Wells Fargo and other lenders often require that auto-loan customers have such policies, and if the customers can't prove they do, the lenders often will buy a policy on their behalf and pass along the cost.
An examination of the program, which was scrapped in September, found that an external vendor didn't adequately ensure customers weren't charged for the coverage - known as collateral protection insurance - if they already had their own policies, according to the bank's statement.
"We take full responsibility for our failure to appropriately manage the [insurance] program and are extremely sorry for any harm this caused our customers, who expect and deserve better from us", Franklin Codel, head of Wells Fargo Consumer Lending, said in a statement. The amounts "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", Wells Fargo said. Say, for example, that a customer agreed to a monthly payment of $275 in principal and interest on her vehicle loan, and arranged for the amount to be deducted from her bank account automatically.
The bank said it had started a review of the CPI program in July 2016 and discontinued the program in September, based on the findings.More news: Crystal Palace bid for West Ham goalkeeper Adrian
The bank said Friday that roughly 570,000 customers were affected and will be getting refunds.
About 490,000 customers unnecessarily paid for CPI for at least some period of time, the bank said. The total cost for remediation for those customers is $25 million. As a result, customers may have been charged premiums for CPI even if they were paying for their own vehicle insurance, as required, and in some cases the CPI premiums may have contributed to a default that led to their vehicle's repossession. In these cases, even if the insurance was required, customers will receive a refund including premiums, fees and interest.
"Force-placed (collateral protection) vehicle insurance is tremendously overpriced, and hence profitable, from the standpoint of the bank, as well as the insurance underwriter that provides the policy to the lender". It said it will also work to correct customers' credit records. But the bank did not always do so, the report said.