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CFPB settles with auto lender over unfair LDW practices
On May 21, the CFPB announced a settlement with a California-based auto-loan lender to resolve allegations that the company engaged in unfair practices with respect to its Loss Damage Waiver (LDW) product, in violation of the Consumer Financial Protection Act. The CFPB alleged that the company engaged in unfair practices by illegally charging interest for late payments on its LDW product without customers’ knowledge. According to the consent order, if consumers had insufficient insurance coverage for their vehicles, the company would add the LDW product to their accounts. For these consumers, the cost of the LDW product was added to the principal of the loan, resulting in an increase to the total loan balance and the amortized loan payment. The company allegedly disclosed the increase in the consumer’s monthly payment as an LDW fee but failed to disclose to consumers that interest accrues on late payments of that fee. The Bureau alleged that the company’s practice of charging consumers interest for late LDW fee payments without their consent caused “substantial injury that was not reasonably avoidable or outweighed by any countervailing benefit to consumers or to competition.”
Under the terms of the consent order, the company is required to provide $565,813 of relief to 5,782 impacted consumers, as well as pay a $50,000 civil money penalty. The order also permanently enjoins the company from charging interest on LDW fees without “clearly and conspicuously disclosing the material terms and conditions to consumers.”