Skip to main content
Menu Icon

InfoBytes Blog

Financial Services Law Insights and Observations

CFPB and New York say auto lender misled consumers

Federal Issues State Issues CFPB New York State Attorney General Enforcement Auto Finance Consumer Finance Deceptive Abusive CFPA UDAAP

Federal Issues

On January 4, the CFPB and New York attorney general filed a complaint against a Michigan-based auto finance company accused of allegedly misrepresenting the cost of credit and deceiving low-income consumers into taking out high-interest loans on used vehicles. (See also AG’s press release here.) The joint complaint alleges, among other things, that the defendant based the price of a loan (and then artificially inflated the principal amount) and the payment to the dealer on the projected amount that may be collected from the consumer during the life of the loan (without factoring in whether consumers could actually afford the loan).

The Bureau and AG further argued that the true cost of credit is hidden in inflated principal balances in order to evade state interest rate caps. An investigation conducted by the AG found that while the defendant’s loan agreements in New York claimed an APR of 22.99 percent or 23.99 percent (just below the 25 percent usury cap), the defendant actually charged on average more than 38 percent (and on many occasions charged an APR in excess of 100 percent). These high-interest loans, the AG claimed, often caused consumers to accrue additional fees and become delinquent on their loans.

The complaint also alleged the defendant failed to consider consumers’ ability to repay their loans in full, engaged in aggressive debt collection tactics, and created financial incentives for dealers to add on extra products, such as vehicle service contracts. Add-on products generated roughly $250 million in revenue for the defendant in 2020, the complaint said, adding that these alleged deceptive lending practices lowered consumers’ credit scores and cost borrowers millions of dollars. The complaint further maintained that the defendant packaged the consumer loans into securities that were sold to investors on the premise that the underlying loans complied with applicable law. These alleged false representations, the complaint said, constituted securities fraud under New York’s Martin Act.

The complaint — which also alleges violations of the Consumer Financial Protection Act’s prohibition against deceptive and abusive acts or practices, New York usury limits, and other state consumer and investor protection laws — seeks, among other things, injunctive relief, monetary relief, disgorgement, and civil money penalties of $1,000,000 for each day of violations.

The defendant was previously targeted for violating consumer protection laws in 2021 by the Massachusetts attorney general, who announced a $27.2 million settlement to resolve allegations of predatory lending and deceptive debt collection practices. (Covered by InfoBytes here.)