Wells Fargo & Co. is facing more regulatory scrutiny related to auto-insurance practices.
The latest questions concern guaranteed asset protection the bank sold through car dealerships, a person familiar with the matter said.
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The San Francisco Federal Reserve made an inquiry about control breakdowns related to those matters, the person said. The Office of the Comptroller of the Currency is also probing the practices, people familiar with the situation said.
The insurance products offer consumers additional protection beyond standard auto insurance policies and are often financed as part of the customer's loan.
For instance, if a customer has an accident and the vehicle is totaled, so-called GAP insurance could help pay off the loan balance not covered by the customer's primary insurance.
The San Francisco Fed, one of several regulators overseeing different parts of San Francisco-based Wells Fargo, focuses on safety and soundness of banks, such as compliance and controls. The latest inquiry didn't trigger a new investigation and was part of the overall supervisory process, the person added.
Wells Fargo spokeswoman Catherine Pulley said in a statement: "During an internal review, we discovered issues related to a lack of oversight and controls surrounding the administration of guaranteed asset protection...products."
Borrowers are entitled to a refund of some of the GAP insurance if loans are paid off early.
Ms. Pulley added the bank is working to make the customer refund process "more consistent for customers" and pointed to the bank's disclosures about these issues in its most recent quarterly filing in efforts to be more transparent.
Ms. Pulley declined to comment on how many customers might be impacted or when these issues began.
The New York Times earlier reported the San Francisco Fed's inquiry into Wells Fargo on the matter.
This is the most recent headache for Wells Fargo. The bank said in late July it is refunding around $80 million to as many as 570,000 auto loan customers over other insurance practices known as collateral protection insurance. The Wall Street Journal reported Friday that the Office of the Comptroller of the Currency is considering taking further action in light of those insurance revelations, although it isn't clear yet what form that could take.
That is on top of the bank's sales-practices scandal that erupted about a year ago and resulted in a settlement, congressional hearings and the departure of then-Chief Executive John Stumpf. Several investigations related to that settlement continue; the bank has said it is cooperating.
In the bank's quarterly filing with the Securities and Exchange Commission, disclosed Friday, Wells Fargo said issues related to auto loans "may subject the company to formal or informal inquiries, investigations or examinations" from federal, state or local government agencies, as well as potential litigation. The bank said the scrutiny included questions about origination, servicing, collection of loans and related insurance products.
The bank gave further detail, writing that it "has identified certain issues related to the unused portion of guaranteed auto protection waiver or insurance agreements....which may result in refunds to customers in certain states."
Laws in nine states require customers get refunds for unused coverage periods and the holder of the contract ensures the refund is made properly. Wells Fargo is evaluating its internal controls to confirm if the refunds weren't adequate, the person said.
The bank's auto division, Wells Fargo Dealer Services, is adjusting its so-called GAP insurance products to ensure customers get the appropriate refunds or claim benefits if loans end early or if they file claims, the person said.
Wells Fargo is taking over management of issuing refunds to customers with GAP products whose loans end early, the person said. Typically, that has been handled by the dealerships.
In June, the bank began issuing GAP refunds in several states where customers paid off their loan early, the person said. The bank plans to expand that effort across the country.
Ryan Tracy contributed to this article.
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(END) Dow Jones Newswires
August 08, 2017 17:36 ET (21:36 GMT)