On October 7, the Consumer Financial Protection Bureau (CFPB or Bureau) published the Fall edition of its Supervisory Highlights, focusing on examinations of the auto-finance market completed between November 1, 2023, and August 30, 2024. The report highlights significant findings across various aspects of consumers’ experiences with vehicle finance, including origination disclosures, repossession activities, servicing practices, the handling of add-on products, and credit reporting.

Auto Loan Origination:

• Misleading APR Marketing: Examiners found that some subprime auto loan originators engaged in deceptive practices by marketing “as low as” annual percentage rates (or APRs) to consumers who had no reasonable chance of qualifying for such rates. The lowest rate offered was more than twice the advertised rate. In response, the companies were directed to cease these practices and revise their policies to ensure service providers offer prescreened marketing advertisements that include financing terms the companies’ borrowers have a reasonable chance of obtaining.
• Inaccurate Prepayment Penalty Disclosures: Examiners identified violations of the Truth in Lending Act (TILA) where auto-loan originators failed to accurately disclose prepayment penalties. The TILA disclosures conflicted with the terms stated in the retail installment sales contracts. The entities have since modified their disclosures to comply with Regulation Z.

Repossession Activities:

• Wrongful Repossession: Examiners found that some servicers engaged in unfair practices by erroneously repossessing vehicles despite consumers making timely payments or obtaining approved deferments. Servicers were directed to cease wrongful repossessions and promptly return vehicles when consumers have made sufficient payments or arrangements.
• Repossession Without a Valid Lien: Examiners discovered that some servicers repossessed vehicles without a recorded lien, causing substantial injury to consumers. In response, servicers implemented policies to ensure liens are recorded before repossession.

Servicing Practices:

• Improper Payment Allocation: Examiners found that some servicers applied payments to post-maturity loans in a different order than disclosed, resulting in late fees. This practice was found to be both deceptive and unfair. Servicers have revised their policies to ensure payments are applied as disclosed.
• Excessive Delay in Providing Title: Examiners identified that some servicers failed to timely deliver vehicle titles after loan payoff, causing substantial injury to consumers. Servicers were directed to cease delays and ensure timely delivery of titles.

Add-on Products:

• Unauthorized Add-on Products: Examiners found that some subprime auto-finance companies engaged in abusive practices by collecting amounts for add-on products that consumers did not agree to purchase. Entities were directed to cease these practices and ensure compliance with federal consumer financial laws.
• Financing Void Add-on Products: Examiners discovered that some servicers financed GAP products that were void due to salvage titles, taking unreasonable advantage of consumers. In response, servicers were directed to implement title checks to determine vehicle eligibility for add-on products.
• Onerous Cancellation Requirements: Examiners found that some servicers required consumers to make two in-person visits to cancel add-on products, one visit to cancel where the consumers were required to speak to the general manager and a second to pick up the refund check, which was deemed abusive. Servicers have updated their policies to align with contractual terms.
• Failure to Honor Cancellation Rights: Examiners identified that some servicers denied consumers’ requests to cancel add-on products despite contractual provisions allowing for refunds. Servicers have updated their policies to honor cancellation rights.
• Failure to Ensure Refunds of Unearned Premiums: Examiners found that some servicers failed to ensure consumers received refunds of unearned premiums upon early loan termination. The Bureau found this practice caused substantial injury to borrowers because these products were of no value once borrowers’ loans were terminated due to early payoffs, repossession, or total loss, and thus borrowers ended up paying for products they could no longer use. Servicers have implemented processes to ensure refunds are provided.
• Inaccurate Refund Amounts: Examiners discovered that some servicers miscalculated refund amounts for add-on products. For example, servicers used the date of a deficiency notice for making a pro rata calculation instead of the date of the repossession. Servicers have revised their policies to ensure accurate calculations.
• Delays in Applying Refunds: Examiners found that some servicers delayed applying refunds of unused add-on product premiums. In one matter, refunds were applied an average of 84 days after the post-repossession sale of the vehicle sale, with at least one up to 423 days afterwards. Servicers have updated their policies to ensure timely refunds.
• Collection of Payments Covered by GAP Products: Examiners identified that some servicers continued to collect payments after knowing the GAP waiver would cover the outstanding balance, and then miscalculated refunds. Servicers have remediated consumers and ceased collecting these amounts.

Deficiencies in Credit Reporting:

• Inaccurate Reporting: Examiners found that some companies reported inaccurate information to consumer reporting agencies, including incorrect amounts past due and outdated payment ratings. Furnishers are conducting lookbacks and correcting furnished information.
• Failure to Update or Correct Information: Examiners discovered that some companies delayed correcting inaccurate information, in violation of the Fair Credit Reporting Act. For example, examiners found that some furnishers continued to report inaccurate amounts past due and balance information relating to certain consumers’ charged-off accounts for over a year and a half after identifying the inaccuracies through internal audits. Furnishers are enhancing policies and procedures to ensure prompt corrections.

Our Take:

Overall, the CFPB’s observations are consistent with prior Supervisory Highlights, interpretative guidance, and advisory circulars. Industry members should note the CFPB’s continued focus on consumer protection in the auto finance market, particularly regarding accurate disclosures, fair repossession practices, and the handling of add-on products.