Wells Fargo: Gap Insurance Options

Wells Fargo offers Guaranteed Asset Protection (GAP) insurance, which is a type of car insurance that covers the difference between what a borrower owes on a vehicle and what the insurer is willing to pay in the event of theft or damage. This type of insurance is optional and is paid upfront for the term of the loan. As a result, if a borrower pays off their loan early, they are entitled to a refund of the unused portion of their GAP insurance. However, Wells Fargo has faced multiple lawsuits alleging that the company withheld reimbursement of GAP insurance funds to customers who paid off their car loans early. In 2021, Wells Fargo agreed to pay $500 million to settle a class-action lawsuit, refunding customers who paid off their car loans early and were charged improper GAP insurance fees.

What is GAP insurance?

Guaranteed Asset Protection (GAP) insurance is an optional product that covers the difference between the amount owed on an auto loan and the amount the insurance company pays if the car is stolen or totaled. This type of insurance is intended to protect the lender against the loss of value sustained by the car the moment it is driven off the lot.

When you buy a new car, it starts to depreciate in value as soon as it leaves the car lot. Most cars lose 20% of their value within a year. Standard auto insurance policies cover the depreciated value of a car, which is the current market value of the vehicle at the time of a claim. GAP insurance covers the difference between what a vehicle is currently worth (which standard insurance will pay) and the amount still owed on it. This type of insurance is especially useful if you made less than a 20% down payment, financed for 60 months or longer, leased the vehicle, purchased a vehicle that depreciates faster than average, or rolled over negative equity from an old car loan into the new loan.

GAP insurance is not mandatory for car owners, but it is often recommended by lenders and pushed by car dealers. The insurance generally costs between $400 and $600, and borrowers who pay off their loans before the due date are entitled to a partial refund of this cost. Several states have laws requiring lenders to refund the cost of this unused insurance or to credit the cost towards the borrower's account, reducing the overall amount owed.

Wells Fargo does offer GAP insurance, but the bank has faced scrutiny for allegedly withholding reimbursement of funds to customers who purchase the insurance policy and pay off their auto loans early.

Does Wells Fargo offer GAP insurance?

Yes, Wells Fargo offers Guaranteed Asset Protection (GAP) insurance, which is a special type of car insurance that covers the "gap" between the amount owed on a loan and the vehicle's value in the event of a total loss. This type of insurance is intended to protect the lender against the loss of value sustained by a car when it is driven off the lot and can also protect lenders if a borrower loses their job and is unable to pay off their loan. GAP insurance is not mandatory for car owners but is often recommended by lenders and pushed heavily by car dealers. The insurance generally costs between $400 and $600, and when borrowers pay off their loans before the due date, they are entitled to a partial refund of this cost.

Wells Fargo GAP Insurance Lawsuits

Wells Fargo has been accused of failing to pay GAP refunds when consumers terminate their car loans early by paying them off, selling their vehicles, or refinancing. In 2018, a group of plaintiffs filed a class-action lawsuit against Wells Fargo for the bank's alleged failure to pay GAP refunds, claiming that the bank violated GAP agreement terms. Wells Fargo agreed to pay $500 million to end this class-action lawsuit and refund consumers who paid off their car loans early and paid what they say were improper GAP insurance fees.

Wells Fargo GAP Insurance Refunds

Wells Fargo customers who pay off their financing agreements early or whose vehicles are repossessed may be eligible for a refund of any unearned portion of the amount they paid for GAP insurance. In certain states, state law requires indirect auto lenders to ensure that a refund is issued, and Wells Fargo has provided remediation to customers in several states who may not have received a refund.

Do I have to pay for GAP insurance?

GAP insurance, or guaranteed asset protection insurance, is a type of car insurance that is intended to protect the lender against the loss of value sustained by the car the moment it is driven off the lot. While regular car insurance generally only covers the current market value of the vehicle, GAP insurance helps to offset that loss in value for the lender. Additionally, GAP insurance, like home mortgage insurance, protects lenders in the event that a borrower loses their job and is unable to pay off their loan.

Wells Fargo does offer GAP insurance, but consumers claim that the bank intentionally withholds reimbursement of funds to customers who purchase the insurance policy. According to a report by the New York Times, approximately 800,000 customers may have been affected by Wells Fargo’s alleged refusal to refund auto insurance when the auto loan was paid off early.

GAP insurance is not mandatory for car owners, but it is often heavily pushed by car dealers and recommended by lenders. The insurance generally costs between $400 to $600, and when borrowers pay off their loans before the due date, they are entitled to a partial refund of this cost because the insurance coverage they have paid for is no longer in use.

