions.
Consumers' credit scores were also damaged by the bank's
insurance dealings. Wells Fargo's insurance, similar to others
offering that type of insurance, was typically more expensive than
auto coverage its customers already had.
Wells Fargo has said it would provide cash reimbursements
totaling about $100 million to customers and make $30 million in
account adjustments related to the insurance improprieties. It
tapped Epiq, a private company that administers regulatory
settlement programs for banks and mortgage servicers, for help,
people familiar with the hiring said. Wells Fargo gave Epiq a list
of customers and addresses it was supposed to verify before the
mailing went out, one of these people said.
An Epiq spokeswoman declined to comment.
Wells Fargo has sent more than 100,000 checks to auto-loan
customers out of roughly 800,000 planned, a person familiar with
the process said. It has been in close touch with the regulators
about the different phases of customer checks and so far agreed on
the refunding process for more than half of those customers, the
person said.
The first phase was refunding customers who were owed less than
$100, with average payments around $30, the person said. Later
phases involved larger refunds and states that had more complicated
legal processes. Another stage focuses on customers who claim lost
wages and out of pocket financial costs because of, for example, a
car repossession, mental and emotional distress or other issues.
The bank is still sorting out what customers can claim, the person
added.
Wells Fargo's Ms. Pulley said the bank has so far focused on
accounts with smaller refunds and requests for customers to send
additional information so it can catch any issues if they arise.
She added that Wells Fargo expects these refunds to be complete by
the second quarter of 2018.
Wells Fargo for months also has debated internally how to refund
customers impacted by its improper mortgage charges. The bank is
planning to send letters to customers who were charged
interest-rate locks over a particular timeframe, people familiar
with the process said. It already refunded customers on a one-off
basis who complained directly to the bank about the fees.
With the bank's planned broader outreach, customers must opt in
to the possible refund, and then the bank will send a check, one of
these people said. Since the bank is relying on customers to open
their mail and get back to them, the bank estimates half or fewer
will do so, in line with direct mail response rates, another person
said.
The bank said in October that it expects refunds to be lower
than the $98 million total that customers got in so-called mortgage
rate lock extensions between September 2013 and February 2017.
Meantime, the bank's auto-loan and mortgage operations aren't
faring well.
Wells Fargo's mortgage business earned $928 million in fees in
the fourth quarter, down 35% from the $1.42 billion it earned in
same period a year ago. The bank's retail mortgage loans fell 34%
to $23 billion in the fourth quarter, down from $35 billion a year
earlier.
In the third quarter of 2017, the most recent figures available,
Wells Fargo's average auto loan balances fell 9% to $56.7 billion
from $62.4 billion in the same period of 2016.
Wells Fargo also could face regulatory scrutiny related to the
sale by auto dealers of "after-market" products to car buyers,
people familiar with the matter said. Such products include
extended warranties, tire and wheel protection and service contract
insurance to cover unexpected repairs.
When these products are added to a borrower's loan, Wells Fargo
earns interest on their costs that amounts to a significant
business.
Financial regulators require banks to scrutinize the activities
of any third-parties they hire to help in their operations. For
example, the OCC requires banks to ensure that their outside
vendors are complying with legal and regulatory rules, such as
those involving predatory or abusive practices.
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
February 10, 2018 15:52 ET (20:52 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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