CFPB Takes Action Against Wrongful Auto Repossessions and Loan Servicing Breakdowns
Consumers given inaccurate loan disclosures and charged for add-on products without consent
Today, the Consumer Financial Protection Bureau (CFPB) published a new edition of Supervisory Highlights describing the agency’s supervisory findings related to illegal practices in auto finance, including lenders repossessing consumers’ cars after the borrower made timely payments or received loan extensions. Other illegal conduct detailed in the report includes lenders providing inaccurate disclosures, misapplying loan payments, and putting incorrect information on consumers’ credit reports. The report also highlights significant problems with add-on products that are packaged at the front-end of the auto loan, increasing the loan costs, and then not properly refunded at the back end upon early loan termination, when the consumer can no longer use the products.
“Borrowing to buy a vehicle is one of the largest sources of household debt for American families, and many deal with unnecessary costs and challenges paying for their car,” said CFPB Director Rohit Chopra. “The CFPB will take action against auto-finance companies that charge fees for nonexistent services, or repossess cars after borrowers make payments.”
Consumers Encountered Difficulties with Add-On Products
Car purchasers are frequently offered add-on products, such as extended warranties or “guaranteed asset protection” insurance, and sellers charge the borrower an upfront lump sum cost at the loan origination that is bundled into the total loan cost. If a borrower pays off the loan balance early, or otherwise terminates the loan, they are generally eligible for a prorated refund of the prepaid premiums for the unused portion of the loan term.
CFPB examiners found subprime auto finance companies charging consumers for optional add-on products that the consumers did not agree to purchase. In other instances, examiners found that, following early termination of a loan, servicers failed to provide refunds or credits to consumers for the unused portion of the product. Examiners also found that servicers required borrowers to make two separate, in-person visits to a dealership to cancel an unwanted add-on product, which prevented consumers from exercising their cancellation rights.
CFPB examiners directed the auto-finance companies to stop this illegal conduct and make it clear to consumers that add-on products are optional. The companies also were directed to update and revise language in contracts with their service providers where applicable.
Lenders Improperly Applied Payments and Wrongly Repossessed Automobiles
The exams found servicers wrongfully repossessed vehicles due to service providers failing to cancel orders to repossess vehicles when consumers had made payments or had obtained a loan deferment, loan modification, or extensions that should have prevented repossessions. CFPB examiners also found servicers repossessed vehicles without having a valid recorded lien to the vehicle.
Some servicers were also misallocating borrowers’ auto loan payments, such as applying payments to late fees first instead of applying to the loan principal and interest, which resulted in borrowers having to pay erroneous late fees. As a result, CFPB examiners directed servicers to fully refund all accounts that incurred late fees due to payments being applied in a different order than that disclosed on the servicers’ website.
The CFPB barred servicers from repossessing vehicles and failing to promptly return vehicles when consumers made timely payments or payment arrangements or have obtained a loan modification sufficient to prevent repossessions. Servicers also have put in place policies and procedures to ensure they recorded liens for all vehicles and repossessed vehicles only when they had recorded a lien.
Lenders Gave Consumers Inaccurate Disclosures and Placed Inaccurate Information on Borrowers’ Credit Reports
CFPB examiners found lenders misleading borrowers about the chance to qualify for a low interest rate, when in reality the lowest rate offered was more than double the advertised rate. Servicers were directed to stop using misleading marketing materials designed to bait-and-switch consumers on interest rates.
Examiners also found that lenders were knowingly placing inaccurate loan information on thousands of consumers’ credit reports. This included incorrect amounts past due for charged-off accounts, inaccurate dates of when borrowers fell behind on payments, and inaccurate actual payment amounts following a payoff or settlement. In some cases, lenders were relying on inappropriate computer systems that were not designed to report information about auto loans. In response to the findings, lenders are conducting reviews and correcting the furnished information for all affected consumers.
The CFPB has previously taken action against companies for illegal practices in auto finance. Toyota Motor Credit paid $60 million for withholding refunds and tarnishing borrower credit reports. The CFPB also took action again Wells Fargo for illegally assessing fees and interest charges on auto and mortgage loans.
