Wells Fargo, one of the largest U.S. auto lenders, could end up paying more than $400 million in guaranteed asset protection refunds beginning in 2022 to U.S. car buyers who pay off auto loans early as part of a proposed class-action settlement filed Monday in a California federal court.
In a statement, Wells Fargo would only acknowledge reaching a “$45 million settlement, which leverages remediation the company began executing in late 2018.”
That figure references the supplemental settlement fund to be paid out once the agreement is official. The lender called it “an important step in making things right for customers.”
Plaintiffs are valuing the settlement at nearly $500 million, which includes their estimation of $417 million in GAP fee refunds to be paid out for four years, starting Jan. 1. Wells Fargo giving back unearned GAP fees to consumers who pay off vehicle loans early was a key goal, according to plaintiffs — a practice they hope the lender adopts permanently after the four-year period is up.
U.S. District Judge James Selna of the Central District of California on Tuesday granted preliminary approval of the settlement.
The settlement comes after three years of legal battles between Wells Fargo and consumers, who say the company has withheld several hundred million dollars in GAP fees they say it was supposed to give back.
Wells Fargo previously said it does not receive the GAP fees and therefore is not responsible for any refunds. Instead, the lender said customers should seek refunds from the dealerships that sold them the vehicles.
Wells Fargo, in its statement, said it “disclosed in 2017 that we had discovered issues with how Guaranteed Auto Protection (GAP) refunds are issued to customers when their loans end early. While we have been remediating customers, we have also been looking for ways to make this process easier for them. For example, we are building the capability to deliver GAP refunds directly to consumers nationally when their loans end early, which goes above and beyond requirements in most states. After we issue these refunds, we’ll work with dealers to be reimbursed.”
An attorney representing the plaintiffs declined to comment on the settlement.