On October 7, 2024, alongside its Fall 2024 Supervisory Highlights, the CFPB summarized its other recent supervision activity related to illegal practices undertaken by auto lenders and auto loan servicers.
Add-On Products: The CFPB examiners flagged several alleged issues in how add-on products were treated by auto-lenders. First, the CFPB found that subprime auto finance companies charged consumers for add-on products that they did not agree to purchase. Second, the CFPB found that the lenders failed to refund or prorate add-on products wrapped up into the loan price upon earlier termination of the loan. According to the CFPB, for add-on products, the seller will often charge the borrower an upfront lump sum, but the buyer is generally eligible for a prorated refund of these prepaid premiums should they pay off the loan balance early or otherwise terminate the loan. Finally, the CFPB found that some loan servicers required borrowers to make two separate, in-person visits to a dealership in order to cancel an unwanted add-on product. The CFPB ordered these companies to cease any illegal conduct, revise contract language with their service providers, and make it clear to borrowers that add-on products are optional.
Improperly Applied Payments and Repossession of Automobiles: The CFPB found multiple instances of vehicles being wrongfully repossessed because servicers failed to cancel orders to repossess automobiles after a consumer obtained a loan deferment, modification, or extension and also without first obtaining a valid lien on the vehicle. Further, the CFPB found that loan servicers improperly applied loan payments to late fees instead of to the principal or interest amounts first as listed on the servicers’ website, causing borrowers to pay excessive fees. The CFPB directed these servicers to refund all borrowers that were wrongfully charged these additional fees. The CFPB also barred servicers from repossessing and failing to promptly return vehicles after a consumer made timely payment or received a modification of a loan.
Inaccurate Disclosures and Inaccurate Credit Reporting: The CFPB examiners found that some lenders were misrepresenting the opportunity for a borrower to qualify for a low interest rate when the lowest rate offered was more than twice the amount advertised. Additionally, the CFPB found that some lenders were knowingly placing inaccurate information on consumers’ credit reports such as: incorrect amounts for past due charged-off accounts; inaccurate dates of when borrowers fell behind on payments; and inaccurate actual payment amounts following a payoff or settlement. The CFPB found that some of this inaccurate reporting was due to reliance on inaccurate computer reporting systems. The lenders and servicers were ordered to correct these allegedly illegal practices. The CFPB also took the chance to highlight its previous actions against auto finance companies, including a $60 million payment received from an auto lender over its alleged misreporting to consumer credit reports and withholding refunds.
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