Bureau notes GAP insurance in auto loans, poor credit card disclosures in supervisory highlights

Automobile loan originations, credit card account management, debt collection, information furnishing, and mortgage originations that were generally completed between December 2018 and March 2019 are outlined in the latest issue of the federal consumer financial protection agency’s “supervisory highlights,” released Friday.

The report includes examples of findings of examiners in several areas that the Consumer Financial Protection Bureau (CFPB) is charged with enforcing.

For example, in the report, the bureau notes it continues to look at add-on “guaranteed asset protection” (GAP) insurance coverage offered by lenders for auto loans.

“One or more examinations completed in 2018 found instances in which auto lenders sold a GAP product to consumers under circumstances that led to an abusive practice,” the report states. “Specifically, examiners observed that lenders sold a GAP product to consumers whose low LTV (loan-to-value) meant that they would not benefit from the product. By purchasing a product they would not benefit from, consumers demonstrated that they lacked an understanding of a material aspect of the product. The lenders had sufficient information to know that these consumers would not benefit from the product.”

The report states that the sales show that the lenders took unreasonable advantage of the consumers’ lack of understanding of the material risks, costs, or conditions of the product.

The CFPB report notes that, in response to the findings, “lenders have undertaken remedial and corrective actions, including reimbursing consumers for the cost of the product and establishing an LTV minimum for GAP product sales.”

Other examples of findings noted in the report include:

  • Credit card management: Examiners found that entities failed to clearly and conspicuously provide disclosures required by triggering terms in online advertisements. In some instances, the triggered disclosures were available to consumers via a hyperlink that was not labeled in a way that referred to the triggered disclosures. In other instances, consumers had to click on multiple hyperlinks and could only view the triggered disclosures after completing an eight-page application.
  • Debt collection: Examiners found that one or more debt collectors claimed and collected from consumers interest not authorized by the underlying contracts between the debt collectors and the creditors. In doing so, one or more debt collectors falsely represented to consumers the amount due and authorized in violation of federal debt-collection practices laws.
  • Information furnishers: Examiners found that one or more information furnishers failed to complete dispute investigations within the required time period. At one or more furnishers, examiners found certain disputes of which the furnisher(s) received notice from the credit reporting company (CRC) but failed to conduct an investigation or respond to the CRC.
  • Mortgage origination: In one or more examinations, examiners observed that creditors were disclosing inaccurate APRs for closed-end reverse mortgages. Specifically, the bureau said, while conducting loan file reviews, examiners observed creditors using a unit-period of one month instead of one year to calculate the APR, leading to inaccurate calculations outside of Regulation Z’s permissible tolerances.

CFPB Supervisory Highlights, Issue No. 19 (Summer 2019)