The Consumer Financial Protection Bureau (“CFPB”) periodically publishes Supervisory Highlights to share key CFPB examination findings. These highlights also communicate operational changes to the CFPB’s supervision program and provide resources for information on CFPB guidance documents. In short – the Supervisory Highlights provide who has done what and how the CFPB responded to those activities. Although the CFPB has intentionally weakened its enforcement arm, it remains a very active supervisor and examiner of the auto finance industry. Auto dealers and financing sources should pay close attention to the Supervisory Highlights and consider how the CFPB’s findings affect their operations and business.
The most recent Supervisory Highlights, Issue 17, Summer 2018, focus on auto “loan servicing.” The CFPB continues to examine auto credit servicing activities, assessing whether servicers have engaged in unfair, deceptive, or abusive acts or practices (“UDAAPs”) prohibited by federal law. Recent auto credit servicing examinations identified UDAAPs related to billing statements and wrongful repossessions.
In one or more recent examinations, the CFPB found creditors improperly applied total loss insurance proceeds. Rather than apply the proceeds as a one-time payment to the outstanding balance, as required by the credit agreement, and collecting any deficiency according to the payment schedule under the agreement, the CFPB found that creditors sent billing statements showing that payments were paid ahead. Inconsistent with the “paid ahead” payments indicated by billing statements, servicers treated consumers who failed to pay by the next month as late and in some cases also reported the negative information to consumer reporting agencies.
The Supervisory Highlights indicated that some servicers engaged in a deceptive practice by sending billing statements indicating that consumers did not need to make a payment until a future date when in fact the consumer needed to make a monthly payment. The billing statements contained due dates inconsistent with the credit agreement requirements and the servicer’s insurance payment application, thereby misleading consumers to believe no payment was necessary. The CFPB considered this a material misrepresentation because it likely affected consumers’ conduct. Consumers would have been more likely to make a monthly payment if they knew that not doing so would result in a late fee, delinquency notice, or adverse credit reporting. According to the CFPB, those examined servicers now send billing statements that accurately reflect the account status of the loan after application of insurance proceeds.
The Supervisory Highlights also addressed situations where servicers repossessed vehicles after the repossession was supposed to be cancelled due to a customer payment or payment extension. In these instances, the Supervisory Highlights indicated that servicers incorrectly coded an account as remaining delinquent or customer service representatives did not timely cancel a repossession order after the consumer’s agreement with the servicer to avoid repossession. Repossession, under these circumstances constituted an unfair practice causing substantial injury to the consumer.
The CFPB cited injuries in the form of deprivation of the use of the vehicle and associated harms, such as lost wages and adverse credit reporting, which could not be avoided by the consumer. Servicers were ordered to stop the practice, review the accounts of consumers affected by a wrongful repossession, and remove or remediate all repossession-related fees.
What’s the moral of last summer’s Supervisory Highlights? Look to the credit agreement and engage in servicing consistent with its terms. And, when a creditor cancels a repossession because the customer has made a payment or entered into a formal (or informal) extension agreement, don’t repossess the car. Seems easy enough; however, creditors may not be aware they are doing these things if they don’t have a comprehensive compliance management system designed to prevent UDAAPs and manage vendors.