Wells Fargo also apologized to customers who might have been charged wrongly due to its controversial CPI policies.
The bank ended the program in September.
The revelation threatens to undermine the bank's 10-month effort to restore its image after authorities announced a year ago that branch workers may have opened millions of unauthorized accounts for customers. It estimated that the bank owed $73 million to wronged customers. "So Wells has to justify why auto dealers should do business with them".
The insurance, known as CPI or collision protection insurance, was purchased by Wells Fargo from third-party vendors if there was no evidence the customer had already purchased insurance.
Collateral protection insurance is created to protect the lender against loss or damage to a vehicle that is serving as collateral for securing a loan.
The bank said that in response to customer concerns, it reviewed the collateral protection insurance program and vendor practices.
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Wells admits its systems signed up customers who already had insurance and that some premiums "may have contributed to a default that led to their vehicle's repossession". Wells Fargo and other lenders often require that auto-loan customers have such policies, and if the customers can't prove they do, the lenders often will buy a policy on their behalf and pass along the cost.
"In the fall of past year, our CEO and our entire leadership team committed to build a better bank and be transparent about those efforts", Franklin Codel, head of Wells Fargo Consumer Lending, which includes the Dealer Services unit, said the statement. "Upon our discovery, we acted swiftly to discontinue the program and immediately develop a plan to make impacted customers whole".
Wells Fargo made its announcement shortly after the New York Times published an article, based on a report commissioned by the bank, that first reported the problem and said more than 800,000 customers may have been affected. The total cost for remediation for those customers is $25 million. About 490,000 customers had duplicate vehicle insurance coverage and another 60,000 customers did not receive proper disclosures from vendors as required in their states. In these cases, even if the insurance was required, customers will receive a refund including premiums, fees and interest. That group will get $39 million.
The bank said it will work with the credit bureaus to correct customers' credit records, if applicable.
Starting in August 2017, Wells Fargo will reach out to impacted customers with letters and refund checks.
CPI insurance protects against loss or damage to a vehicle serving as collateral to secure a loan and helps ensure that borrowers can pay for damages to a vehicle. But the bank did not always do so, the report said.
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