Vol. 5 No. 265 - August 10, 2017 - Click here to access our library. 

Regulatory Update

As part of our ongoing investigation into American Home Shield (AHS), we have reviewed a number of consumer complaints, received through a FOIA request, that claim Wells Fargo added unauthorized charges for AHS home warranties to customers’ Wells Fargo mortgage statements. 

In addition to potentially providing another avenue of scrutiny for Wells Fargo, legal experts we spoke with said the complaints could expose AHS to “joint and independent” legal scrutiny from state and federal regulators, litigators, and other entities pursuing action against Wells Fargo for similar sales practice issues.

Unauthorized charges. In response to a FOIA request, the FTC provided us with 32 complaints filed in its Consumer Sentinel Network between January 1, 2009 and December 31, 2012.

Several of the complaints relate to unauthorized monthly charges for AHS home warranties Wells Fargo included on customers’ mortgages. Public complaints posted online as early as 2009 and as late as September of 2013 echo those found in the FTC’s database.

The complaints we reviewed claim Wells Fargo tacked unauthorized charges for AHS home warranties as an “optional product” on customers’ Wells Fargo mortgage statements. Those optional product charges ranged from $33 to $69.11 per month.

Some customers claim they had never heard of AHS before the charges appeared on their statements. One complaint posted online claims the customer “was never contacted by AHS with any offer, they never sent any receipt or contract; but I was billed $43 extra on my mortgage bill by Wells Fargo."

Others say the charges appeared after they had been marketed to by Wells Fargo or AHS. One customer says AHS contacted them to advertise the company’s home warranty service contract. “I was advised they would send out an informational packet for me to review,” the complaint reads. “I had until Jan. 1, 2012 to cancel the service with no charge.”

A month after calling to cancel the service on December 15, the customer says a $53.25 charge appeared on their Wells Fargo mortgage statement. Despite directly requesting both Wells Fargo and AHS to stop the unauthorized charges, the charge showed up on their monthly mortgage statement for the next five months.

Another customer in Uniontown, Ohio, claims Wells Fargo “calls our home regularly trying to sign us up for the warranty and we decline each time.” In March of 2012, they were “shocked” to see a charge of $33.67 for an AHS home warranty on their mortgage statement.

When the customer contacted Wells Fargo to question the charges, they were informed they had been charged each month since January 2011 for an AHS home warranty the complainant says they never purchased or authorized.

Many of the complaints we reviewed note that their efforts to cancel the charges led them back and forth between the two companies. For example, when one customer requested Wells Fargo discontinue the charges, the bank told the customer they “must contact AHS directly to correct their mortgage statement.”

“Each company blames the other, passing the buck and offering conflicting information,” says another online complaint. “Delays and excuses abound. The whole thing is disingenuous and sneaky.”

Companies confirm relationship. Wells Fargo and AHS have confirmed to The Capitol Forum that the companies previously maintained marketing and payment processing relationships. A spokesman for Wells Fargo told us the companies’ marketing relationship was discontinued in 2012. However, the spokesman indicated that the bank continued to process payments for AHS home warranty products through consumers’ Wells Fargo monthly mortgage statements as recently as March of 2017.

A Closer Look at Regulatory and Legal Risk

We spoke with numerous legal experts who indicated that the complaints of unauthorized charges could expose AHS to scrutiny from state AGs, federal regulators, policymakers, and litigators pursuing related actions against Wells Fargo. For example, O. Max Gardner III, a consumer bankruptcy lawyer in North Carolina, said there is “no doubt” in his mind that the complaints could concern both state-level and federal entities, exposing AHS to both “joint and independent risks.”

Ongoing scrutiny of Wells Fargo. The DOJ is currently investigating the bank, which has entered into separate consent orders with the CFPB and the OCC. Wells Fargo is also subject of a Federal Reserve Board Bank of San Francisco regulatory inquiry, subpoenas recently issued by the New York Attorney General, and litigation in several jurisdictions across the country.

