WASHINGTON—The CFPB Thursday announced that its supervisory actions in the first four months of the year uncovered illegal activities in auto finance and payments that led to approximately $24.5 million in restitution to more than 257,000 consumers.
The report also highlights issues CFPB examiners found through the agency’s examination of businesses in auto loan origination, debt collection, mortgage origination, and small-dollar lending.
“This report highlights our ongoing work to address violations of the law and slipshod practices that endanger consumers,” said CFPB Director Richard Cordray. “The Bureau’s supervisors continue to perform more and better oversight of these financial markets, and their report gives the industry an opportunity to reflect on their practices before consumers are made to suffer harm.”
The CFPB often finds problems during supervisory examinations that are resolved without an enforcement action, the Bureau said. Recent non-public supervisory actions resulted in restitution of about $24.5 million to more than 257,000 consumers for auto finance and payments issues. Supervisory work in connection with debt sales also aided an enforcement action that returned nearly $5 million to consumers and imposed $3 million in civil money penalties, the CFPB explained.
The latest report, the 12th edition of Supervisory Highlights, covers activities completed generally between January 2016 and April 2016. Examiners uncovered issues across an array of financial markets, including:
- Deception by auto lenders about loan terms: CFPB examiners determined that one or more auto lenders deceived consumers into thinking their add-on product would fully cover the balance of a consumer’s loan in the event of the loss of their car or truck. In fact, the product covered less than the vehicle’s value. Bureau examiners also found one or more auto lenders deceived consumers about terms of a loan deferral, saying the only effect would be to extend the life of the loan and to accrue interest during the deferral. They didn’t tell consumers that subsequent payments would be applied to cover the interest earned on the unpaid amount from the date of the consumer’s last payment. This tactic could lead to the consumer paying more in finance charges than the lender originally disclosed. Examiners noted this practice broke the law regarding deceptive acts and practices, the CFPB said.
- Incorrect calculation of loan financing amounts: One or more institutions miscalculated the amount financed on loans with discount credits, where a consumer pays more in interest in exchange for the lender giving money upfront to offset closing costs, the CFPB stated. “It means no or limited out-of-pocket expenses at closing, but more paid over time because of a higher interest rate. A miscalculated rate caused these loans to carry incorrect finance charges. The error would show an amount financed that exceeded the actual stated loan amount, plus a negative finance charge. This violates federal regulations that require the amount financed to be calculated by taking the loan amount, adding other amounts financed by the creditor that are not part of the finance charge, and subtracting any prepaid finance charge,” the agency said.
- Failure to properly disclose interest on interest-only loans: One or more institutions offering interest-only bridge loans failed to accurately disclose the interest payment by incorrectly including in the principal balance a portion of the monthly payment amount that was to be applied to fees financed into the principal balance, the Bureau said. Federal regulations require that creditors disclose interest-only loan payment amounts that will be applied to interest and principal. This failure to itemize and properly disclose the correct interest and principal payment was caused by a computer software error, the agency explained.
- Ineligible accounts sold to debt sellers: CFPB examiners found at least one debt seller improperly sold thousands of dollars of debt accounts because of widespread coding errors. The flawed coding failed to note that the accounts were in bankruptcy, the debts were fraudulent, or the accounts had already been settled. CFPB examiners cited these practices as unfair under the Dodd-Frank Act.
- Consumers misled about debt repayment options: Examiners found that some debt collectors deceived consumers into thinking a down payment was necessary for repaying a debt when the collectors’ policies and procedures had no such requirement. In other cases, collectors told consumers they had to pay through a checking account, but that type of repayment was not actually required by the collectors’ policies.
- Failure to provide adverse action notices: One or more institutions took adverse actions without making the required disclosures, the CFPB said. “Under the Fair Credit Reporting Act, consumers must be notified of any adverse action, such as denial of credit, based on information in a consumer report. Consumers must also receive information about the consumer reporting agency that produced the report, which would note that the reporting agency did not make the decision to take adverse action and cannot provide the consumer the specific reasons why it happened. Examiners found the violations were caused by a lack of appropriate training, and inadequate policies and procedures,” the Bureau explained.
Illegally requiring consumers to use an affiliated business: Bureau examiners found that at least one institution required customers to use affiliated providers of tax services and flood determination, which identifies flood zones on a specific property. Federal law permits a lender to require the use of a particular settlement service provider only in limited circumstances, and does not include these services.