The Consumer Financial Protection Bureau (CFPB) recently released a new Supervisory Highlights report which found unfair, deceptive, and abusive acts or practices across many consumer financial products. For example, auto lenders have originated loan balances above the real value of the car being purchased and engaged in illegal collection practices while servicing these loans. The latest edition of the Supervisory Highlights report covers findings from CFPB supervisory examinations completed from July 2022 to March 2023.
“[This] report furthers our efforts to highlight conduct that violates federal law, including the prohibition on abusive practices in consumer financial services,” said CFPB Director Rohit Chopra. “The CFPB is also inspecting more financial data brokers engaged in consumer reporting, as well as nonbank entities using authorities that previously went unused.”
Higher car prices leading to more delinquencies in auto lending
The CFPB has observed a significant shift in the auto lending market recently. Car prices rose sharply during the recent pandemic, leading to larger loan amounts, higher monthly payments, and consequently, a higher rate of loan delinquencies.
CFPB examiners found that 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 were often significantly larger, more expensive, and newer than the advertised loan offers were good for.
Examiners also found multiple instances of unfair or abusive acts or practices by servicers, including:
- Charging fraudulent interest on inflated loan balances: Servicers charged interest on loans based on fraudulent representations by dealers that the vehicle had options and enhancements that it did not actually have. When servicers identified discrepancies, 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: Servicers did not properly notify consumers that the final payment of an auto loan often had to be made manually to close out the loan, and were surprised when they were hit with late fees even though they had automatically paid their balance for years.
- Engaging in illegal collection practices after repossession: Servicers engaged in 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 has taken action against lenders that bury key details in loan origination and servicing, deliberately setting up consumers to fall into a cycle of debt, and also took action against an auto lender that employed shoddy debt collection and credit reporting practices that tarnished consumers’ credit reports. The CFPB issued a policy statement on abusive conduct earlier this year that explains the legal prohibition on abusive conduct in consumer financial markets.
Unlawful debt collection attempts including on medical debt
Examiners found debt collectors continued collection attempts for work-related medical debt after receiving sufficient information to render the debt uncollectible under state worker’s compensation law. The debt collectors violated the Fair Debt Collection Practices Act by collecting an amount not permitted by law or agreement, by falsely representing the character, amount, or legal status of a debt, by engaging in conduct which had the natural consequence of harassing, oppressing, or abusing the consumer, and by using false, deceptive, or misleading representations in connection with the collection of a debt.
Illegal payday lender collection practices
The CFPB examinations also found unfair and abusive acts employed by payday lenders in their collection practices. Lenders would put language in loan agreements that prohibited consumers from revoking their consent for the lender to call, text, or e-mail the consumers about collection on the outstanding balance.
Lenders also made false collection threats that would often purport their authority to garnish wages of borrowers, when no such authority exists. In some cases, the lender would actually make an unauthorized wage deduction by sending demand notices to consumers’ employers that incorrectly conveyed that the employer was required to remit to the lenders from the consumer’s wages the full amount of the consumer’s loan balance. In fact, the consumer had agreed to permit the lenders only to seek a wage deduction in the amount of the individual scheduled payment due.
Under the Consumer Financial Protection Act, the CFPB has the authority to supervise large banks, thrifts, and credit unions with assets over $10 billion and their affiliates, as well as certain nonbanks, including mortgage companies, private student lenders, and payday lenders. The CFPB’s supervisory authority also covers consumer reporting, student loan servicing, debt collection, auto finance, international money transfer, and other nonbank entities that pose risks to consumers.
A key aspect of the CFPB supervision program is benefitting supervised entities by identifying compliance issues before they become significant. The supervision process is confidential in nature. The CFPB notes that several nonbanks, recognizing the benefits of CFPB supervision, have voluntarily consented to CFPB supervisory authority. The CFPB has also begun scheduling and conducting examinations of new products in emerging markets, including data aggregators that are larger participants in the consumer reporting market.