CFPB Cracking Down on Auto Financing Practices
The latest report from the Consumer Financial Protection Bureau (CFPB)'s Summer 2023 Supervisory Highlights indicates the agency is cracking down on automobile financing institutions. In this article, we will delve into these issues and discuss what independent automobile dealers need to know about the CFPB's recent attention to automobile financing.
Deceptive Marketing of Auto Loans
One of the key findings of the CFPB's report is the alleged deceptive marketing of auto loans by supervised institutions. Examiners discovered that some institutions used advertisements that portrayed cars significantly different from the actual loan offers. This practice, the report claims, misled consumers, as it created a “net impression” that did not align with the terms of the loans. As a result, consumers were likely to believe that the advertised terms applied to a broader range of vehicles than they actually did.
Collecting Interest on Fraudulent Loan Charges
The CFPB alleges that dealers are securing loans that exceed loan-to-value guidelines of lenders by misstating the optional equipment found on the vehicle they are selling, such as stating a vehicle has leather seats when it actually has cloth seats. The CFPB alleges that by dealers misstating the equipment found on vehicles, consumers pay more interest charges than they would otherwise pay, thereby constituting an unfair and abusive practice.
Canceling Automatic Payments Without Notice
The report also claims to have discovered instances where servicers canceled automatic payments without sufficient notice to consumers. They say consumers relied on these automatic payments and were not adequately informed that the final payment must be made manually. As a result, consumers missed payments and incurred late fees.
Requiring Consumers to Pay Other Debts to Redeem Vehicles
The report also claims there is a blanket practice of cross-collateralizing loans, requiring consumers to pay all outstanding debts to redeem repossessed vehicles. This practice was deemed unfair and abusive, causing substantial harm to consumers who had to pay multiple accelerated debts to regain their vehicles.
“Examiners found that after servicers repossessed vehicles, they accelerated the amount due on the vehicle finance contract and also accelerated any other amounts the consumer owed to the entity,” the report said. “When consumers called to recover the vehicles, the servicers required consumers to pay the full amount on all accelerated debts, which included both debt for the vehicle and other debts.”
The CFPB's crackdown on issues highlighted in their report should serve as a wake-up call for independent automobile dealers. TIADA will keep you up to date on how the CFPB plans to pursue enforcement actions against automobile lending institutions and how their policies will impact the industry moving forward.