SAN FRANCISCO (CN) – In the aftermath of a $185 million settlement with the feds over the opening of unauthorized customer accounts, consumers hit Wells Fargo with another federal class action – this time on claims the bank charged over 800,000 borrowers for auto insurance they didn’t need.
The federal racketeering lawsuit filed Sunday accuses Wells Fargo of working with National General Insurance Company “in a scheme to bilk millions of dollars from unsuspecting customers who were forced to pay for auto insurance they did not need or want.”
According to the class, “These unlawful deductions resulted in account delinquencies, overdrawn payment accounts, increased interest rates, repossessed vehicles, and damage to borrowers’ credit.”
CPI is an insurance policy that protects lenders from financial loss if an uninsured motorist gets in an accident. But it’s unnecessary if a borrower already has auto insurance.
“However, neither defendants nor National General, which underwrote the CPI policies, checked their internal database to see if their customers had insurance coverage or, if they did, they simply ignored what they learned,” the complaint says. “Instead, defendants imposed on customers redundant auto insurance coverage and then frequently without any notice, automatically deducted the cost of the CPI insurance from the customers’ bank account along with the regularly scheduled principal and interest payment for the auto loan.
“Not only were the CPI policies unnecessary, they were more expensive than the coverage borrowers obtained on their own,” the complaint continues. “Additionally, defendants received a kickback from National General in the form of shared commissions on each CPI policy, which provided the financial incentive to both defendants and National General to unlawfully churn these unneeded and unwanted policies.”
The lawsuit is led by Paul Hancock of Indiana, who says Wells Fargo charged him $598 for collateral protection insurance when he bought a car last year although he already had auto insurance through Allstate. He says when he complained to Wells Fargo, it never credited his account.
His attorneys did not respond to a call seeking comment.
Two days before Hancock’s lawsuit, Wells Fargo said it would issue $80 million in refunds to 570,000 customers between 2012 and 2017, including 20,000 who had their vehicles repossessed after the charges caused them to default on their loans.
The announcement came on the heels of a New York Times released story on an internal report for bank executives by consulting firm Oliver Wyman, which highlighted the unnecessary charges.
Wells Fargo spokeswoman Natalie Brown said in an email to Courthouse News that she was unable to comment on the specifics of the case, but said the bank has put an end to the CPI program.
“Wells Fargo discontinued its collateral protection insurance (CPI) program in September 2016, after finding inadequacies in vendor processes and our internal controls that negatively impacted some customers,” Brown said. “We are very sorry for the inconvenience this caused impacted customers and we are in the process of notifying them and making things right.”
The class seeks an undisclosed amount in compensatory damages on claims of racketeering, fraud, unjust enrichment, as well as disgorgement of any revenues Wells Fargo and National General Insurance made off of the policies. They also want the court to order them to engage in corrective advertising.
Hancock’s lawsuit comes months after Wells Fargo was caught secretly opening credit cards and bank accounts in customers’ names in order to meet sales goals. A federal class action resulted in a $124 million settlement for customers, and Wells Fargo also had to pay $184 million in regulatory penalties.
The class in the present lawsuit is represented by Daniel Alberstone and Roland Tellis with Baron & Budd in Ventura, California.