Looking Ahead to 2025
We anticipate that the Consumer Financial Protection Bureau (CFPB) will continue to closely monitor the advertising practices of auto lenders and servicers as well as the practices around add-on products.
Additionally, the CFPB has strongly signaled its desire to collect more and more data from auto lenders and has already used data collected to signal an interest in how negative equity affects consumers’ auto loans.
Key Trends From 2024
In 2024, Goodwin tracked eight publicly announced auto lending enforcement actions, a decrease from the nine actions tracked in 2023 and the 13 actions tracked in 2022. Additionally, the amount recovered by these enforcement actions totaled $7.7 million, a steep decline to just 10% of the $80 million recovered in 2023.
Though enforcement actions declined significantly in 2024, the CFPB still engaged in robust supervisory activities and signaled that its next focus may be on increased data collection of auto lenders.
In the News
In 2024, the CFPB focused its supervisory efforts on practices tangential to automotive loans instead of the loans themselves. Notably, as set forth in CFPB’s autumn 2024 Supervisory Highlights, a report that covered the CFPB’s examinations and supervisory findings of auto-finance companies between November 2023 and August 2024, the CFPB narrowed in on deceptive origination disclosures. For example, the CFPB found that certain subprime-loan originators engaged in deceptive acts or practices through service providers sending mailers advertising annual percentage rates (APRs) “as low as” to consumers that had no reasonable chance of qualifying for rates at or near that level. The Supervisory Highlights also demonstrated that the CFPB has continued to keep a close eye on how add-on products are treated by auto lenders, particularly the failure to issue refunds or prorate add-on products wrapped up into the loan price upon earlier termination of the loan and the collection and retention of payments for add-on products that consumers did not agree to purchase. The CFPB noted that as result of these findings, servicers remediated consumers and updated and implemented new policies and procedures to deter abusive and unlawful practices related to add-on products.
In June, the CFPB took the unusual step of issuing a report without there being an underlying supervisory or enforcement action tied to it. The report is comprised of data from the Auto Finance Data Project that the CFPB received by issuing market-monitoring orders to nine large auto lenders, the issuance of which it announced in February 2023. Those orders requested data from 2018 through 2022. The report stressed that “negative equity may lead to worse consumer outcomes” and shared, among other data points, that consumers who financed negative equity had higher average monthly payments and were far more likely to have their accounts assigned to repossession within two years than consumers who did not carry negative equity into their new auto loan.
Following the results of the Auto Finance Data Project, in early 2024, the CFPB published a notice in the Federal Register that sought approval from the Office of Management and Budget to continue collecting data from auto finance companies pursuant to its authority under the Dodd-Frank Act. The CFPB seeks to collect data annually from auto finance lenders who originate more than 20,000 auto loans in the previous calendar year and collect a reduced set of data from lenders who originate more than 500 auto loans a year and less than 20,000 auto loans in the previous calendar year, specifically concerning information on the number of vehicles repossessed and the number of loan modifications. The notice cited the Auto Finance Data Project, and the resulting orders, as justification for the collection of more data to help the CFPB carry out its responsibility to monitor the automotive finance market for risks to consumers.
2024 Enforcement Highlights
CFPB Enters Into Consent Order With National Bank on Force-Placed Insurance Policies
In July, the CFPB announced that it had entered into a consent order with a national bank, resolving allegations that force-placed insurance policies violated the Consumer Financial Protection Act, Fair Credit Reporting Act, Electronic Fund Transfer Act, and Regulation E. Specifically, the CFPB alleged that the bank took out and retained these insurance policies — meant to protect a lender’s interest in the loan’s physical collateral — on vehicles for which borrowers already had their own, separate insurance. These policies, the cost of which were passed to the consumer, allegedly resulted in increased repossessions. The CFPB also alleged that the bank failed to provide adequate disclosures around and notice of such force-placed policies to affected consumers. According to the terms of the consent order, the bank agreed to pay $5 million in civil monetary penalties.
FTC and Arizona Take Action Against Owner of Car Dealerships
In August, the FTC and the State of Arizona announced they had taken action against the owner of several car dealerships, including Coulter Cadillac Tempe and Tempe Buick GMC, and one of their employees for allegedly engaging in deceptive advertising, imposing large junk fees, and charging Latino consumers more than non-Latino White consumers. According to the complaint, the dealerships advertised prices that were thousands of dollars below the retail price for the vehicles to lure customers to the dealership; when customers arrived at the dealership, they were allegedly told the advertised price was no longer available. The complaint further alleges that the dealerships added hundreds of thousands of dollars in junk fees labeled as “market adjustments,” add-on products, and other miscellaneous fees. Furthermore, the complaint alleged that Latino customers paid nearly $1,200 more in interest and add-on charges than their non-Latino White counterparts. The dealership entered into a consent order with the FTC and Arizona agreeing to pay $2.6 million over these practices, of which $2.35 million was used to provide refunds to customers.
Massachusetts Issues Consent Orders Against Motor Vehicle Sales Finance Companies
In late 2024, the Massachusetts Division of Banks issued consent orders, totaling $80,000, against four motor vehicle sales finance companies — Ironhorse Funding LLC, Two Wheeler Finance LLC, Open Road Finance Corp., and Harbor Finance Company Inc. — over their practices of repossessing the vehicles of consumers who defaulted on their loans without proper notice. These state actions indicate that multiple levels of government are paying close attention to proper servicing of auto loans and are keen on ensuring consumers are well-informed about both the status of their loans and the charges they are incurring.
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