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A spokesperson for Wells Fargo confirmed in an email to FOX Business on Monday that it would only continue working with independent dealers with which it has “deep, long-standing relationships.”
“Like lenders across the country, we are doing everything we can to help customers weather the economic impacts of this health crisis, including offering loan deferrals to customers who need them if they’ve been impacted by COVID-19,” the spokesperson said. “As a responsible lender, we also have an obligation to review our business practices in light of the economic uncertainty presented by COVID-19 and have let the majority of our independent dealer customers know that we will suspend accepting applications from them.”
Wells Fargo is known as one of the nation’s leading auto lenders for new and used cars. It provides indirect financing through its partner dealerships, which means in order to apply for a loan you would need to work with one of these partners.
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The news was first reported by CNBC. People familiar with the matter told the outlet that Wells Fargo notified customers of its decision in May.
The coronavirus crisis has weighed on many Americans’ finances – and auto loans are often one of the largest payment obligations for households.
Even before the effects of the pandemic set in, auto loan delinquencies were high. The rate at which loans were transitioning into serious delinquency, meaning payments were at least 90 days late, was 2.36 percent as of the fourth quarter of 2019, according to data from the Federal Reserve Bank of New York. The bank noted, however, that in the first quarter of 2020 there was a tightening in underwriting standards for loans – as the median originating credit score rose 3 points.
After the pandemic set in, credit reporting agency TransUnion said the percentage of accounts entering “financial hardship” status rose “dramatically” for credit products – including auto loans. The percentage of auto loan accounts in financial hardship rose to 3.54 percent as of April, up from 0.64 percent in March.
Wells Fargo’s auto unit came under fire in 2018 after it was accused of forcing an auto loan insurance program onto hundreds of thousands of consumers that did not need it and mischarging consumers for certain mortgage interest rate lock extension products. It paid $1 billion to settle those charges with the Consumer Financial Protection Bureau.
The bank fell under widespread scrutiny after it was revealed that employees were creating fraudulent accounts for customers without their approval.