Thousands of borrowers who financed cars with Wells Fargo were unwittingly charged for auto insurance they did not need, did not want, and did not ask for, creating a serious consumer protection issue and resulting in tens of millions of dollars in fraudulent charges.
Some 800,000 people were affected by the scheme, according to consulting firm Oliver Wyman. The expense of the unneeded insurance – which, according to Wells Fargo, “may be considerably more expensive than insurance you can obtain on your own” – propelled 274,000 customers into delinquency and resulted in almost 25,000 wrongful vehicle repossessions. Among the customers hurt by the practice were active duty military service members.
Force-Placed Auto Insurance and How It Works
Force-placed insurance – also known as creditor-placed, lender-placed or collateral protection insurance – is an insurance policy placed by a lender, bank or loan servicer on a vehicle when the vehicle owner’s own insurance is canceled, has lapsed or is deemed insufficient and the borrower does not secure a replacement policy. This insurance allows the lender to protect its financial interest in the vehicle.
Forced Auto Insurance Schemes Prey on Unsuspecting Borrowers
Forcing insurance on auto borrowers, many of whom are already insured, can saddle unsuspecting consumers with redundant insurance policies.
When customers took out Wells Fargo loans to purchase vehicles, the bank failed to check or ignored whether buyers had insurance coverage. Rather, the bank automatically imposed coverage on thousands of buyers without notifying them even though many drivers already had their own policies.
When customers who checked their bills saw the charges and notified Wells Fargo that they already had car insurance, the bank was required to cancel the insurance and issue a refund. Many customers, however, failed to notify Wells Fargo of the redundant insurance because their payments were automatically deducted from their bank accounts and they did not spot the charges.
Even when borrowers notified Wells Fargo that they were already insured, the bank often failed to reverse the erroneous charges and continued demanding payment.
The attorneys in Sommers Schwartz’s Complex Litigation Department are investigating force-placed insurance fraud and are pursuing creditors who engage in abusive lending practices. If you believe your lender has fraudulently force-placed insurance on your vehicle, please contact us today.