maandag 31 juli 2017

Wolf Richter; It Just Doesn’t Let Up with Wells Fargo

New scandal: another 570,000 (800,000?) customers become victims. Wells Fargo, “a community-based financial services company,” as it says, revealed late Thursday, after it learned that The New Times would blow its cover, that it had wrongfully charged 570,000 of its auto-loan customers for comprehensive and physical damage insurance (CPI) since 2012 though they already had their own insurance. “In response to customer concerns,” Wells Fargo became aware of this issue in July 2016. It initiated a review of the “CPI program”, as it calls this profit center, “and related third-party vendor practices,” namely those of the insurance supplier National General. In September 2016, “based on the initial findings,” it scuttled its “CPI program.”
It then hired a consulting firm to figure out what was going on. The consequences were profound. The added insurance premium raised the car payment. If the increase was $50 per month on a particular vehicle, the total amount of additional money extracted from that customer over the duration of a six-year loan would be $3,600. Since many of these auto loans were set up on automatic payment on the customers’ accounts at Wells Fargo, these additional monthly amounts eventually drained the bank accounts and caused them to be overdrawn. Victims who checked their accounts and found the larger payments and raised a ruckus were refunded the money. But many people didn’t check. These wrongful CPI premiums “contributed to a default that led to their vehicle’s repossession,” the bank said. Their credit was ruined and “approximately 20,000 customers” might have lost their vehicle. To drive the nail into the flesh more deeply, the bank then extracted insufficient funds fees, late fees, and other fees from its victims’ accounts which pushed them into default even faster. With this strategy, Wells Fargo caused all kinds of other mayhem in their lives as these folks lost their transportation to get to work, pick up their kids, or go to the grocery store. The bank said that it is “extremely sorry for any harm this caused our customers.”
Wells Fargo said it already began issuing reimbursements to “some customers” as a disaster mitigation strategy before this blows up any further, as the other Wells Fargo scandals have. The rest of the victims will get letters and checks starting in August. In total, Wells Fargo will issue $80 million in reimbursements. This is how the press release revealed the numbers (the numbers revealed by the New York Times, based on the leaked report by the consultants, are much worse, more on that in a moment): Approximately 490,000 customers had CPI placed for some or all of the time they had adequate vehicle insurance coverage of their own. We refunded the premium and interest for the duplicative coverage at the time the customer made us aware of their other insurance. These customers will receive additional refunds of certain fees and some additional interest. Refunds for this group total approximately $25 million. In five states that have specific notification and disclosure requirements, approximately 60,000 customers did not receive complete disclosures from our vendor as required prior to CPI placement.
In these cases, even if CPI was required, customers will receive a refund including premiums, fees and interest. Refunds for this group total approximately $39 million. For approximately 20,000 customers, the additional costs of the CPI could have contributed to a default that resulted in the repossession of their vehicle. Those customers will receive additional payments as compensation for the loss of their vehicle. The payment amount will depend on each customer’s situation and also will include payment above and beyond the actual financial harm as an expression of our regret for the situation. Refunds for this group total approximately $16 million. For each of these categories, Wells Fargo will also work with the credit bureaus to correct customers’ credit records, if applicable. These Well Fargo victims come on top of the victims of the 2.1 million fake accounts that bank employees had opened in their customers’ names. The bank paid $185 million in fines last September. It settled a class-action suit for $142 million. Chairman and CEO John Stumpf was deposed. A slew of low-level order-followers were fired. Some mid-level managers got axed.
A number of federal and state investigations are still pending. And in June, a class-action lawsuit and other lawsuits were filed against Wells Fargo, claiming that officials in its mortgage unit had made unauthorized changes to mortgages held by customers in bankruptcy. These changes extended the terms of the loans by many years. Borrowers would have to make payments for far longer and would ultimately pay a lot more interest to the bank. Any such changes would have required the approval of the court and the other parties in the bankruptcy. But according to the allegations, Wells Fargo made those changes without approval. This time, Wells Fargo issued the press release when it figured out that the New York Times had obtained the 60-page report put together by consulting firm Oliver Wyman and would go public with it. The Times, citing the report, put the number of victims at 800,000 (instead of 570,000), and said, also citing the report, that “some of them are still paying for” the insurance premiums. Other numbers in the report were also higher. For example, the costs of the unneeded insurance pushed about 274,000 Wells Fargo customers into delinquency and caused nearly 25,000 wrongful vehicle repossessions. The leaked report also found:
* The extra insurance was more expensive than the insurance customers had already bought on their own. Ka-ching.
* Wells Fargo received part of the commissions from those insurance sales until February 2013. Ka-ching.
* The way the car payment is structured, the additional insurance initially decreased the amount of principal paid with each payment, and thus increased the amount of interest the bank earned on the loan, the Oliver Wyman report found. Ka-ching.
* Wells Fargo was aggressive in repossessing the vehicles, and according to The Times, some victims “endured multiple repossessions, the report said.”
On Friday, now in full disaster-mitigation mode, the bank’s head of consumer lending, Franklin Codel, told Reuters that they’d been planning to disclose the problems eventually but not until they were ready to issue reimbursement checks. “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. Not to speak of the hit to the stock price, which fell 2.6% on Friday. Dawn Martin Harp, Wells Fargo’s head of auto lending during the time this occurred, “retired” in April. Her deputy, Bill Katafias, also cleaned out his desk and left. They “were held accountable for their actions,” Codel said, including “from a compensation perspective.” Wall Street sells “more financial products and generates more profits when investors are bullish”....