CFPB Takes Aim at Auto Servicing and Collection Tactics

By Anastasia V. Caton and Taylor A. Krowitz* March 02, 2023

In its Fall 2022 Supervisory Highlights, the Consumer Financial Protection Bureau identified a number of auto finance servicing and collection practices that it observed in its examinations and considers to be unfair, deceptive, or abusive.

1. Overcharging for ancillary products at early payoff:
The CFPB found that some auto finance servicers failed to refund unearned charges for ancillary products upon early payoff, which the CFPB identified as an unfair practice. The ancillary products at issue included GAP waivers and credit insurance products that only provide benefits during the term of the credit agreement. The full cost of these ancillary products was financed with the vehicle in the credit agreement. When the consumer pays off the credit agreement, these types of products no longer provide any benefits to the consumer. Therefore, the CFPB found that it was unfair for the servicers to fail to refund the unearned charges for these products when consumers paid off early. The CFPB noted that servicers appropriately made refunds (or applied the refunds to the outstanding balances) when vehicles were repossessed.

2. Misleading consumers about contract modification approval:
The CFPB found that servicers engaged in deceptive practices during collection calls to consumers who were in default by stating that if the consumer made a "good faith" monthly payment, the servicer would agree to the contract modification. However, in most instances, the servicer ultimately denied the consumer's modification request even if the consumer made a payment.

3. Double-billing consumers for CPI:
The CFPB found that servicers engaged in unfair practices by force-placing collateral protection insurance on consumers' vehicles and erroneously double-charging consumers for that CPI.

4. Using starter interrupt devices improperly:
The CFPB found that servicers engaged in unfair practices by activating payment assurance devices when consumers had not missed a payment. Specifically, the CFPB found that servicers had, in some instances, prevented consumers from starting their vehicles and, in other instances, caused the devices to make late payment warning beeps, often for several days, even though the consumers had not missed a payment. The CFPB found that the sounds could have caused consumers not to drive their cars and were likely to harass consumers and risk harming their reputations by "communicating to others ... the consumers' purported delinquencies." The CFPB said that these acts or practices resulted from system errors.

5. Making deceptive representations during collection calls:
The CFPB found that servicers engaged in deceptive practices by making certain false threats during collection calls, including:
that the consumer's driver's license or tags would or could be suspended if the consumer did not make a payment, even though servicers have no authority to suspend any consumer's driver's license or tags; and that the account had been or would be transferred to the servicer's legal department when, in fact, the account was not at risk of imminent referral to the legal department.

What is the common thread running through each of the violations identified by the CFPB? A lack of controls. These violations were not intentional. It appears that servicers lacked controls that would have: ensured that consumers received refunds of unearned ancillary product charges upon early payoff (and not just upon repossession); prevented individual representatives from over-promising when communicating about contract modifications with consumers; ensured that a consumer's account information was updated appropriately when the servicer force-placed insurance; prevented activation of a payment assurance device before the consumer's payment due date; and prevented individual representatives from making false threats.

In some instances, the violations were likely the result of system errors or failures. In other instances, servicers could have prevented a violation with better training of employees and scripting for collection communications. Certain violations could have been identified in a self-audit process and remediated, such as the failure to make ancillary product refunds upon prepayment or double-charging consumers for CPI. Accordingly, the Fall 2022 issue of Supervisory Highlights serves as a reminder that servicers of vehicle finance contracts ought to continually review and improve their compliance management systems to ensure that there are appropriate controls in place, including during the audit process, to prevent unfair, deceptive, or abusive acts or practices and violations of consumer protection laws. 

*Anastasia V. Caton is a partner in the Washington, D.C., office of Hudson Cook, LLP. Taylor A. Krowitz is an associate in the Maine office of Hudson Cook, LLP.

© 2020, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only to 
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Last modified on Thursday, 02 March 2023 18:20