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Wells Fargo should have seen add-on-product trouble coming

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Wells Fargo was certainly warned.

The San Francisco bank said Thursday that it is working with its regulators on a review of add-on products it sold to customers, and will provide refunds if issues are found. Meanwhile, The Wall Street Journal reported that Wells is already in the process of refunding tens of millions of dollars to customers — the latest headache for a company that has had more than its share over the last two years.

Wells first disclosed its problems with add-on products last August, when the bank stated in a securities filing that the products under review included identity theft protection and debt protection services.

But the relevant timeline here stretches back much further — at least to the early days of the Consumer Financial Protection Bureau.

In July 2012, just six months after Richard Cordray’s appointment as the nascent agency’s director, the CFPB issued a compliance bulletin related to credit card add-on products, including debt protection and identity theft protection.

The industrywide bulletin stated that banks should ensure that scripts and manuals for telemarketers and customer service representatives accurately state the terms and conditions of various products. It also said that consumer complaints indicated that consumers had been deceived by misleading tactics.

“The CFPB will take all necessary steps to ensure that consumers are protected from deceptive sales and marketing practices,” the bulletin stated.

But Wells was apparently undeterred by the CFPB’s warning. American Banker reported in 2013 that while American Express, Bank of America, JPMorgan Chase and Discover had all stopped online marketing of identity theft protection, Wells Fargo had not.

Debt protection products are contracts that cancel or suspend a borrower’s obligations under certain specified circumstances. They have faced criticism for not only the way that they are often marketed, but also for carrying relatively high fees while offering limited benefits.

Identity theft protection products generally include credit monitoring services, which are sold as a way to fend off criminals who apply for loans using the identity of unwitting consumers. Critics point out that credit monitoring does nothing to prevent identity theft, while its advocates say that it ensures that consumers learn about any problems right away.

Both identity theft protection and debt protection services are part of Wells Fargo’s ongoing review of add-on products, according to securities filings by the bank. The review is looking at products that were added on to both credit cards and mortgages, a source familiar with the matter said.

This person also said that Wells stopped offering all consumer add-on products in mid-2017. Some of the products were terminated immediately, while others will not be renewed, according to the source.

In May 2015, Wells Fargo received another warning from regulators. Members of the bank’s board of directors, including then-CEO John Stumpf, signed a consent order regarding add-on products with the Office of the Comptroller of the Currency.

That order, which required the bank to pay a $4 million civil money penalty, concerned the bank’s billing and marketing practices for identity protection and debt cancellation products.

Wells Fargo neither admitted nor denied wrongdoing, and the 2015 order received far less attention than the bank’s phony-accounts scandal, which erupted in the wake of another regulatory settlement 16 months later.

But the OCC’s conclusions in 2015 were harsh.

For example, the agency found that in some instances, Wells Fargo’s vendor started billing customers before they had provided their consent.

The OCC also found that between 2004 and 2014, the bank, through a vendor, billed some customers the full fee for certain products even though they had not received all of the services that they were supposed to get.

Between 2005 and 2013, some Wells Fargo customers were unfairly charged recurring late fees because of how the billing cycle for a debt cancellation product worked, according to the OCC.

And between 2005 and 2012, some customers were charged fees even though they canceled within what was billed as a 30-day risk-free review period.

The review that Wells Fargo now has under way reportedly goes beyond just the small number of add-on products that were highlighted by regulators in 2012 and 2015. The Wall Street Journal reported that Wells last year hired Ernst & Young to review around 15 to 20 of the roughly 85 add-on products that the bank offered.

Still, the bank has had ample time to resolve these particular problems. That it hasn’t yet is the latest in a series of self-inflicted black eyes.

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