The United States Department of Justice has sued Allstate-owned National General Holdings Corp for forcing Collateral Protection Insurance (CPI) on vehicles financed through Wells Fargo. This allegedly occurred even though borrowers already had insurance through other providers.
According to the government, the issue lasted nearly a decade as National General “systemically failed to accurately track whether cars financed by Wells Fargo had the requisite insurance coverage from an outside carrier.” As a result, the company “knowingly or recklessly force-placed its own, much costlier CPI on at least 655,000 vehicles that already had outside insurance.”
That’s a staggering number and it seems National General was grossly incompetent. Among the issues cited by the government was repeatedly mailing letters to wrong addresses and, in “many instances,” not making a simple phone call. The government hammered the latter point as they said National General often made “no phone calls to insurance carriers, agents or borrowers to obtain outside insurance information, despite internal requirements to make a certain number of phone calls.”
Given that, it’s not surprising the government alleges National General reportedly knew its tracking system was “wholly ineffective” and was forcing CPI on hundreds of thousands of borrowers in error. It seems hard to deny that as the DOJ says the company received “thousands of complaints from borrowers” and openly acknowledged the issue internally as well as with Wells Fargo.
Besides having to pay for unnecessary collateral protection insurance, victims had to deal with a host of other issues. The government said this included “improper charges for late fees and interest, negative effects on credit scores, and improper repossession of some financed vehicles.”
If that wasn’t bad enough, dealing with National General was an absolute nightmare. In one case mentioned by the government, a victim financed a Ford Ranger through Wells Fargo. She got insurance on the truck and provided that at the time of purchase. Despite this, she was charged $652 for unnecessary collateral protection insurance.
Roughly a month later, she submitted proof of insurance again. However, National General did not cancel its policy. This pushed the victim to once again provide proof of insurance. After nothing changed, she did it again.
This pushed the company to finally pick up the phone and call the woman’s insurance agent. They reportedly confirmed the truck had insurance and had been insured for months. Even after this, the company reportedly didn’t cancel the collateral protection insurance.
The woman eventually submitted a complaint to the Office of the Comptroller of the Currency, which finally got National General to do the right thing and cancel the policy two days later.
It will be interesting to see how everything plays out, but it sounds like there could be a lot of money on the line.
