Navigating the Complexities of Auto Financing: CFPB's Supervisory Highlights Reveal Crucial Insights

The Consumer Financial Protection Bureau (CFPB) has recently released a special edition of its Supervisory Highlights, shedding light on the agency's most recent findings in the realm of auto financing. This comprehensive report delves into the critical issues that have surfaced, providing valuable guidance for both consumers and industry players alike.

Empowering Consumers, Ensuring Transparency in Auto Financing

Compliance Failures with Add-On Products: Uncovering Deceptive Practices

The CFPB's examination has revealed a concerning trend in the auto financing industry, where many consumers have encountered issues with unnecessary add-on products. These include extended warranties and guaranteed asset protection (GAP) insurance, which have been found to be added without the consumer's knowledge or consent. Examiners uncovered instances where auto finance companies engaged in abusive acts or practices, collecting and retaining amounts for optional add-on products that consumers did not agree to purchase. In some cases, these products were even added during the refinancing process, further compounding the problem.The report also highlights the challenges consumers face when attempting to cancel these add-on products. Servicers have been found to make the cancellation process overly burdensome, requiring consumers to make multiple in-person visits to a dealership. Additionally, some servicers have denied consumers' cancellation requests or refused to provide a pro rata refund, even when the contracts allowed for such a refund within the first year.

Improper Application of Payments and Wrongful Repossession of Autos: Protecting Consumers' Rights

The CFPB's findings also shed light on the issue of improper application of payments and wrongful repossession of vehicles. Examiners discovered that servicers engaged in unfair acts or practices by erroneously repossessing consumers' vehicles, even when the consumers had made payments or obtained extensions that should have prevented the repossession. This was particularly concerning in cases where consumers had requested or been approved for COVID-19-related loan deferments or modifications, and had made timely payments or made arrangements to cancel the repossession.Furthermore, the report reveals that servicers have engaged in both deceptive and unfair practices by applying borrowers' auto-loan payments to post-maturity loans in a different order than what was disclosed to consumers on their websites. This resulted in borrowers being charged late fees, further compounding the financial burden. Additionally, the CFPB found that servicers have failed to deliver titles in a timely fashion after consumers have paid off a loan or lease, which is also considered an unfair practice.

Inaccurate Disclosures and Inaccurate Information Placed on Borrower Credit Reports: Ensuring Transparency and Accountability

The CFPB's Supervisory Highlights also address the issue of inaccurate disclosures and credit reporting practices. Examiners found that lenders have mailed prescreened advertisements marketing rates "as low as" a specified APR, when in fact, consumers had no reasonable chance of qualifying for or being offered rates at or near that level. In reality, the rates were often twice as high as advertised.Additionally, the report reveals that lenders have reported inaccurate credit information, such as incorrect past-due amounts and payment dates, which violates the Fair Credit Reporting Act. Lenders have also failed to promptly correct and update furnished information after determining that such information is incomplete or inaccurate. The CFPB has instructed lenders to rectify these inaccuracies and improve their reporting practices to prevent future errors.

Navigating the Evolving Landscape: Implications for Consumers and Industry Players

The CFPB's Supervisory Highlights underscore the agency's unwavering commitment to policing alleged law violations in the auto financing industry, particularly regarding add-on products. This emphasis is not limited to federal regulators, as state attorneys general have also been actively focused on this issue.Both federal and state regulators have made it clear that they will closely scrutinize companies that offer these products. As a result, businesses that provide auto financing services, including add-on products, must carefully review the guidance provided in the CFPB's Supervisory Highlights and adjust their practices accordingly to ensure compliance and protect consumer interests.By addressing the complex challenges in the auto financing landscape, the CFPB's report serves as a valuable resource for consumers, empowering them to make informed decisions and safeguard their rights. For industry players, this report offers a roadmap for navigating the evolving regulatory environment, highlighting the importance of transparency, fair practices, and a consumer-centric approach to auto financing.