Several states have laws requiring lenders to refund the cost of unused insurance, including Alabama, Colorado, Indiana, Iowa, Maryland, Massachusetts, Oklahoma, Oregon, and South Carolina. Every state has laws requiring that the cost of unused insurance be credited towards the borrower's account, reducing their overall amount owed.

If you are considering GAP insurance, you don't need to buy it from the dealer. In fact, most of the time, they will charge a significant profit. You can add it to your current insurance policy for around $10 per month. It's not very expensive, and you can add GAP insurance at any time. Keep track of your car's value and your payoff amount. If it gets more than you want to risk, you can purchase the insurance at that time.

Bottom line: if you put normal wear and tear on a car, don't have an ultra-long loan term, or buy a car that depreciates very quickly, you most likely don't need GAP insurance. But if you do, shop around for the lowest cost and only add it if the current value exceeds the loan payoff amount by more than you are willing to risk.

Can I get a refund on my GAP insurance?

Yes, you can get a refund on your GAP insurance under certain conditions. GAP insurance, or Guaranteed Asset Protection insurance, is a type of optional car insurance that covers the difference between the current market value of the vehicle and the remaining loan amount in the event of a total loss. It also covers the lender in case the borrower loses their job and is unable to pay off their loan.

You may be eligible for a refund on your GAP insurance if you:

• Pay off your auto loan early.
• Sell or trade in your vehicle before the loan term ends.
• Switch to a different insurance company (within 30 days of the policy's start date for a full refund).

However, you will not be eligible for a refund if you have filed a claim against the policy or if your vehicle is declared a total loss and your GAP policy pays out.

To request a refund, you should first contact your insurance agent or company to express your intention to cancel your policy. They will provide you with the necessary paperwork and let you know what other information is required. This typically includes an odometer disclosure statement and, in some cases, a letter from your lender verifying that the car loan was closed. After submitting the required documentation, you should receive your refund in the form of a physical check or direct deposit, depending on your preference.

It's important to note that Wells Fargo has faced scrutiny and legal action for allegedly withholding GAP insurance refunds from customers. As a result, they have remediation programs in place to address these issues. If you believe you are eligible for a GAP insurance refund from Wells Fargo, you can contact their Auto Customer Service Team at 1-800-289-8004.

How do I pay off my auto loan?

Wells Fargo does offer Guaranteed Asset Protection (GAP) insurance, which is a special type of car insurance that is intended to protect the lender against the loss of value sustained by the car. While Wells Fargo does offer GAP insurance, there have been consumer complaints that the bank intentionally withholds reimbursement of funds to customers who pay off their loans early.

Now, here are some ways to pay off your auto loan faster:

Make a full lump-sum payment:

Consult your lender to understand the payoff amount, which includes the remaining balance, interest, and any outstanding fees. Paying off the entire auto loan at once is a great way to settle your loan all at once.

Make a partial lump-sum payment:

If you have some extra cash, putting down a couple of months' worth of payments can help you get ahead of your loan schedule and save on interest.

Make extra payments each month:

You can make bi-weekly payments, throw in an extra $50 when possible, or even double your payment if you have extra cash. This will help you pay off your loan faster and save on interest.

Make larger payments each month:

An easy way to do this is by rounding up your monthly payments. For example, if you pay $564 a month, round it up to $600. While the difference may feel small, it will compound and help you pay off your loan faster.

Request extra or larger payments go toward your principal:

Your lender may allow you to build equity faster by applying extra payments directly to the principal amount, rather than mostly to interest each month.

Refinance with a new lender:

Refinancing can help you pay off your loan faster by allowing you to secure a shorter loan term with a lower interest rate. Even if you don't make extra payments, you will naturally pay off your loan faster with a lower interest rate.

Make a large additional payment:

Using large lumps of cash, such as tax returns or bonuses, can help reduce your principal by a few hundred dollars. This will prevent interest from accumulating and lead to an early payoff.

Opt-out of unnecessary add-ons:

If you added optional protection like GAP insurance or an extended warranty, you can contact your provider to cancel them. You should receive a prorated refund, lowering your monthly payment. Applying this refund to your loan will help you owe less overall and benefit from a lump sum payment.

Please note that before making any changes to your payment schedule, it is important to consult your lender to avoid any extra fees or penalties. Some loan agreements have early payment penalties, which would defeat the purpose of paying off your loan early. Additionally, paying off your loan early may not always be the best financial decision, especially if you have other higher-interest loans or if paying off the loan early will stretch your finances too thin.

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