The United States has filed a civil complaint under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) against National General Holdings Corp. and its subsidiaries, including National General Insurance Company, National General Lender Services Inc., and Newport Management Corporation. The lawsuit alleges that for over a decade, National General erroneously force-placed its Collateral Protection Insurance (CPI) product on vehicles financed through Wells Fargo, despite borrowers already having insurance through other carriers.
"Companies must deal fairly and honestly with consumers," stated Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. "Today’s lawsuit demonstrates that the department will use all of the tools at its disposal to protect the American public against deceptive and fraudulent business practices."
"Today’s complaint alleges a long-running scheme to defraud hundreds of thousands of car buyers," said U.S. Attorney Eric G. Olshan for the Western District of Pennsylvania. "For years, these defendants saddled ordinary Americans, including residents of this district, with allegedly unnecessary insurance, leading to dire real-world consequences like repossessed vehicles and other unwarranted collection activities. This enforcement action reinforces an important message: our office, together with our law enforcement partners, will take decisive action to combat fraud in the insurance industry, protect consumers and hold companies accountable for their wrongdoing under federal law."
The government’s complaint, filed in the U.S. District Court for the Western District of Pennsylvania, alleges that from at least 2008 through the latter part of 2016, National General systematically failed to accurately track whether cars financed by Wells Fargo had requisite insurance coverage from an outside carrier. As a result, they knowingly or recklessly force-placed their own costlier CPI on at least 655,000 vehicles that already had outside insurance.
Specifically, it is alleged that National General's tracking efforts were deficient due to various reasons: repeated mailing of letters seeking insurance information to addresses previously returned as undeliverable; failure to make phone calls to obtain outside insurance information despite internal requirements; and often failing to match existing insurance information with financed vehicles.
According to the complaint, National General was aware for years that its tracking system was ineffective and routinely imposed force-placed CPI on hundreds of thousands of borrowers in error. They allegedly received thousands of complaints from borrowers and reported high "false placements" rates both internally and to Wells Fargo throughout the relevant period.
The complaint further claims that falsely placing CPI led borrowers to be charged duplicative and unnecessary premiums without adequate notification. Additionally, it contends that this conduct resulted in improper charges for late fees and interest, negative effects on credit scores, and improper repossession of some financed vehicles.
FIRREA authorizes the Attorney General to bring a civil action for penalties related to violations involving financial institutions or particular government agencies based on certain criminal predicate offenses established by a preponderance of evidence. The United States’ complaint alleges that National General violated FIRREA by committing predicate acts such as mail fraud, wire fraud, and bank fraud.
The Civil Division’s Commercial Litigation Branch (Fraud Section) along with the U.S. Attorney’s Office for the Western District of Pennsylvania handled this matter. The United States is represented by Trial Attorneys Lindsay DeFrancesco and Laura Hill from the Civil Division’s Fraud Section along with Assistant U.S. Attorney Adam Fischer for the Western District of Pennsylvania.
The claims asserted against defendants are allegations only; there has been no determination of liability.
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