Last month, the bank sent letters to hundreds of independent dealers, telling them that they were being dropped as customers, according to sources who know about the situation, CNBC reported.
The bank confirmed that it would no longer be accepting loan applications from independent shops, which sell used cars a lot of the time as opposed to the brand-new models sold by bigger dealers. The bank typically only makes auto loans through car dealerships.
The reason, according to a quote from Wells Fargo, has to do with the coronavirus pandemic and its uprooting of normal business life.
Spokeswoman Natalie Brown, in an email to CNBC, said the bank had “an obligation to review our business practices in light of the economic uncertainty presented by COVID-19 and have let the majority of our independent dealer customers know that we will suspend accepting applications from them. The independent dealers we will continue doing business with are those with deep, long-standing relationships with Wells Fargo.”
Independent auto shops make up less than 10 percent of the 11,000 dealers Wells Fargo uses to sell auto loans. The main reason the bank was concerned about independent shops was the credit quality of loans from those dealers, according to one source CNBC spoke to.
Wells Fargo also had to back off from its mortgage business during the pandemic. Due to a 2016 scandal in which bank employees started millions of fake accounts under peoples’ names, the bank is now under a mountain of consent orders that limit its abilities to grow the balance sheet.
The pandemic only added fuel to that fire, as the bank found itself inundated with loans that strained Wells Fargo’s regulatory asset cap. New CEO Charlie Scharf, who came on board after the scandal forced out his predecessor, said the pandemic has not been easy for the bank due to its prior circumstances.
“We’ve had to take substantial actions to get down below the cap,” Scharf said, according to CNBC. “We’ve obviously not been able to grow. We’ve been there to serve customers who are longstanding customers who have committed facilities with us. But there are a bunch of things that we haven’t been able to do because the asset cap.”
On Monday (June 1),Wells Fargo announced new hires for a risk-management team.