Hold onto your hats, folks—it’s getting rough out there! Citing the increased cost of vehicles and more credit needed to pay for them, the Consumer Financial Protection Bureau has turned its attention to monitoring and enforcement against companies engaged in auto finance. The CFPB has recently taken enforcement action against auto finance companies for “wrongful repossessions, credit reporting practices, and misrepresenting the cost of credit.”
On August 2, 2023, the CFPB sued USASF Servicing, LLC. USASF serviced accounts for its related buy-here, pay-here dealerships, known as U.S. Auto, which had several stores primarily located in the Southeastern U.S. In early spring of this year, U.S. Auto wound down most of its businesses.
The complaint alleged that USASF engaged in unfair acts and practices, including illegal repossessions, wrongful disabling of vehicles, double-billing of insurance premiums, misapplication of payments, and failing to provide GAP refunds to consumers upon termination by payoff or repossession.
U.S. Auto installed starter-interrupt devices on financed vehicles. The complaint alleged that USASF activated payment warning alerts and/or incorrectly disabled vehicles when the customer was not in default or was in communication about a payment plan. The CFPB did not indicate that starter-interrupt devices were inherently illegal or problematic, but, by its complaint, it indicated that creditors should take care to avoid disabling vehicles when customers are not in default or have contacted the creditor to establish payment arrangements.
U.S. Auto offered GAP waivers to consumers. The complaint alleged that USASF failed to make required refunds upon GAP contract termination at early payoff or repossession and charge off, contrary to its policies and procedures. The complaint further alleged that payoff amounts quoted by USASF to consumers included GAP premiums payable for the full term of the finance contract, resulting in payments for coverage that would never be needed or provided.
Creditors should review their GAP refund policies and procedures because this specific concern is not new for the federal regulators. Many states and GAP agreements require refunds of GAP charges upon termination by payment in full or repossession and sale of the vehicle. Creditors should ensure that their acts and practices are consistent with their policies and procedures and any applicable state requirements related to consumer refunds for GAP in the event of termination. In some states, creditors must simply notify the administrator of termination. In other states, creditors are obligated to make the refund or ensure the refund is made. Even if a state does not require notice and refund, it is important to note that the CFPB believes the failure to ensure refunds of unearned GAP fees is an unfair practice—at least if there is a creditor policy stating it will do so.
Back to the CFPB’s complaint. U.S. Auto allegedly offered collateral protection insurance at the point of sale and force-placed insurance in the event the consumer failed to provide coverage as required by the finance contract. The complaint alleged that, when consumers enrolled in the collateral protection insurance policy offered, they were charged for it both by an affiliate of USASF and by USASF, and these overcharges were not timely corrected.
The CFPB alleged that consumers were double-charged for insurance over multiple billing cycles and that the excess fees were included in the amount reported to consumer reporting agencies.
The CFPB also claimed that USASF misapplied regular payments first to late charges and then to insurance rather than first to accrued interest, as required by the finance contract, resulting in additional interest and fees paid by consumers.
Finally, the CFPB claimed that USASF repossessed vehicles where the consumer was not in default or had made some post-default efforts, typically a payment or payment plan, to stop repossession or after the consumer had filed for bankruptcy. The complaint also alleged that USASF repossessed vehicles owned by active-duty servicemembers. The CFPB further claimed that USASF sold vehicles that were wrongfully repossessed.
The complaint seeks redress for consumers, civil money penalties, injunctions to prevent future violations, and coverage of CFPB costs for bringing the action. The case is pending, and USASF has not admitted to any of these practices or omissions as of the date of publishing.
Creditors can avoid being the focus of a CFPB investigation and enforcement action by diligently ensuring their operations are legally compliant, implemented, and audited. Quick corrections and remuneration should be made where internal or external audits find isolated or systemic compliance issues. Finally, creditors using internal or third-party origination and servicing systems are responsible for ensuring that the systems operate according to the law and the creditor’s written policies and procedures. And don’t forget to hold on tight because the CFPB waters are getting choppy!
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