Supervisory Highlights on Auto Lending Examinations

Written by: Heather Papows, Senior Loan Servicing & Secondary Market Consultant

The CFPB’s Fall 2024 Supervisory Highlights summarizes the results of examinations into auto financing and associated loan servicing practices that took place between November of 2023 and August of 2024.  Auto loan debt accounts for $1.6 trillion of American’s debt as of Q2 2024, the second highest only to home mortgages. Therefore, the presence of any unfair, inaccurate, or deceptive practices in the marketing, origination, or servicing of auto loans is high on the CFPB’s list of scrutiny and demand for remediation.

The findings from these multiple examinations signify several concerns highlighted below, calling for significant overhaul of many lender and servicer practices. The CFPB observed instances of:

1.  Soliciting pre-screened “as low as” APR offers, when the consumer had no reasonable chance of qualifying or being offered such rates; categorized as unfair and deceptive acts or practices.

2.  Disclosing conflicting prepayment penalty charge information on origination documents versus on the purchase and sale agreement; a direct violation of Reg Z/Truth in Lending Act.

3.  Wrongful repossession of vehicles, due to a lack of oversight by the servicer; or repossessing a vehicle without a valid recorded lien in place; both direct UDAAP violations.

4. Improper payment application order on post-maturity loans, resulting in a delay in the application of principal, ultimately unfairly increasing the interest and penalties charged; another direct UDAAP violation.

5. Failing to deliver titles in a timely manner after receiving a loan or lease payoff, and not adhering to internal written policies and procedures that dictated a specific timeframe for release; another UDAAP finding.

6. The financing of abusive or unclear “add-on” products (such as GAP coverage or an extended service contract) to a financing transaction where:

   a. the consumer did not agree to the purchase

   b. the consumer was not aware of the lack of benefit, such as in the event of a salvage title which voids the usefulness of GAP insurance

   c. the process was onerous to cancel add-on products

   d. the service provider refused the consumers right to a refund on the early termination of such add-ons, incorrectly refunded unearned premiums, or allows an unreasonable amount of time to elapse before applying refunds.

7. Furnishing inaccurate credit reporting information, even when such providers “knew or had reasonable cause to believe” such information was erroneous, and failing to correct such information in a timely manner; a clear and direct FCRA violation.

The CFPB found that many of these unfair or deceptive acts or practices were likely to cause substantial injury to consumers, requiring updates to policies and procedures, development of internal issue management controls, and of course, direct remediation to affected borrowers.

Lenders and servicers operating in the auto loan space must prioritize compliance and adherence to origination and servicing standards. This includes ensuring accurate documentation and disclosures, effective servicing practices, rigorous oversight of third-party vendors, and prompt resolution of any unfair or erroneous information. For help evaluating your possible exposures to these or other risks, contact our Director, Bill Dolan at wdolan@scapartnering.com or by phone at (617) 694-2617.

Supervisory Highlights v22024 final 508 (consumerfinance.gov)