Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today announced that its supervisory actions in the first four months of the year uncovered illegal activities in auto finance and payments that led to approximately $24.5 million in restitution to more than 257,000 consumers. The report also highlights issues CFPB examiners found through the agency’s examination of businesses in auto loan origination, debt collection, mortgage origination, and small-dollar lending.
“This report highlights our ongoing work to address violations of the law and slipshod practices that endanger consumers,” said CFPB Director Richard Cordray. “The Bureau’s supervisors continue to perform more and better oversight of these financial markets, and their report gives the industry an opportunity to reflect on their practices before consumers are made to suffer harm.”
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has authority to supervise certain nonbanks, including mortgage companies, private student lenders, and payday lenders, as well as nonbanks the Bureau defines through rulemaking as “larger participants.” To date, the Bureau has issued rules to supervise the larger participants in the markets of consumer reporting, consumer debt collection, student loan servicing, international money transfers, and auto finance.
The CFPB often finds problems during supervisory examinations that are resolved without an enforcement action. Recent non-public supervisory actions resulted in restitution of about $24.5 million to more than 257,000 consumers for auto finance and payments issues. Supervisory work in connection with debt sales also aided an enforcement action that returned nearly $5 million to consumers and imposed $3 million in civil money penalties.
Today’s report, the 12th edition of Supervisory Highlights, covers activities completed generally between January 2016 and April 2016. Examiners uncovered issues across an array of financial markets, including:
- Deception by auto lenders about loan terms:
CFPB examiners determined that one or more auto lenders deceived consumers into
thinking their add-on product would fully cover the balance of a consumer’s
loan in the event of the loss of their car or truck. In fact, the product
covered less than the vehicle’s value. Bureau examiners also found one or more
auto lenders deceived consumers about terms of a loan deferral, saying the only
effect would be to extend the life of the loan and to accrue interest during
the deferral. They didn’t tell consumers that subsequent payments would be
applied to cover the interest earned on the unpaid amount from the date of the
consumer’s last payment. This tactic could lead to the consumer paying more in
finance charges than the lender originally disclosed. Examiners noted this
practice broke the law regarding deceptive acts and practices.
calculation of loan financing amounts: One or more institutions
miscalculated the amount financed on loans with discount credits, where a
consumer pays more in interest in exchange for the lender giving money upfront
to offset closing costs. It means no or limited out-of-pocket expenses at
closing, but more paid over time because of a higher interest rate. A
miscalculated rate caused these loans to carry
incorrect finance charges. The error would show an amount financed that
exceeded the actual stated loan amount, plus a negative finance charge. This
violates federal regulations that require the amount financed to be calculated
by taking the loan amount, adding other amounts financed by the creditor that
are not part of the finance charge, and subtracting any prepaid finance charge.
- Failure to
properly disclose interest on interest-only loans: One or more institutions offering interest-only bridge
loans failed to accurately disclose the interest payment by incorrectly
including in the principal balance a portion of the monthly payment amount that
was to be applied to fees financed into the principal balance. Federal
regulations require that creditors disclose interest-only loan payment amounts
that will be applied to interest and principal. This failure to itemize and
properly disclose the correct interest and principal payment was caused by a
computer software error.
accounts sold to debt sellers: CFPB
examiners found at least one debt seller improperly sold thousands of dollars
of debt accounts because of widespread coding errors. The flawed coding failed
to note that the accounts were in bankruptcy, the debts were fraudulent, or the
accounts had already been settled. CFPB examiners cited these practices as unfair under the Dodd-Frank Act.
- Consumers misled
about debt repayment options: Examiners
found that some debt collectors deceived consumers into thinking a down payment
was necessary for repaying a debt when the collectors’ policies and procedures
had no such requirement. In other cases, collectors told consumers they had to
pay through a checking account, but that type of repayment was not actually
required by the collectors’ policies.
- Failure to
provide adverse action notices: One or
more institutions took adverse actions without making the required disclosures.
Under the Fair Credit Reporting Act, consumers must be notified of any adverse
action, such as denial of credit, based on information in a consumer report.
Consumers must also receive information about the consumer reporting
agency that produced the report, which would note that the reporting agency did
not make the decision to take adverse action and cannot provide the consumer
the specific reasons why it happened. Examiners found the violations were
caused by a lack of appropriate training, and inadequate policies and
- Illegally requiring consumers to use an affiliated business: Bureau examiners found that at least one institution required customers to use affiliated providers of tax services and flood determination, which identifies flood zones on a specific property. Federal law permits a lender to require the use of a particular settlement service provider only in limited circumstances, and does not include these services.
Today’s report shares information to help industry comply with federal consumer financial law. To protect confidentiality, the report does not refer to specific institutions, unless they were subject to public enforcement actions. The CFPB ordered corrective actions that include better training for employees, improvements to how the businesses field and respond to consumer complaints, and the development of improved policies and procedures and enhanced monitoring systems to ensure compliance with federal rules. In addition, the Bureau has referred some exam findings for further action where appropriate.
The CFPB often finds problems during supervisory examinations that are resolved without an enforcement action. Where Bureau examiners find violations of law or other significant problems or weaknesses, they alert the institutions to their concerns, direct entities to change their conduct, and outline necessary remedial measures.
Today’s edition of Supervisory Highlights is available at: https://www.consumerfinance.gov/policy-compliance/guidance/supervisory-highlights/
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov