Wells Fargo fined $1 billion for breaches against home and auto loan borrowers
The improper practices were violations of the Dodd-Frank Wall Street Reform.
In what is the largest US bank settlement to date, Wells Fargo was levied a $1 billion fine by two major federal regulators. The Consumer Financial Protection Bureau and the Office of the Controller of the Currency announced that the fine was imposed because of improper practices by Wells Fargo directed towards its mortgage and auto loan borrowers.
Trust broken on two fronts, affecting both home and auto borrowers.
The agencies’ investigations into Wells Fargo’s practices determined two major breaches. First, some residential mortgage borrowers were improperly charged rate-lock fees on loans that the bank failed to disclose.
Wells Fargo’s own internal audits showed that for the period from September 16, 2013, to February 28, 2017, the company failed to apply the correct policy concerning delayed loan closings.
The bank had revised its previous policy concerning lender delays on mortgage loan closings. The new 2013 policy provided that borrowers could only be charged extension fees if they caused delays to their own loans.
However, if the delay was caused by Wells Fargo, the policy was to extend the rate-lock period at no charge to the borrowers. The advantage to customers of a rate lock is that it avoids extension fees and locks in their interest rate during periods of high fluctuations.
Investigations showed that Wells Fargo failed to consistently apply its own policy and also didn’t explain its policy to consumers.
110,000 mortgage borrowers were affected by the lack of compliance, which resulted in $98 million in rate-lock fees to mortgage borrowers. The company has discontinued the violation and must refund the fees with interest to affected customers.
Auto loan borrowers also affected by Wells Fargo practices.
The second half of the settlement outlines how Wells Fargo added collateral insurance to its auto loans. The move meant Wells Fargo’s auto loan borrowers not only paid for the forced insurance but paid interest on the insurance, extending the balance of the loan outside of normal perimeters.
The impropriety affected auto loan borrowers from October 15, 2005, to September 30, 2016. The number of affected consumers is unclear, but estimates range from 570,000 to 2 million.
More than 20,000 auto loan customers defaulted on their Wells Fargo auto loans during that time, which may be partly due to added insurance costs rolled into the loans.
Wells Fargo says it has discontinued the practice of the force-placed insurance and expects to reimburse affected borrowers approximately $182 million.
Another blow to the financial institution, plagued by previous wrongdoing.
The two violations are the latest in a series of allegations directed towards Wells Fargo. In 2016, Wells Fargo was fined $185 million when it was discovered that its employees created 1.5 million fraudulent accounts in the names of clients without their consent.
In spite of the controversy surrounding the world’s second-largest bank, its first-quarter profits rose to 5.5% for 2018. The $1 billion settlement, along with the expected payback to its customers, is expected to shave approximately 20% off its $5.9 billion in net earnings.
While lenders need to be held accountable for such infractions, the ongoing issues at Wells Fargo also speak to the importance of borrowers watching out for unnecessary fees or charges when they shop for a car loan or other need. Learn more about the terms, interest rates, fees, taxes, rebates and other paperwork involved in auto financing in our guide to car loans.