Understanding Wells Fargo's Auto Loan Scandal
The Federal Reserve Bank of San Francisco has begun investigating Wells Fargo regarding their auto lending policies. Recently, Wells Fargo reported that they purchased extra auto insurance for at least 800,00 customers over the last four years.
The auto insurance that Wells Fargo purchased for customers is called "GAP insurance." GAP insurance pays out in the event that a customer totals their vehicle and owes more on it than their insurance company pays. These policies can cost anywhere between $500-$900.
There are two issues at the heart of this scandal. First, many of the 800,000 customers did not need Wells Fargo's GAP insurance. These customers either already had GAP insurance with their auto insurance company or they had equity in their vehicle. Secondly, when a customer pays off their auto loan early, they are owed a refund. In some cases, Wells Fargo did not provide customers the refunds they were due.
While this is another issue that Wells Fargo must face, GAP insurance is an important policy to consider. GAP is something that should really be determined on a case-by-case basis.