CFPB focuses on auto finance practices in latest Supervisory Highlights. The report highlights repossession practices it alleges are unfair, including: "Repossession of vehicles without having a valid recorded lien to the vehicle."

On October 7, the Consumer Financial Protection Bureau (CFPB) published its Fall edition of Supervisory Highlights: Special Edition Auto Finance, which examines the auto finance market. The report outlines various supervisory findings and enforcement actions aimed at addressing concerns the CFPB claims to have identified, including deceptive marketing strategies, improper repossessions, and failures in servicing and add-on product management.

According to the report, auto loan debt has surpassed all other forms of household debt except for mortgages. The CFPB cites Federal Reserve data, which indicates that outstanding auto loans totaled more than $1.6 trillion as of Q2 2024.

The findings are based on examinations conducted between November 1, 2023, and August 30, 2024, during which the CFPB highlighted several key supervisory observations:

Issues in Loan Origination Disclosures

The Bureau identified problems with how certain auto-finance companies disclosed annual percentage rates (APRs) and prepayment penalties at the time of loan origination:

• Examiners found that some subprime lenders engaged in misleading advertising by promoting “as low as” APR offers that were unattainable for most consumers.
• The report also points to discrepancies in prepayment penalty disclosures, which allegedly violated the Truth in Lending Act (TILA). In some cases, lenders suggested that borrowers might be subject to a penalty for early payment, even though loan agreements stated there would be no finance charge for paying off a loan early.

Repossession Concerns

The CFPB flagged certain repossession practices as unfair, including:

• Wrongful repossession due to service providers failing to halt repossession orders after borrowers had made payments, received a deferment, or obtained a loan modification or extension.
• Repossessing vehicles without a valid recorded lien, which the Bureau claims was improper.

Servicing Practices

The report also identified two primary servicing issues: misallocation of borrower payments and delays in title transfers after loan payoff:

• Some servicers applied borrower payments to late fees first instead of toward the principal and interest, leading to improper late fee charges. The CFPB classified this as both deceptive and unfair, as payment allocations differed from what servicers had disclosed to consumers.
• The Bureau also criticized servicers for delays in processing vehicle titles, which prevented borrowers from legally selling their vehicles and, in some cases, led to unnecessary insurance costs.

Concerns with Add-On Products

The CFPB cited multiple unfair and abusive practices related to add-on products, including:

• Charging consumers for add-ons they never agreed to purchase, which examiners flagged as abusive, as consumers were unaware of or had not consented to the charges.
• Failing to disclose the payee for add-on products in the amount financed itemization, allegedly violating Regulation Z (1026.18(c)(1)(iii)).
• Making cancellation overly difficult, including requiring borrowers to visit a dealership twice in person to cancel an unwanted add-on product.
• Not issuing refunds for unused add-on products following early loan termination. Some lenders failed to ensure refunds of unearned premiums, depriving consumers of the money they were owed.
• Providing incorrect refund amounts, preventing borrowers from receiving the full refunds they were entitled to.
• Delaying refunds, with one instance where a refund was issued 423 days after a post-repossession vehicle sale.
• Continuing to charge borrowers despite GAP coverage and miscalculating reimbursement amounts for those affected.

Credit Reporting Violations

The Bureau also alleged that some auto lenders and servicers reported inaccurate information to credit bureaus, in violation of the Fair Credit Reporting Act (FCRA) and Regulation V:

• Some lenders knowingly reported incorrect data, such as inaccurate past-due amounts, wrong delinquency dates, and incorrect balances after a loan was paid off or settled. Certain errors were due to outdated reporting systems that failed to properly track auto loan information.
• The CFPB also found that some companies failed to correct inaccurate information in a timely manner, with errors persisting for months or even over a year despite being flagged during internal audits or monitoring.

Supervisory and Enforcement Actions

The report also details recent advisory opinions, circulars, and proposed rules issued by the CFPB, including:

• FAQs on Buy Now, Pay Later (BNPL) products
• An advisory opinion on consumer protections in home sales financed through contracts for deeds
• A proposed rule to standardize data submissions to federal financial agencies
• A circular cautioning against non-disclosure agreements that discourage whistleblowers
• A proposed interpretive rule on Earned Wage Access (EWA) products

Finally, the report highlights recent enforcement actions against financial institutions related to student loans, credit reporting, mortgage servicing, lender-placed auto insurance, and unauthorized account openings.
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