Auto lenders singled out for abusive actions in bureau report; misleading marketing, inflated loan balances alleged

Auto lenders are singled out for unfair, deceptive, and abusive acts or practices (UDAAP) by the federal consumer financial protection agency in a report issued Wednesday.

In releasing the latest version of its Supervisory Highlights, the Consumer Financial Protection Bureau (CFPB) said auto lenders have originated loan balances above the real value of the car being purchased and engaged in illegal collection practices while servicing the loans.

The agency alleged that its examiners found consumers were misled in marketing materials by auto lenders about the quality of car they were eligible for under the terms of an auto loan offer. The pictured cars, they said, were often significantly larger, more expensive, and newer than the advertised loan offers were good for.

The report listed several abusive practices by loan servicers, including:

  • Charging fraudulent interest on inflated loan balances based on fraudulent representations by dealers that the vehicle had options and enhancements that it did not actually have. However, when loan servicers identified discrepancies, they bureau alleged, they did not reduce the amount that consumers owed on the loan agreements and continued to charge interest tied to financing of the nonexistent options.
  • Cancelling automatic payments without sufficient notice, leading to unavoidable late fees, by not properly notifying consumers that the final payment of an auto loan often had to be made manually to close out the loan. The consumers were surprised, the agency said, when they were hit with late fees even though they had automatically paid their balance for years.
  • Engaging in illegal collection practices after repossession through the practice of blanket cross-collateralization by accelerating and requiring payments from all consumers on unrelated debts, such as credit cards, before consumers could reclaim their repossessed vehicles.

The CFPB also said in the report that it has observed a “significant shift” in the auto lending market recently with delinquencies rising. Sharply rising car prices during the recent coronavirus crisis, the agency said, have led to larger loan amounts, higher monthly payments, and consequently, a higher rate of loan delinquencies.

CFPB Exams Find Unfair, Deceptive, and Abusive Practices Across a Wide Array of Consumer Financial Product Lines