/>iOn October 7, the CFPB announced the release of a special edition of its Supervisory Highlights, focused on the agency’s most recent findings in auto financing. The CFPB’s Supervisory Highlights cover select examinations related to auto finance that were completed between November 1, 2023, and August 30, 2024. Main takeaways include:
Compliance Failures with Add-On Products
- The Bureau reports that many auto loan consumers have encountered issues with unnecessary add-on products like extended warranties and guaranteed asset protection insurance. For example, examiners found that auto-finance companies engaged in abusive acts or practices when they collected and retained amounts for optional add-on products that consumers did not agree to purchase; the companies were found to have added in these products when refinancing consumers’ auto loans. In addition to stopping these practices and updating their risk management and compliance practices, the companies were advised to hire an external consultant to advise on the companies’ remediation plan.
- The Bureau found that servicers engaged in abusive acts or practices by making add-on products too difficult to cancel. Specifically, the servicer required consumers to make two in-person visits to a dealership to cancel contracts for add-on products. Examiners also found that servicers engaged in abusive acts or practices when add-on product contracts allowed for cancellation with a pro rata refund within the first year, but the servicers denied consumers’ cancellation requests or refused to provide a refund.
- Examiners also found that auto finance companies violated the law by issuing GAP products on salvage vehicles (which would void the add-on), failing to timely apply refunds to unused portions of add-on premiums to borrowers’ accounts, and failing to provide the correct refund amount for early termination of add on products.
Improper Application of Payments and Wrongful Repossession of Autos
- The Bureau found that servicers engaged in unfair acts or practices when they erroneously repossessed consumers’ vehicles (a) when they failed to cancel orders to repossess vehicles when consumers had made payments or obtained extensions that should have prevented repossessions; and (b) when consumers had requested, or the servicer had approved, a COVID-19 related loan deferment or loan modification, made timely payments, or consumers made arrangements to pay an amount sufficient to cancel the repossession.
- Examiners also found that servicers engaged in both deceptive and unfair act or practice by applying borrowers’ auto-loan payments to post-maturity loans in a different order than that disclosed to consumers on their websites, which resulted in borrowers having to pay late fees. Moreover, services engaged in unfair practices by failing to deliver titles in a timely fashion after consumers paid off a loan or lease.
Inaccurate Disclosures and Inaccurate Information Placed on Borrower Credit Reports
- The Bureau alleged that lenders mailed prescreened advertisements marketing rates “as low as” specified APR rates to consumers who in fact had no reasonable chance of qualifying for or being offered rates at or near that level. In fact, the rates were often twice that level.
- Lenders also reported inaccurate credit information, such as incorrect past-due amounts and payment dates which violated Section 623(a)(1)(A) of the Fair Credit Reporting Act. Lenders also failed to promptly correct and update furnished information after determining that such information is incomplete or inaccurate. The CFPB instructed lenders to rectify these inaccuracies and improve reporting practices to prevent future errors.
Putting It Into Practice: Close to half of the Bureau’s Supervisory Highlights was devoted to add-on products, underscoring the CFPB’s commitment to police alleged law violations in this area (previously discussed here, here, here, and here). State AGs have been focused on this issue as well (discussed here and here). Both federal and state regulators have not been shy in communicating their dislike of these products and showing lenders, through their actions, that if they offer such products, they will be scrutinized. Companies that offer these products should review this guidance, and adjust their business practices accordingly, if necessary.
