CFPB Releases Supervisory Highlights Dedicated To “Wrongdoing” in the Auto-Finance Market

The Consumer Financial Protection Bureau released its fall supervisory highlights issue. It reads like a checklist for examiners to follow in assessing the car lender's compliance with the multitude of laws and regulations impacted by the auto financing process.?

One category of misconduct generally refers to the selling of products based on a consumer’s lack of understanding or overreliance on the assumption that a lender is acting in the borrower's best interest. Perhaps of the most importance to credit unions, the Bureau is continuing to take a jaundiced view of car loan add-on products.

The CFPB alleged that subprime auto finance companies engaged in abusive acts or practices by “materially interfering” with the ability of consumers to understand the terms or conditions of the product they were being offered. The Bureau also alleges that some lenders take advantage of a consumer’s lack of knowledge by pushing products on them that are not needed by the consumer. Examples of the type of products that fall into this category include “add-on” products, for which consumers continue to pay after the product is of no value.?

Another issue highlighted by the CFPB was inaccurate origination disclosures. For example, according to CFPB, it constitutes a deceptive act or practice for auto loan originators who prescreened advertisements to potential borrowers marketing a car loan rate “as low as” a specified APR to consumers who “have no reasonable chance of qualifying for or being offered” the rates in question. This, of course, raises the question of how many potential borrowers would have to be eligible for the “as low as” rate to make the advertising acceptable.

Another inaccurate disclosure, which the CFPB asserts violates the Truth in Lending Act, has to do with prepayment penalties. Many of the lenders it examined provided conflicting terms related to whether penalties were charged for the prepayment of a car loan.

Another relates to repossessions triggered by faulty record-keeping. There have already been class-action lawsuits against lenders that continued to accept premiums for add-on products after the product has been paid off in full. Therefore, it should come as no surprise that, according to the Bureau, it is an unfair or deceptive practice to erroneously repossess a consumer’s vehicle because the lender with whom they were servicing the loan failed to update their records after consumers had made the necessary payments.

In addition, the Bureau found that servicers failed to record car liens and often repossessed vehicles without a valid lien. Another practice highlighted by the Bureau involves loan servicers failing to follow the payment allocation method outlined in their disclosures and often not providing consumers with their titles promptly after loan payoff.

Finally, it seems that no consumer protection analysis this year would be complete without an accusation of inaccurate credit disclosures. Sure enough, the CFPB examiners allege that lenders furnished information to credit reporting agencies despite “having reasonable cause to believe” that the information was inaccurate.