WASHINGTON — Unfair, deceptive, and abusive acts or practices can be found across many consumer financial products, but a new Supervisory Highlights report from the Consumer Financial Protection Bureau is giving particular attention to issues related to auto financing.
As an example, the CFPB said auto lenders have originated loan balances above the real value of the car being purchased and engaged in illegal collection practices while servicing these loans.
“Higher car prices is leading to more delinquencies in auto lending,” the Bureau stated.
The latest edition of the Supervisory Highlights report covers findings from CFPB supervisory examinations completed from July 2022 to March 2023.
‘Significant Shift’
The CFPB said it observed a “significant shift” in the auto lending market recently. Car prices rose sharply during the recent pandemic, leading to larger loan amounts, higher monthly payments, and consequently, a higher rate of loan delinquencies.
“CFPB examiners found that consumers were misled in marketing materials by auto lenders about the quality of car they were eligible for under the terms of an auto loan offer,” the CFPB said. “The pictured cars were often significantly larger, more expensive, and newer than the advertised loan offers were good for.”
What Examiners Found
According to the CFPB, its examiners also found multiple instances of unfair or abusive acts or practices by servicers, including:
- Charging fraudulent interest on inflated loan balances. “Servicers charged interest on loans based on fraudulent representations by dealers that the vehicle had options and enhancements that it did not actually have. When servicers identified discrepancies, they did not reduce the amount that consumers owed on the loan agreements and continued to charge interest tied to financing of the nonexistent options.”
- Cancelling automatic payments without sufficient notice, leading to unavoidable late fees. “Servicers did not properly notify consumers that the final payment of an auto loan often had to be made manually to close out the loan, and were surprised when they were hit with late fees even though they had automatically paid their balance for years,” the CFPB said.
- Engaging in illegal collection practices after repossession. “Servicers engaged in the practice of blanket cross-collateralization by accelerating and requiring payments from all consumers on unrelated debts, such as credit cards, before consumers could reclaim their repossessed vehicles.”
Action Taken
The CFPB noted it has taken action against lenders that bury key details in loan origination and servicing, deliberately setting up consumers to fall into a cycle of debt, and also took action against an auto lender that employed shoddy debt collection and credit reporting practices that tarnished consumers’ credit reports.
The CFPB also issued a policy statement on abusive conduct earlier this year that explains the legal prohibition on abusive conduct in consumer financial markets.
Debt Collection Issues
Meanwhile, unlawful debt collection attempts including on medical debt.
“Examiners found debt collectors continued collection attempts for work-related medical debt after receiving sufficient information to render the debt uncollectible under state worker’s compensation law,” the CFPB said. “The debt collectors violated the Fair Debt Collection Practices Act by collecting an amount not permitted by law or agreement, by falsely representing the character, amount, or legal status of a debt, by engaging in conduct which had the natural consequence of harassing, oppressing, or abusing the consumer, and by using false, deceptive, or misleading representations in connection with the collection of a debt.”
Ongoing Issues
The CFPB noted it has identified ongoing medical debt issues and is partnering with other agencies on how these high costs are impacting consumers.
Payday Lending Issues
The CFPB said its examinations also found unfair and abusive acts employed by payday lenders in their collection practices.
“Lenders would put language in loan agreements that prohibited consumers from revoking their consent for the lender to call, text, or e-mail the consumers about collection on the outstanding balance,” the CFPB said. “Lenders also made false collection threats that would often purport their authority to garnish wages of borrowers, when no such authority exists.”
In some cases, the CFPB said the lender would actually make an unauthorized wage deduction by sending demand notices to consumers’ employers that incorrectly conveyed that the employer was required to remit to the lenders from the consumer’s wages the full amount of the consumer’s loan balance.
“In fact, the consumer had agreed to permit the lenders only to seek a wage deduction in the amount of the individual scheduled payment due,” the CFPB said.