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.
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.
Repossession Concerns
The CFPB flagged certain repossession practices as unfair, including repossessing vehicles without a valid recorded lien and 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.
Servicing Practices
The report 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.
Concerns with Add-On Products
The CFPB cited multiple unfair and abusive practices related to add-on products, including continuing to charge borrowers despite GAP coverage, delaying refunds (one instance was 423 days after a post-repossession vehicle sale), providing incorrect refund amounts, and charging consumers for add-ons they never agreed to purchase.
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.
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