On October 7, the CFPB released the fall edition of its supervisory highlights, “Auto Finance Special Edition,” which focuses on the auto finance market. The report highlights the various steps taken to address problems the CFPB claims it has seen in the auto financing sector, including deceptive marketing practices, unfair foreclosures, and failures in managing services and add-on products. Focuses on supervisory observations and enforcement actions.
Citing Federal Reserve data showing auto loans totaling more than $1.6 trillion as of the second quarter of 2024, the report said auto loan debt now exceeds all other household debt excluding mortgages. exceeds the debt category.
This report covers tests conducted between November 1, 2023 and August 30, 2024. The CFPB said inspectors made the following supervisory observations:
Disclosure of origin
The examiner noted problems with the way the auto finance company disclosed the annual percentage rate (APR) and prepayment penalties at inception.
The Bureau alleged that subprime loan originators engaged in deceptive practices by advertising “lowest” annual interest rates for which consumers had no reasonable prospect of qualifying. The examiner found that TILA’s disclosure that consumers may have to pay a penalty if they paid early was inconsistent with the retail installment sales agreement’s disclosure of a prepayment penalty. was inaccurate and in violation of the Truth in Lending Act (“TILA”). If the loan was paid early, there were no finance charges.
Foreclosure activity
The report highlights foreclosure practices that it claims are unfair.
Wrongful repossession of a vehicle due to the service provider’s failure to cancel a repossession order when the consumer has made a payment or received a loan deferment, loan modification, or extension that should have prevented repossession. The act of seizing a vehicle without a valid recorded lien against the vehicle.
Service practice
The department identified two maintenance problems: improper payment allocation and excessive delays in providing vehicle titles.
According to the report, some servicers misallocate payments on borrowers’ auto loans, such as applying payments first to late fees instead of applying them to loan principal and interest, resulting in Borrowers reportedly had to pay incorrect late fees. The CFPB argued that this constituted a deceptive and unfair practice because consumers incurred late fees because payments were applied in a different order than disclosed on the servicer’s website. The CFPB also found that servicers acted unfairly by not transferring ownership of vehicles in a timely manner after the loan was paid off, harming consumers who were unable to legally sell their vehicles or were forced to pay additional insurance costs. insisted.
add-on products
The CFPB alleged a number of fraudulent and unfair acts and practices related to add-on products, including:
The examiner held that charging a consumer for an optional add-on product that the consumer did not consent to purchase was fraudulent because the consumer did not know or consent to be charged. . The administration found that the breakdown of the loan amount failed to identify the recipient of the add-on product and did not include the amount paid by the creditor to another party, thereby violating Regulation Z, 1026.18(c)(1)(iii). the Bureau insisted. on behalf of the consumer. Imposing onerous requirements for canceling add-on products, such as requiring borrowers to make two separate visits to the dealership to cancel unwanted add-on products, making it difficult for consumers to exercise their cancellation rights; I couldn’t do it. Failing to honor contractual cancellation rights after early termination of a loan by not providing refunds or credits to consumers for unused portions of canceled products and not guaranteeing refunds of unearned premiums. Providing incorrect refund amounts for add-on products after early termination and denying consumers the refunds they are entitled to. In some cases, when add-on refunds were offered, we were unable to provide them in a timely manner. For example, the agency claims that in some cases, refunds were applied an average of 84 days after a vehicle’s post-repossession sale, and at least one refund occurred 423 days after the sale. Continuing to collect monthly payments when consumers are eligible for GAP products and miscalculating refunds to consumers who have made those payments.
furniture defects
The CFPB alleged that auto lenders and servicers provided the following information to credit reporting agencies in violation of the Fair Credit Reporting Act and Regulation V:
Report information about actual errors, such as an incorrect amount past due on a charged-off account, an incorrect date on which a borrower is delinquent on a payment, or an incorrect amount of the actual payment after payoff or settlement. In some cases, lenders relied on computer systems that were not designed to report information about auto loans. After we determined that information was incomplete or inaccurate through our monitoring or audit activities, we failed to promptly update or correct inaccurate information, sometimes for months or more than a year.
Development of supervision and enforcement
The report also highlights several advisory opinions, circulars, and proposed regulations recently issued by the CFPB, including FAQs on “buy now, pay later” products, deed contracts, These include an advisory opinion on consumer protections for home sales financed under the Act, and a proposed rule to standardize submitted data. Notice to Federal Financial Institutions, Warning Circular Regarding Use of Non-Disclosure Agreements That May Deter Whistleblowing, and Proposed Interpretive Regulations Regarding Earned Wage Access Products.
Finally, the report noted several enforcement actions against financial institutions related to student loans, credit reporting, mortgage repayments, lender insurance for auto borrowers, and the opening of fake accounts.
