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Financial Services Law Insights and Observations

CFPB Releases "Know Before You Owe" Auto Initiative

CFPB Auto Finance Consumer Complaints

Consumer Finance

On June 9, the CFPB released an auto loan worksheet designed to help consumers shop for an automobile loan. As part of its Know Before You Owe auto initiative (also known as the Take Control of Your Auto Loan initiative), the online worksheet is intended to help consumers: (i) understand the aggregate amount of the loan – not just the monthly payment – including the interest rate, optional add-ons, and certain fees; (ii) negotiate and compare between loan offers; and (iii) be mindful of how additional financing features, services, or add-ons, such as guaranteed auto protection insurance, extended warranties, and credit insurance, can increase the upfront cost of a loan. In addition to the auto loan worksheet, the CFPB’s Know Before You Owe auto initiative also contains a step-by-step guide designed to help consumers navigate the auto lending process.

The CFPB simultaneously released a report titled “Consumer Voices on Automobile Financing.” The report covers research related to direct and indirect auto financing, but does not address financing offered by “Buy Here Pay Here” dealers or leasing. According to the report, as of April 20, 2016, the CFPB has received more than 2,000 consumer complaint narratives related to vehicle financing issues. The report identifies the following as common themes among consumer complaint narratives:  (i) a lack of understanding regarding the potential financing options that are available, or a lack in confidence to explore options different from what was originally offered; (ii) difficulties in understanding and negotiating the loan terms, noting that “consumers reported that they did not fully understand the level of the interest rate they were paying until they started making payments”; (iii) failed promises of receiving refinancing or better loan terms in the future; (iv) challenges related to loans lasting “beyond the life of the vehicle”; (v) problems with add-ons, noting that consumers reported that the add-ons they had purchased “were difficult or impossible to use when needed”; and (vi) issues with credit inquiries and dealers submitting loan applications to lenders without consumer permission. The research and findings outlined in the CFPB’s report was used to develop the Take Control of Your Auto Loan initiative.