CFPB’s Supervisory Highlights: Special Edition Auto Finance

By Patricia O'Connell, Head of Compliance

On October 7, 2024, the Consumer Financial Protection Bureau (CFPB) published the 35th edition of Supervisory Highlights.  The findings in this edition of Supervisory Highlights cover select examinations related to auto-finance that were completed between November 1, 2023, and August 30, 2024.  The CFPB periodically publishes Supervisory Highlights to share key examination findings and communicate operational changes to its supervision program to assist industry in complying with federal consumer financial law. 

This most recent issue covers significant findings across all aspects of consumers’ experiences with the auto-finance market. The impact of this market on American families is significant. Auto loan debt exceeds all other household-debt categories except for home mortgages. As of the second quarter of 2024, Americans owe $1.616 trillion in auto loan debt.

This issue reports on consumers being lured in through deceptive advertising about available loan terms and failing to receive accurate and complete disclosures at origination such as advertising “as low as” when there were no consumers who would qualify, failing to disclosure prepayment penalties, having their payments misapplied or incorrect information about their payment history reported to credit reporting companies (CRCs), and finding their car had been repossessed, though they had made their payments as promised.   For example, examiners found that subprime loan originators engaged in deceptive acts or practices through service providers when the service providers mailed prescreened advertisements marketing rates “as low as” specified APR rates to consumers who in fact had no reasonable chance of qualifying for or being offered rates at or near that level. The lowest interest rate offered to consumers by the servicers was more than twice the advertised rate.

This issue also highlights a trend of significant violations related to the handling of add-on products, also known as optional or ancillary products, where the product premium is paid upfront and then included in the amount financed.  Examiners have identified unfair, deceptive, and abusive acts or practices throughout the lifecycle of add-on products. From auto loan originators including add-on products without consumers’ consent, to servicers failing to allow consumers to cancel the products during the initial cancellation period, failing to provide the benefit of the product, or failing to ensure consumers receive refunds when the loan terminates early, add-on product administration represents a significant risk to consumers that the CFPB will continue to monitor. 

For example, examiners found that servicers engaged in unfair acts or practices by failing to ensure consumers received refunds of unearned premiums for add-on products upon early termination of their auto loans in all states, either by ensuring that dealers or administrators provided refunds or by providing the refunds themselves.

The Fall 2024 edition also covers select supervision program developments including advisory opinions, circulars and proposed rules that have been issued since the last regular edition of Supervisory Highlights in Summer 2024. These include:

  • FAQs issued in September 2024 that provide guidance on applying Regulation Z to Pay-in-Four Buy Now Pay Later (BNPL) products, such as how to apply credit card periodic statement requirements to Pay-in-Four BNPL products that are accessed by digital user accounts; 

  • an August 2024 advisory opinion which affirms the current applicability of consumer protections and creditor obligations under TILA and its implementing Regulation Z to transactions in which a consumer purchases a home under a “contract for deed”;

  • a proposed rule in August 2024, issued together with other federal financial regulatory agencies, to establish data standards for certain information collections submitted to financial regulatory agencies; 

  • a circular issued in July 2024 to law enforcement agencies and regulators explaining how companies may be breaking the law by requiring employees to sign broad nondisclosure agreements that could deter whistleblowing; and

  • an interpretive rule proposed in July 2024 explaining that many paycheck advance products, sometimes marketed as “earned wage” products, are consumer loans subject to TILA. The guidance aims to ensure that lenders understand their legal obligations to disclose the costs and fees of these credit products to workers.

Credit unions should be aware that CPFB’s actions are in full effect unless new CFPB leadership makes changes to the agenda.