A settlement announced Tuesday between the Consumer Financial Protection Bureau and Wells Fargo Bank cited errors in refunding GAP fees among the bank’s violations.
The bank was cited with violations related to improper auto and mortgage loan servicing, overdraft fees and freezing consumers’ accounts. Included in the CFPB’s settlement highlights was the GAP refund issue.
“Wells Fargo must ensure that the unused portion of GAP contracts, a type of debt cancellation contract that covers the remaining amount of the borrower’s auto loan in the case of a major accident or theft, is refunded to the borrower when a loan is paid off or otherwise terminates early,” the CFPB said.
In the consent order between the two, the CFPB said its investigation found Wells Fargo did refund tens of millions of dollars in GAP fees where state law required refunds. However, when the bank took over servicing loans it did not originate, the CFPB said Wells Fargo did not ensure consumers received refunds when they paid off loans early or their vehicles were repossessed (thus terminating the GAP contract).
The CFPB’s order requires Wells Fargo to maintain a policy and practice designed to ensure the unused GAP contract portion financed is refunded, regardless of state law.
“Respondent must ensure that the unused portions of GAP contracts that respondent finances or otherwise acquires are refunded to auto loan customers promptly after termination of the contract,” the CFPB said.
The order included a requirement that Wells Fargo fully refund GAP fees for consumers involved in a separate settlement agreement with Wells Fargo.
In all, the CFPB’s order requires Wells Fargo to pay more than $2 billion in consumer redress and a $1.7 billion civil penalty to the CFPB. The $3.7 billion settlement is the largest issued by the CFPB since it opened in 2011.
“We have made significant progress over the last three years and are a different company today,” Wells Fargo CEO Charlie Scharf said. “We remain committed to doing the right thing for our customers and working closely with our regulators and others to deal appropriately with any issue that arises.”
