Wells Fargo & Co. is expected to face further regulatory sanctions due to its latest scandal over improperly charging customers for certain auto insurance, people familiar with the matter said.
Bank executives are in touch with officials from the Office of the Comptroller of the Currency over the problems, which Wells Fargo has said affected as many as 570,000 auto-loan customers. The bank said it is in the process of issuing customer refunds totaling around $80 million.
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That comes on the heels of last fall's sales-practices scandal at Wells Fargo. This involved bank employees opening as many as 2.1 million accounts without customers' knowledge.
As a result of that, Wells Fargo entered into a $185 million settlement with the OCC and others. The OCC also issued a consent order against the bank late last year.
Friday, the bank updated investors in a quarterly securities filing on its progress "rebuilding trust." In a companywide message that came with the report, Chief Executive Timothy Sloan also outlined additional items that the company has found in various internal investigations, some of which could lead to additional fines and settlements.
"This is a lot of information," but "we want our stakeholders to know about issues that we are committed to fixing," Mr. Sloan wrote. Wells Fargo shares dropped 1.6%, compared with a 0.9% increase in the KBW Nasdaq Bank Index.
Now, the OCC is considering taking further action in light of the new, insurance revelations, the people familiar said. Although it isn't clear yet what form that could take, the OCC has broad power to restrict acquisitions and other banking activities.
A September OCC order related to the sales-practice scandal stipulated, among other things, that Wells Fargo's board "achieves and maintains an enterprisewide risk-management program designed to prevent and detect unsafe or unsound sales practices."
A Wells Fargo spokeswoman said the bank has "worked diligently to fully identify what went wrong and to make things right for our customers" since it identified the insurance problem in mid-2016.
The OCC became aware of the insurance issue when Wells Fargo executives identified and reported it to them last summer. This spring it made a request to the bank for more information on specific auto-insurance practices, one of the people familiar with the matter said.
Regarding the auto loans, Wells Fargo said in a late July statement that customers' auto-loan contracts require them to maintain collateral-protection insurance on behalf of the lender throughout the term of the loan. Wells Fargo purchased that insurance from a vendor on a customer's behalf if there was no evidence the customer already had the insurance, the bank said. That insurance protects against the loss or damage to a vehicle serving as collateral to secure a loan.
One result was that customers may have been charged premiums for insurance even if they were paying for their own insurance. In some cases, those premiums could have contributed to a default that led to the vehicle's repossession.
Wells Fargo realized there was a problem with this insurance while working on broader fair-lending reviews in mid-2016 and spotting problems in the collections process, among other factors, people familiar with the reviews said.
Wells Fargo reported the insurance problems to the OCC in summer 2016 and provided the regulator with an internal report from consultants Oliver Wyman that detailed issues in this area. In late July 2017, the New York Times reported the improper insurance charges and internal report.
New York Attorney General Eric Schneiderman has sent a subpoena to Oliver Wyman asking for the report, which is deemed "confidential supervisory information."
As well, the New York Department of Financial Services sent a subpoena earlier this week to Wells Fargo seeking information on how many New York borrowers were affected, people familiar with the request said.
Democratic members of Congress are seeking hearings on the auto-insurance matter. This week, Wells Fargo consumer-lending head Franklin Codel met with staffers on Capitol Hill, going to Washington, D.C. on his own accord, a person familiar with the matter said. It is unclear whether hearings will take place.
The OCC has already sanctioned Wells Fargo due to the sales-practices scandal. A November order by the regulator made it much longer and cumbersome for the bank to get OCC approval on any change in leadership or business plan. It also restricted executive severance payouts, sometimes called "golden parachutes."
Wells Fargo's auto-loan business had previously run into problems. In September 2016, Wells Fargo settled for $24 million with the Justice Department and the OCC over the process by which it repossessed military member's cars, including collections.
It became clear then that problems related to repossessions and collections weren't limited to service members. That prompted the bank to look at other issues within the business, which had become subject to a rising number of consumer complaints. That led to the discovery of the auto insurance-related issues with vendor National General Insurance.
Earlier this year, Wells Fargo named a new head of the auto business. In May, it centralized collections operations to improve the customer experience, boost consistency and minimize risk to the business, according to an internal memo reviewed by The Wall Street Journal. In late July, the bank made additional management changes within the unit, according to another internal memo reviewed by The Wall Street Journal.
--Rebecca Davis O'Brien contributed to this article.
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(END) Dow Jones Newswires
August 04, 2017 16:15 ET (20:15 GMT)