Complaints alleging the bank issued unauthorized charges for AHS products on customers’ mortgage statements may draw the home warranty company and parent-company ServiceMaster into these ongoing interests of regulators and policymakers investigating Wells Fargo. Lawyers we spoke with added that the complaints may raise questions as to whether or not Wells Fargo’s business practices involved other third-party products or businesses.

We spoke with Theodore O. Bartholow III, a partner with Kellett & Bartholow currently involved in litigation against Wells Fargo in which the plaintiffs are alleging that Wells Fargo improperly changed the terms of their customers’ mortgages. Bartholow said that if nothing else, the unauthorized charge complaints we uncovered would likely be of interest to motivated policymakers like Sen. Elizabeth Warren (D-MA) looking for any example of unauthorized sales practices as another “nail in the coffin” for Wells Fargo.

State level risk. Legal experts we spoke with said the complaints we found could draw scrutiny from state Attorneys General and their consumer protection teams. Marc Dann, a former Attorney General of Ohio, told us that beyond existing interest in further scrutiny of Wells Fargo, state prosecutors may have concerns with the complaints under the same state-level UDAP laws we previously reported may pose separate legal risks to AHS

Federal scrutiny. Gardner and other sources we spoke with told us the CFPB would likely have both jurisdiction and interest regarding complaints alleging improper charges for AHS warranties through Wells Fargo mortgages. Dann indicated that in light of the consent order with the CFPB, the CFPB may be particularly able and interested in investigating the relationship between Wells Fargo and AHS.

Multiple sources told us on background that “more is coming on Wells” from CFPB enforcement. While they did not believe that new developments included the relationship between Wells Fargo and AHS we discovered, sources we spoke with indicated that relationship could provide another possible avenue of inquiry for CFPB and other interested parties.

Potential legal theories against AHS. We spoke with Mr. Bartholow about the allegations in the complaints. According to Bartholow and another legal expert who wished to remain anonymous, the behavior alleged in the complaints may have violated civil RICO statutes, depending upon the level of knowledge or involvement AHS had with the unauthorized charges.

Multiple lawyers we spoke with also said the nature of both the authorized and unauthorized charges for AHS products through Wells Fargo mortgages raise “red flag” questions of possible Truth in Lending Act disclosure violations and potential kickbacks prohibited by RESPA. One foreclosure defense attorney we spoke with added that the arrangement could have had harmful effects on consumers’ APR and credit.

Statements from Parties

We reached out to both Wells Fargo and AHS for comment.  A spokesman for Wells Fargo said: “Wells Fargo’s processes for customers who purchased home warranty coverage through American Home Shield included a written or recorded verbal authorization at the time of enrollment.  A high percentage of Wells Fargo mortgage customers who obtained home warranties through the direct marketing programs utilized services through their coverage, which indicates those customers were aware of and benefited from the product.  Charges for the home warranty coverage were listed on monthly mortgage statements and customers could ask to cancel their coverage at any time.  We do take every complaint seriously and will respond to any customers who have questions about this matter.

"As we shared with you previously, Wells Fargo stopped marketing home warranties from American Home Shield, along with other optional products, to our mortgage customers in 2012 and has been discontinuing arrangements through which these products had been billed to customers through their monthly mortgage statements. Both decisions were due to changing strategies and priorities in the business, and not to customer complaints.”

A spokesman for American Home Shield responded, saying: “American Home Shield is committed to providing excellent service and value to our customers. Over the past five years, we have responded to more than 16 million service requests and have paid more than $1.8 billion in repairs and replacements on behalf of our customers. As the largest home warranty company in the nation, we receive and pay more in claims than any other provider in the country.

There are almost always opportunities for improvement in any service business. We actively work to address customer concerns and to understand why and where breakdowns may occur in the service journey, so that we can continue to improve the services we provide to our customers.

With regard to possible FTC complaints involving Wells Fargo customers from 2009 to 2013, we have had insufficient time to research the validity and/or resolution of those complaints, but our practice has always been to work with customers to address complaints as they are raised and to make every effort to resolve those complaints. We are unaware of any unresolved issues along these lines.”