Navigating the Evolving Landscape of Auto Finance ComplianceThe Consumer Financial Protection Bureau (CFPB) has recently released its "Auto Finance Special Edition" of the Supervisory Highlights, shedding light on critical compliance issues that auto finance companies must address. This report serves as a valuable resource for industry professionals, highlighting the agency's supervisory observations and expectations across the entire auto finance lifecycle, from marketing disclosures to repossession activities, servicing practices, and data furnishing practices.
Uncovering the Complexities of Auto Finance Compliance
Navigating "As Low As" APR Marketing
The CFPB has identified issues with subprime finance companies' use of "as low as" marketing claims in pre-screened credit offers. The Bureau found that these claims often did not accurately reflect the rates that consumers could reasonably expect to qualify for, with the lowest offered rate being more than twice the advertised rate. This practice can be misleading and may interfere with consumers' ability to understand the true terms of the credit offer. Auto finance companies, regardless of their target market, should closely review their marketing materials and pre-screening processes to ensure alignment between advertised rates and actual financing terms.Addressing Wrongful Repossession Practices
The CFPB's report highlights instances of alleged repossession misconduct, including the failure to promptly cancel repossession orders after consumers had made payments or obtained extensions, as well as repossessing vehicles from consumers who had been granted COVID-19-related deferments or modifications. Loan holders and their servicers are responsible for ensuring compliance with repossession laws and must also oversee their service providers to prevent such violations. Auto finance companies should review their extension and customer assistance policies, as well as their repossession procedures, to ensure that every repossession is justified and conducted in accordance with applicable laws and regulations.Navigating Repossession Risks with Unperfected Liens
The CFPB identified instances where servicers failed to check whether their lien had been properly perfected before initiating repossession, resulting in the unlawful repossession of vehicles from consumers who had no prior relationship with the servicer. This issue underscores the importance of diligent title management, including resolving any unperfected title issues with dealers and utilizing available remedies when dealers breach their agreements. Auto finance companies should review their repossession approval processes to ensure that a title check is conducted to verify the status of the lien before authorizing a repossession.Ensuring Transparent and Accurate Payment Application
The CFPB found instances where servicers were not applying payments in the order stated on their websites or in their contracts, resulting in consumers being assessed late fees due to their principal balances not being paid off on schedule. Auto finance companies should review their payment application practices, both pre- and post-maturity, to ensure alignment between their stated policies, contractual terms, and actual practices. Maintaining transparency and consistency in payment application is crucial for avoiding customer confusion and unnecessary fees.Addressing Title Delays and Lien Release Timeliness
The CFPB identified instances where servicers did not timely provide vehicle titles after an account was paid in full or process title documentation quickly enough when a customer moved to a different state. While the Bureau did not reference specific state law requirements, it was critical of the servicers' failure to meet their own internal policies. Auto finance companies should review their title release and lien removal procedures to ensure they are aligned with applicable state laws and their own stated timelines, providing a seamless experience for customers.Navigating the Complexities of Add-on Products
The CFPB's report highlights a range of issues related to the sale and financing of add-on products, including collecting and retaining amounts for products that consumers did not agree to purchase, financing void add-on products on salvage vehicles, and failing to honor contractual cancellation rights. The Bureau considers the financing of add-on products without the consumer's explicit agreement to be an abusive practice. Auto finance companies must exercise diligence in their oversight of add-on product sales, whether conducted directly or through service providers, to ensure compliance with applicable laws and regulations.Addressing Data Furnishing Deficiencies
Consistent with the CFPB's focus on credit reporting and credit dispute examination, the report identified numerous instances of inaccurate data furnishing, including incorrect past due amounts, scheduled monthly payment amounts, payment ratings, and dates of first delinquency. The Bureau also found that some furnishers did not clearly and conspicuously disclose an address for consumers to send notices relating to disputed information on their credit reports. Auto finance companies that furnish data to credit reporting agencies should review their processes and disclosures to ensure compliance with applicable laws and regulations, including the Fair Credit Reporting Act.In conclusion, the CFPB's "Auto Finance Special Edition" of the Supervisory Highlights underscores the evolving compliance landscape for auto finance companies. By addressing the issues highlighted in the report, industry professionals can navigate the complexities of auto finance compliance, mitigate regulatory risks, and provide a transparent and fair experience for their customers.
