Via Ron Cogswell/ Flicker
Wells Fargo Auto is increasing its efforts to review auto products and services sold at dealerships as regulators take a renewed interest in the aftermarket products, the Wall Street Journal reported Sunday.
Last year, Wells Fargo disclosed that the Federal Reserve Bank of San Francisco was inquiring about faulty refunds for guaranteed asset protection (GAP) policies sold to consumers at dealerships and bundled into a borrower’s loan. That action — along with the bank’s larger force-placed, collateral protection insurance scandal — launched a review of aftermarket products, and now Wells Fargo has expanded the internal investigation to include extended warranties, roadside assistance, tire protection, and other add-on products, according to the report.
Wells Fargo has previously disclosed that the review may result in additional refunds of GAP products to consumers in nine states. The lender has since taken over control of the refund process, where previously it had been done by the dealerships.
The lender formed an internal group in late 2017 to review the products, according to the report. Some of the solutions have included surveying consumers to gauge their knowledge of aftermarket products, reexamining dealer relationships to see which have the most complaints, and debates about whether a certain level of add-on products should trigger additional review by Wells Fargo before approval — however, no decision has been made yet, according to the report.
For dealerships, these aftermarket products — most commonly extended warranty policies — account for 48.3% of gross profits, according to the National Automobile Dealers Association. For Wells Fargo Auto, these service contracts account for 5% of total outstandings — representing about $2 billion, according to the WSJ. Yearly interest earned on those contracts could total as high as $150 million.
Roughly 70% of Wells Fargo’s auto loans include aftermarket products, people familiar with the portfolio told the WSJ. The added products can exceed $1,000 on a single auto loan and sometimes approach 15% of the vehicle’s value.
It’s unclear how those figures compare to the industry standard. Wells Fargo Auto did not respond to a request for comment by press time.
Last month, Reuters reported that the Office of the Comptroller of the Currency is planning a fresh round of consent orders for Wells Fargo regarding the lender’s force-placed insurance scandal and the revelation that the lender received a commission from the falsely placed policies.
Wells Fargo proactively paid $80 million to reimburse consumers last year, but an extended investigation revealed that the lender could owe as much as $182 million, according to filings with the Securities and Exchange Commission. The refund process has been off to a rocky start, according to reports.
As recently as earlier this year, Wells Fargo has discussed both the service contract reviews and collateral protection insurance reviews with the OCC and the Consumer Financial Protection Bureau as part of an effort to avoid a new enforcement action or warning, people familiar with the conversations told the WSJ.
Source : AutoFinanceNews
