Wells Fargo Faces $10 Million Penalty in Insurance Scheme
Wells Fargo lost its ability to sell insurance in early January after the California Department of Insurance discovered the bank had placed 1,500 of its customers in policies without their consent or knowledge. Of those, 21 were in Santa Barbara County, department attorneys stated on Thursday. After the department threatened to revoke the bank’s insurance licenses over the improper sales, the bank agreed to a $10 million settlement, though it did not admit guilt.
The department’s investigation, under former insurance commissioner Dave Jones, began when its attorneys noticed a footnote in a report from the bank’s independent directors. The report came after an internal investigation into aggressive sales practices, which cost the bank $185 million in fines, involving the creation of more than two million deposit and credit card accounts without customers’ consent. The footnote indicated the bank’s online insurance referral program was also implicated.
Between 2008 and 2016, the Department of Insurance charged, Wells employees issued renters and life insurance policies when they had no license to do so. Contractually, they were only allowed to refer customers to websites; they weren’t even allowed to swivel their computer monitors around for customers to take a look. In some instances, Wells employees had told customers to fill out policy applications merely to get a quote. In reality, they later submitted the application to insurers, which began to charge the customers.
The department’s Accusation stated the insurers notified Wells Fargo that their customers complained they had not signed up for the policies; Wells continued the practice until the insurers withdrew from the program; Wells then found another insurer to take their place, and policies continued to be issued. The companies involved were American Modern Insurance Group, Assurant Inc., Great-West Financial, and Pruco Life Insurance Company. The policy amounts varied by the size of the policies, and were from $12-$28 per month for renters insurance, to $29-$37 per month for a 20-year life insurance policy.
The settlement reached on January 2, 2019, included a statement by Wells Fargo that it had paid restitution to all the affected California customers. Of the total penalty, the bank paid $5 million immediately and more than $300,000 to the Department of Insurance for costs. Should Wells choose to resume insurance sales, it must wait until two years after its current two licenses expire in 2020 and must pay the remaining $5 million in the penalty. These caveats exclude insurance businesses operated by the bank’s wealth and investment management arm.
Editor’s Note: This updated story replaced the one originally posted on January 27, 2019, and was itself updated on January 30 to clarify the terms of the penalty.