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Financial Services Law Insights and Observations

CFPB examines servicers’ handling of auto lending add-on products

Federal Issues CFPB Consumer Finance Auto Finance

Federal Issues

On May 2, the CFPB published a blog post examining how servicers handle overcharging for add-on products on auto loans. The post describes, among other things, that auto dealers and financial companies “often charge consumers all payments for any add-on products as a lump sum at origination of the auto loan, and they generally include the lump sum cost as part of the total vehicle financing agreement.” Bureau examiners have focused on how servicers manage these add-on product charges when the loan ends prior to when the add-on product’s potential benefits end. As previously covered by InfoBytes, the Bureau published a Supervisory Report, finding that servicers engaged in unfair practices by failing to request refunds from the third-party administrators for “unearned” fees associated with the add-on product guaranteed asset protection, among other things. As a response to these findings, the servicers remediated impacted consumers and implemented more controls, which are intended to ensure that add-on product refunds are processed after repossession, according to the post. The Bureau also cited servicers for engaging in unfair acts or practices for miscalculating ancillary auto product refunds after repossession and attempting to collect miscalculated deficiency balances (covered by InfoBytes here). The miscalculated refunds have decreased the refunds available to certain borrowers and led to deficiency balances that were higher by hundreds of dollars. The servicers attempted to collect the deficiency balances. In response to these findings, the servicers conducted reviews to identify and remediate affected borrowers. According to the post, the Bureau “will continue to scrutinize servicer practices to make sure that borrowers aren’t overcharged when their loans end early.”

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