The Consumer Financial Protection Bureau (“CFPB”) has released an “auto loan shopping sheet” and other online resources as part of its “Know Before You Owe” initiative, which aims to assist consumers with comparison shopping and financing auto purchases. The initiative “walks consumers through each step of the auto finance process to help them decide how much they can afford to borrow and what options are right for them.”
According to the CFPB, the initiative was spurred by research regarding consumer behavior during the auto financing process, as well as complaint data evidencing difficulty understanding loan features prior to negotiations. The CFPB seeks to educate consumers regarding the total cost of the loan rather than just the monthly payment, encourage comparison shopping, and to be cautious regarding “financing features and add-ons that could lead to costly surprises down the road.”
The shopping sheet is a two-page document that the CFPB hopes consumers will print and use when discussing financing options with lenders and dealers in conjunction with vehicle purchases. The document “helps consumers understand loan factors, compare loans apples-to-apples, and get the financing that is right for their budget,” and specifically indicates which factors are negotiable.
In addition to the shopping sheet, the CFPB website offers a guide assisting consumers with the auto loan process, providing helpful tips and warning regarding potential red flags. The CFPB notes that lenders are not required to offer the best interest rate available, and advises consumers to be careful regarding “optional add-on products like extended warranties, specialty insurance, or credit insurance” that increase total purchase costs.
In recent years, the CFPB launched similar initiatives under the “Know Before You Owe” banner regarding mortgages, student loans, and prepaid financial products.
Troutman Sanders LLP has extensive experience representing automotive lenders, and will continue to monitor CFPB and other regulatory activity in this area.