Consider All the Costs
Few things beat the thrill of driving off the auto dealership with your new car – but are you paying more for that thrill than you should be paying?
Presumably, you shopped around to find the car you wanted at the best price, and remembered to compare all the associated taxes and fees when considering overall costs. Did you also consider financing options before making your final choice on a particular car and dealership? If not, you are likely to be negotiating on the fly with your dealership's finance group without fully understanding the options, and possibly accepting terms that lead to unexpected hassles and expenses.
Even when the terms are acceptable, you must make sure that both parties are holding up their end of the bargain. You make your payments on time, but are those payments being inflated? For an example, we turn to recent issues with auto loans financed through Wells Fargo.
Unnecessary Insurance, Unexpected Charges
Wells Fargo has been under scrutiny for multiple financial misdeeds in recent years, and the bank's problems continue. According to the Wall Street Journal, the Office of the Comptroller of the Currency (OCC), a primary bank regulator, recently notified Wells Fargo of possible enforcement actions regarding financial irregularities, including improper practices regarding auto insurance corresponding to auto loans.
In a news release this summer, Wells Fargo admitted that almost 600,000 customers who financed their auto loans through Wells Fargo were charged with unnecessary collision insurance. As a result, the cars of approximately 20,000 customers were improperly repossessed for failure to pay those extra charges. According to the New York Times, a report prepared by an outside consulting firm outlined the problems to Wells Fargo management this summer.
When a consumer financed their car through Wells Fargo, the consumer's information was sent to Wells Fargo's underwriter (National General) for processing through a database to verify if insurance coverage was already present. If no coverage was found, Wells Fargo imposed their own – at costs that the Wells Fargo website concedes, "may be considerably more expensive than insurance you can obtain on your own."
While you must have proof of insurance to be able to drive off the lot in your new car, that insurance does not have to come through your auto loan provider. Wells Fargo imposed their relatively expensive insurance on some customers when alternate insurance was already in place, and automatically deducted payments without notifying all customers.
Layers of Harm
Customers who were not paying attention to their account balances may not have noticed the mistake until being hit with a fee for insufficient funds. In some cases, customers notified Wells Fargo of the dual charges but had difficulty removing the Wells Fargo insurance and receiving credit for previous charges.
The Times reported that one customer provided proof of separate insurance to the bank on three different occasions but still received calls demanding payment on the insurance imposed by Wells Fargo. Failure to pay these charges led to improper repossessions.
Consumers suffered further damage because of the Wells Fargo rules on allocating loan payments. It's not unusual for loan payments to be applied to interest charges before principal, but the Wells Fargo rules also applied payments to the interest on the imposed insurance – known as Collateral Protection Insurance or CPI – before addressing any principal at all. This hierarchy increased the overall interest that borrowers paid over the course of the loan.
Wells Fargo announced that it would pay out up to $130 million in restitution, with about $100 million as cash reimbursements and the remainder in account adjustments. While that certainly helps wronged customers, it can't retroactively deal with the inconvenience of having cars repossessed or the damage to credit reports and credit scores because of missed payments and repossessions. If you feel you were harmed by the bank's action, visit its website for more information.
The Wells Fargo story outlines one of the more deceptive ways that you may be overcharged on an auto loan, but that's certainly not the only avenue to overpaying for your car. Your best defense against being overcharged on an auto loan is preparation and vigilance.
Prepare by seeking financing quotes before you ever go to the dealership. You will be able to compare the dealer's offer to your existing ones and use competing quotes as leverage to get a better deal from the dealership.
Make sure you thoroughly understand the terms and conditions of all offers, and consider what type of insurance you want to purchase compared to what your state requires. For example, do you need guaranteed access protection (GAP) insurance that covers the difference in the replacement value of your car and how much you owe on your loan?
Once your auto loan is complete, vigilance begins. Make sure that your monthly auto loan payments are exactly the amount that you expected them to be – and if not, notify your lender as quickly as possible to attempt to resolve the issue amicably. Double-check your accounts to make sure that automatic payments have not been added or the amount has not been altered.
As long as you make your payments in full and on time, there's no reason for you to pay more than the agreed-upon amount – whether the reason behind the change is an honest mistake or intentional deception.
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