On October 7, 2024, the CFPB published a new edition of Supervisory Highlights describing the agency’s supervisory findings related to illegal practices in auto finance, including lenders repossessing consumers’ cars after the borrower made timely payments or received loan extensions. The report also highlights significant problems with add-on products that are packaged at the front-end of the auto loan, increasing the loan costs, and then not properly refunded at the back end upon early loan termination, when the consumer can no longer use the products.
The CFPB also found illegal conducts such as lenders providing inaccurate disclosures, misapplying loan payments, and putting incorrect information on consumers’ credit reports. Major findings include the following:
Consumers Encountered Difficulties with Add-On Products. CFPB examiners identified that subprime auto finance companies charged consumers for optional add-on products without consent and failed to refund unused portions after loan early termination. Additionally, borrowers were required to make two in-person visits to cancel unwanted add-ons, restricting their cancellation rights. CFPB examiners directed the auto-finance companies to stop this illegal conduct and make it clear to consumers that add-on products are optional.
Lenders Improperly Applied Payments and Wrongly Repossessed Automobiles. CFPB exams revealed that servicers wrongfully repossessed vehicles despite borrowers having made payments or secured deferments that should have prevented repossession, and some repossessions occurred without a valid recorded lien. Additionally, servicers misallocated loan payments, applying them to late fees instead of the principal, leading to erroneous late fees; CFPB directed refunds for affected accounts. The CFPB barred servicers from repossessing vehicles and failing to promptly return vehicles when consumers made timely payments or payment arrangements or have obtained a loan modification sufficient to prevent repossessions.
Lenders Gave Consumers Inaccurate Disclosures and Placed Inaccurate Information on Borrowers’ Credit Reports. CFPB examiners discovered that lenders misled borrowers about qualifying for low interest rates, with the actual lowest rates being more than double what was advertised, prompting a directive to stop using deceptive marketing materials. They also found lenders inaccurately reporting loan information on consumers' credit reports, including incorrect past due amounts and payment dates; lenders are now reviewing and correcting this information for affected consumers.
Read the CFPB’s press release here.
The full Supervisory Highlights can be found here.