National General (NGHC), a home and auto insurance company owned by Allstate, is being looked at by the U.S. Department of Justice because it is said to have forced collateral protection insurance on hundreds of thousands of customers whose cars were already insured by other companies, especially Wells Fargo customers who had loans for their cars.
The case was submitted on July 24. It says, “In fact, from 2008 to 2016, National General knew that it falsely forced people to get insurance between 56 and 93% of the time.” Borrowers were hurt by these unfair force placements, which led them to pay back money they didn’t owe, fail on their loans, have their cars repossessed, and have their credit scores lower.
According to the claims, the company “knew or recklessly disregarded” that borrowers already had coverage and made customers who financed cars through Wells Fargo buy extra comprehensive and accident insurance, or collateral protection insurance that they arranged. The bank was involved in the plan because it had a deal with National General to check to see if a customer had the right car insurance.
“If National General did not obtain proof of such insurance, National General automatically issued a certificate of insurance for its CPI product,” the lawsuit says. This kind of insurance was called “force-placing” insurance because the borrower’s loan cost went up because of the CPI, even though the customer didn’t buy the insurance from National General.
It was proven by the Justice Department, which said that National General “did not call insurance companies, agents, or borrowers to get outside insurance information,” even though it was required to do so. It is also said that the company “failed to match insurance information in its possession to financed vehicles.”
National General insurance company allegedly made huge profit from CPI placements
Customers of Wells Fargo were made to pay for National General’s collateral protection insurance, which cost them an average of $1,100 per loan per year. This may not seem like a lot of money for accident and comprehensive coverage, but data shows that it was more expensive and didn’t cover as much as other companies’ collision and comprehensive coverage.
In the case, the claims keep going. “National General sometimes realized its mistake before the borrower was billed, but between 29% and 63% of the time, it sent the wrong invoice to Wells Fargo, which then sent the wrong invoice to the borrowers, making the borrowers pay premiums and other fees related to the CPI that they did not owe.”
A lot of people had this trouble. From 2005 to 2016, National General “wrongly placed” between 1.2 million and 2.1 million collateral protection policies. Not all of these policies were paid for; between 600,000 and 700,000 were canceled before the user was charged for them. The rest were not paid for, and Wells Fargo customers were responsible for the bills. National General made over $500 million in premiums and other fees.
This problem was not noticed for a long time, as shown in the papers. “National General either knew or carelessly ignored the fact that it was sending false claims for CPI and charging for unnecessary insurance, but it didn’t do anything to lower the number of false claims.” The Wells Fargo account manager for NGLS said that false placements were just “a function of the program.”
The company denies all the accusations, saying, “These accusations are false, and we are committed to sharing the facts.” They are facing the harshest punishment possible under the Financial Institutions Reform, Recovery, and Enforcement Act, which is “in an amount to be determined at trial.”
This case from the Justice Department is likely to be a major one, since it is happening at a time when rates are going up because of inflation and other things. Indeed, this is such a widespread issue that 49% of Americans say they think they pay too much for car insurance, which is made worse in situations like this one where they are actually being ripped off.