Attorney General Gurbir S. Grewal announced that New Jersey is among the states joining a settlement agreement with Wells Fargo Bank that resolves allegations the company engaged in a variety of sales, lending, and other improper business practices for more than a decade.
Under the settlement terms New Jersey will receive nearly $17 million. Wells Fargo’s total payment under the agreement is approximately $575 million, including distributions to other states, attorneys’ fees, and other payments.
The alleged consumer protection violations in Wells Fargo’s sales, auto-lending, and mortgage-lending practices include (1) opening millions of unauthorized accounts and enrolling customers into online banking services without their knowledge or consent, (2) improperly referring customers for enrollment in third-party renters and life insurance policies, (3) improperly charging auto loan customers for force-placed and unnecessary collateral protection insurance, (4) failing to ensure that customers received refunds of unearned premiums on certain optional auto finance products, and (5) incorrectly charging customers for mortgage rate-lock extension fees.
Through this settlement with 50 states and the District of Columbia, Wells Fargo will also create a consumer redress review program through which consumers who have not been made whole through other remediation programs already in place can seek to have their inquiry or complaint reviewed by a bank escalation team for possible relief. To date, this settlement represents the most significant engagement involving a national bank by state attorneys general acting without a federal law enforcement partner.
Wells Fargo has identified more than 3.5 million accounts where customer accounts were opened, funds were transferred, credit card applications were filed, and debit cards were issued without the customers’ knowledge or consent. The bank has also identified 528,000 online bill pay enrollments nationwide that may have resulted from improper sales practices at the bank. In addition, Wells Fargo improperly submitted more than 6,500 renters insurance and/or simplified term life insurance policy applications and payments from customer accounts without the customers’ knowledge or consent.
“Wells Fargo’s corporate culture led to repeated breaches of its customers’ trust,” said Attorney General Grewal. “This settlement should send a message to all financial institutions that they need to take steps to avoid similar consumer protection violations, because we stand ready to hold the financial industry accountable.”
The states allege that Wells Fargo’s senior management exerted significant pressure on middle management and line employees to generate sales, through the establishment of unrealistic sales goals and an incentive compensation program. These sales goals became increasingly hard to achieve over time, the states allege, and employees who failed to meet them faced potential termination and unfavorable reviews. As a result, employees routinely enrolled customers in checking and savings accounts, credit cards, debit cards, unsecured lines of credit and online bill pay services without their knowledge or consent.
The states also contend that Wells Fargo employees wrongly charged more than two million auto financing customers premiums, interest, and fees for forced-place collateral protection insurance, even though this insurance duplicated coverage the customers already had in place. As a result, Wells Fargo has agreed to provide remediation of more than $385 million to approximately 850,000 auto finance customers. The remediation will include payments to over 51,000 customers whose cars were repossessed.
According to the states, Wells Fargo also failed to provide proper refunds to auto finance customers who had purchased Guaranteed Asset Protection insurance policies, designed to address situations in which a car buyer/borrower ends up owing more than a vehicle’s value. As a result, Wells Fargo has agreed to provide refunds totaling more than $37 million to certain auto finance customers.
Finally, the states alleged that Wells Fargo improperly charged residential mortgage consumers for rate lock extension fees. With rate lock extension, borrowers could “lock in” an ostensibly favorable interest rate, for a fee, even if their loans did not close within the defined rate lock period. The states determined that some bank branches were charging rate lock extension fees even when the delay was caused by Wells Fargo, a practice contrary to the company’s policy. The bank has identified and contacted affected consumers and has refunded or agreed to refund over $100 million of such fees.
Wells Fargo has previously entered into consent orders with federal authorities — including the Office of the Comptroller for the Currency (OCC) and the Consumer Finance Protection Bureau (CFPB) — related to its alleged conduct. Wells Fargo has committed to or already provided restitution to consumers in excess of $600 million through its agreements with the OCC and CFPB as well as through settlement of a related consumer class-action lawsuit, and will pay over $1 billion in civil penalties to the federal government. Additionally, under an order from the Federal Reserve, the bank is required to strengthen its corporate governance and controls, and is currently restricted from exceeding its total asset size.
As part of its settlement with the states, Wells Fargo has agreed to implement within 60 days a program through which consumers who believe they were affected by the bank’s conduct, but fell outside the prior restitution programs, can contact Wells Fargo to be reviewed for potential redress. Wells Fargo will create and maintain a website for consumers to use to access the program and will provide periodic reports to the states about the program’s progress.
More information on the redress review program, including Wells Fargo escalation phone numbers and the website address will be available on or before February 26, 2019.
The $17 million Wells Fargo payout to New Jersey is the sixth highest amount recovered among all jurisdictions participating in the multi-state settlement.
Deputy Attorney General Jeffrey Koziar of the Division of Law’s Consumer Fraud Prosecution Section, and Deputy Attorney General Lorraine K. Rak, Section Chief of the Consumer Fraud Prosecution Section, handled the Wells Fargo matter on behalf of the State.