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CFPB Takes Action Against Auto Lender for Unfair Loss Damage Waiver Practices

California Auto Finance to Provide Refunds and Credits, Correct Credit Records, and Pay a Civil Money Penalty

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) issued a consent order today against 3rd Generation, Inc., doing business as California Auto Finance (California Auto) for illegally charging interest for late payment on its Loss Damage Waiver (LDW) product without its customers’ knowledge. The CFPB’s order requires California Auto to refund or credit customers harmed by the conduct, furnish corrected information to credit reporting agencies, and pay a civil penalty and also prohibits the company from charging interest on late payments without disclosing costs.

“Buying a car is among the biggest purchases many people ever make, and the CFPB will not tolerate illegal financing practices that increase the amount people have to pay,” said CFPB Acting Director David Uejio. “This case presents another example of auto loan companies unfairly or deceptively using add-on products to increase the cost of auto loans.”

California Auto is an auto-loan finance company serving consumers in California. California Auto services subprime auto loans that were originated by car dealers and later assigned to California Auto. California Auto required its customers to agree that if they had insufficient insurance coverage for their automobiles, they would add “loss-damage-waiver” coverage to their accounts. LDW is a product that, for a monthly fee, covers cancellation of the customer’s debt in the event of a total vehicle loss or the cost of a repair if the vehicle was not a total loss.

Charging Undisclosed Interest to Consumers

The CFPB found that California Auto engaged in unfair practices against their customers in violation of the CFPA. Violations centered around:

  • Unfair charges: When a customer’s LDW payment was late, California Auto would charge interest on the late payment, but it did not disclose this interest to the customer. Between 2016 and 2021, California Auto charged about 5,800 customer accounts a total of $565,813 in interest on late payments of loss-damage-waiver fees without disclosing the charges.

Enforcement Action

Under the CFPA, the CFPB has the authority to take action against institutions violating federal consumer financial laws, including by engaging in unfair, deceptive, or abusive acts or practices. The consent order requires California Auto to:

  • Refunds, credit accounts, and corrected credit records: California Auto will provide a total of $565,813 of consumer relief to 5,782 customers, including refunds and account credits. California Auto is also correcting certain consumers’ credit records.
  • Pay a civil penalty: California Auto will pay a $50,000 penalty to be deposited in the CFPB’s Civil Penalty Fund.
  • Stop illegal practices: The order also prohibits California Auto from charging interest on late payments of LDW without disclosing to customers that interest and how it accrues.

Read the CFPB’s consent order.

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit