Wells Fargo Fumbles Efforts to Repay Aggrieved Customers
Slip-ups impede bank’s efforts to compensate people who were charged improper fees after the Fed penalized it for sales-practice misconduct

A Wells Fargo customer in Washington, D.C. PHOTO: PAUL J. RICHARDS/AFP/GETTY IMAGES
By
Gretchen Morgenson and
 
Emily Glazer
Feb. 10, 2018 3:37 p.m. ET
48 COMMENTS
Wells Fargo WFC 1.32% & Co. is having trouble doing right by the customers it has wronged.
The big bank acknowledged that it recently sent out 38,000 erroneous communications to customers that it forced to buy unneeded auto insurance.
In some cases, according to two people briefed on the matter, Wells Fargo has also sent refunds to people who weren’t the bank’s customers; notified those who were harmed of incorrect amounts to be paid; and told people of coming refunds though they had never gotten the insurance.
In another matter, Wells Fargo has yet to begin a broad-based reach out related to refunds for as many as 110,000 customers who were charged improper fees to extend interest-rate commitments they received from Wells Fargo on their mortgages, people familiar with the matter said.
Wells Fargo will soon require mortgage customers to agree to a refund through the mail before sending them money, and estimates half or fewer will do so, the people said.
Catherine Pulley, a Wells Fargo spokeswoman, said in a statement: “We are focused on making things right for our customers and ensuring this large-scale remediation happens correctly and as quickly as possible.”
She said a Wells Fargo vendor working on the auto-insurance matter caught a coding mistake that resulted in 38,000 customers receiving a letter they didn’t need with no checks included. Wells Fargo is working with the vendor “to ensure these customers receive the appropriate communication—including any refunds they’re eligible for,” she said. Ms. Pulley said the bank is currently aware of one non-customer having received a check.
The problem mailings and refund delays are happening as the bank continues to grapple with regulatory scrutiny following its sales-practices misconduct.
For those actions and others, the Fed earlier this month took the unprecedented action of restricting the bank’s growth until “it sufficiently improves its governance and controls.”
That punishment followed a rebuke issued to Wells Fargo last fall by the Office of the Comptroller of the Currency. Citing repeated deficiencies, the regulator warned the bank that it would likely face enforcement proceedings because of them.
The OCC and the Consumer Financial Protection Bureau, another regulator, are aware of the refund delays with mortgage customers and have been pressing the bank about them, a person familiar with the matter said. The regulators have also been involved with auto-lending refunds, approving different phases of the mailings.
A spokesman for the OCC declined to comment. The CFPB declined to comment.
Last summer, the bank said it had forced nearly 600,000 customers who financed their car purchases with Wells Fargo to pay for collision coverage they didn’t need. The practices pushed 274,000 customers, among them active military service members, into delinquency on their auto loans, according to an internal report commissioned by the bank, and resulted in 20,000 wrongful car repossessions.
Consumers’ credit scores were also damaged by the bank’s insurance dealings. Wells Fargo’s insurance, similar to others offering that type of insurance, was typically more expensive than auto coverage its customers already had.
Wells Fargo has said it would provide cash reimbursements totaling about $100 million to customers and make $30 million in account adjustments related to the insurance improprieties. It tapped Epiq, a private company that administers regulatory settlement programs for banks and mortgage servicers, for help, people familiar with the hiring said. Wells Fargo gave Epiq a list of customers and addresses it was supposed to verify before the mailing went out, one of these people said.
An Epiq spokeswoman declined to comment.
Wells Fargo has sent more than 100,000 checks to auto-loan customers out of roughly 800,000 planned, a person familiar with the process said. It has been in close touch with the regulators about the different phases of customer checks and so far agreed on the refunding process for more than half of those customers, the person said.
The first phase was refunding customers who were owed less than $100, with average payments around $30, the person said. Later phases involved larger refunds and states that had more complicated legal processes. Another stage focuses on customers who claim lost wages and out of pocket financial costs because of, for example, a car repossession, mental and emotional distress or other issues. The bank is still sorting out what customers can claim, the person added.
Wells Fargo’s Ms. Pulley said the bank has focused on accounts with smaller refunds and requests for customers to send additional information so it can catch any issues if they arise. She said Wells Fargo expects these refunds to be complete by the second quarter of 2018.
Wells Fargo for months also has debated internally how to refund customers impacted by its improper mortgage charges. The bank is planning to send letters to customers who were charged interest-rate locks over a particular timeframe, people familiar with the process said. It already refunded customers on a one-off basis who complained directly to the bank about the fees.
With the bank’s planned broader outreach, customers must opt in to the possible refund, and then the bank will send a check, one of these people said. Since the bank is relying on customers to open their mail and get back to them, the bank estimates half or fewer will do so, in line with direct mail response rates, another person said.
The bank said in October that it expects refunds to be lower than the $98 million total that customers got in so-called mortgage rate lock extensions between September 2013 and February 2017.
Meantime, the bank’s auto-loan and mortgage operations aren’t faring well.
Wells Fargo’s mortgage business earned $928 million in fees in the fourth quarter, down 35% from the $1.42 billion it earned in same period a year ago. The bank’s retail mortgage loans fell 34% to $23 billion in the fourth quarter, down from $35 billion a year earlier.
In the third quarter of 2017, the most recent figures available, Wells Fargo’s average auto loan balances fell 9% to $56.7 billion from $62.4 billion in the same period of 2016.
Wells Fargo also could face regulatory scrutiny related to the sale by auto dealers of “after-market” products to car buyers, people familiar with the matter said. Such products include extended warranties, tire and wheel protection and service contract insurance to cover unexpected repairs.
When these products are added to a borrower’s loan, Wells Fargo earns interest on their costs that amounts to a significant business.
Financial regulators require banks to scrutinize the activities of any third-parties they hire to help in their operations. For example, the OCC requires banks to ensure that their outside vendors are complying with legal and regulatory rules, such as those involving predatory or abusive practices.