The Consumer Financial Protection Bureau yesterday published its latest Supervisory Highlights report, which documents the findings of its supervisory examinations, and they are always interesting reads. While this issue of Supervisory Highlights focuses on auto finance, the CFPB does take a deep dive into the collection aspects of auto loans and there are likely tea leaves that can be read by those in the ARM industry for insights and trends, especially related to credit reporting.
The big picture: Auto loan debt exceeds $1.6 trillion, making it one of the largest sources of household debt for American families. The CFPB is taking aim at predatory and illegal practices that increase costs and create challenges for borrowers.
Key findings:
- Repossession Missteps: The CFPB found that some auto lenders repossessed vehicles even when borrowers had made timely payments or received loan modifications. Service providers failed to cancel repossession orders, resulting in wrongful repossessions, a critical compliance issue that can damage consumer trust across all lending sectors.
- Add-On Product Abuse: The report highlights the improper sale and handling of add-on products like extended warranties and GAP insurance. Subprime lenders were found to have sold optional products without consumers’ consent and refused to refund unused premiums after early loan termination. These practices inflate loan balances and may occur in other sectors offering ancillary products.
- Furnishing Inaccuracies: Lenders were also caught reporting incorrect information to credit reporting agencies, such as inaccurate amounts past due and misreporting settled or paid-off accounts. This could trigger disputes and consumer complaints, a key concern for industries reliant on accurate credit reporting.
What they’re saying: CFPB Director Rohit Chopra emphasized, “The CFPB will take action against auto finance companies that charge fees for nonexistent services or repossess cars after borrowers make payments.” The statement underscores the Bureau’s commitment to holding lenders accountable, with implications for other industries, including debt collection and credit cards, where similar issues may arise.
