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Judge stays CFPB, NY AG lawsuit against auto lender
On August 7, the U.S. District Court for the Southern District of New York granted a defendant’s motion to stay a lawsuit against an alleged predatory auto lender until the Supreme Court determines the constitutionality of the CFPB’s funding in a separate lawsuit (CFSA Case; covered by InfoBytes here).
The CFPB and the New York Attorney General (AG) brought the complaint in January, accusing the lender of UDAAP and TILA violations that involved tricking consumers into loans financing used cars with high interest rates (typically above 22 percent) and add-on products they could not afford. The CFPB and AG alleged the dealers affiliated with the company (i) engaged in deceptive conduct; (ii) used high pressures sales tactics; (iii) pressured consumers into unaffordable auto loans; (iv) pressured family and friends to cosign the loans; (v) withheld prices of vehicles; and (vi) misrepresented key financial terms of the purchase, violating the CFPB, the Martin Act, and fraud and UDAP statutes, among other allegations.
In its decision, the district court reasoned that the stay awaiting the Supreme Court’s decision would (i) allow for clarity and guidance on the legal issues at hand and it may help the defendant avoid unnecessary litigation costs; and (ii) promote judicial efficiency and minimize the possibility of conflicts with other courts. Furthermore, the court determined that although it would be in the public interest to enforce consumer protection laws, the potential harm to the public caused by the stay is outweighed by the benefit to consumers “in proceeding in a streamlined fashion.” The order requires the parties to file a joint letter updating the court by the earlier of November 3 or one week after a major development in the CFSA case.
CFPB issues Summer ’23 supervisory highlights
On July 26, the CFPB released its Summer 2023 issue of Supervisory Highlights, which covers enforcement actions in areas such as auto origination, auto servicing, consumer reporting, debt collection, deposits, fair lending, information technology, mortgage origination, mortgage servicing, payday lending and remittances from June 2022 through March 2023. The Bureau noted significant findings regarding unfair, deceptive, and abusive acts or practices and findings across many consumer financial products, as well as new examinations on nonbanks.
- Auto Origination: The CFPB examined auto finance origination practices of several institutions and found deceptive marketing of auto loans. For example, loan advertisements showcased cars larger and newer than the products for which actual loan offers were available, which misled consumers.
- Auto Servicing: The Bureau’s examiners identified unfair and abusive practices at auto servicers related to charging interest on inflated loan balances resulting from fraudulent inclusion of non-existent options. It also found that servicers collected interest on the artificially inflated amounts without refunding consumers for the excess interest paid. Examiners further reported that auto servicers engaged in unfair and abusive practices by canceling automatic payments without sufficient notice, leading to missed payments and late fee assessments. Additionally, some servicers allegedly engaged in cross-collateralization, requiring consumers to pay other unrelated debts to redeem their repossessed vehicles.
- Consumer Reporting: The Bureau’s examiners found that consumer reporting companies failed to maintain proper procedures to limit furnishing reports to individuals with permissible purposes. They also found that furnishers violated regulations by not reviewing and updating policies, neglecting reasonable investigations of direct disputes, and failing to notify consumers of frivolous disputes or provide accurate address disclosures for consumer notices.
- Debt Collection: The CFPB's examinations of debt collectors (large depository institutions, nonbanks that are larger participants in the consumer debt collection market, and nonbanks that are service providers to certain covered persons) uncovered violations of the FDCPA and CFPA, such as unlawful attempts to collect medical debt and deceptive representations about interest payments.
- Deposits: The CFPB's examinations of financial institutions revealed unfair acts or practices related to the assessment of both nonsufficient funds and line of credit transfer fees on the same transaction. The Bureau reported that this practice resulted in double fees being charged for denied transactions.
- Fair Lending: Recent examinations through the CFPB's fair lending supervision program found violations of ECOA and Regulation B, including pricing discrimination in granting pricing exceptions based on competitive offers and discriminatory lending restrictions related to criminal history and public assistance income.
- Information Technology: Bureau examiners found that certain institutions engaged in unfair acts by lacking adequate information technology security controls, leading to cyberattacks and fraudulent withdrawals from thousands of consumer accounts, causing substantial harm to consumers.
- Mortgage Origination: Examiners found that certain institutions violated Regulation Z by differentiating loan originator compensation based on product types and failing to accurately reflect the terms of the legal obligation on loan disclosures.
- Mortgage Servicing: Examiners identified UDAAP and regulatory violations at mortgage servicers, including violations related to loss mitigation timing, misrepresenting loss mitigation application response times, continuity of contact procedures, Spanish-language acknowledgment notices, and failure to provide critical loss mitigation information. Additionally, some servicers reportedly failed to credit payments sent to prior servicers after a transfer and did not maintain policies to identify missing information after a transfer.
- Payday Lending: The CFPB identified unfair, deceptive, and abusive acts or practices, including unreasonable limitations on collection communications, false collection threats, unauthorized wage deductions, misrepresentations regarding debt payment impact, and failure to comply with the Military Lending Act. The report also highlighted that lenders reportedly failed to retain evidence of compliance with disclosure requirements under Regulation Z. In response, the Bureau directed lenders to cease deceptive practices, revise contract language, and update compliance procedures to ensure regulatory compliance.
- Remittances: The CFPB evaluated both depository and non-depository institutions for compliance with the EFTA and its Regulation E, including the Remittance Rule. Examiners found that some institutions failed to develop written policies and procedures to ensure compliance with the Remittance Rule's error resolution requirements, using inadequate substitutes or policies without proper implementation.
District Court preliminarily approves $300 million auto insurance settlement
On May 1, the U.S. District Court for the Northern District of California preliminarily approved a $300 million class action settlement resolving claims that a national bank hid misconduct relating to its auto insurance practices. The lead plaintiff alleged that, between November 3, 2016 and August 3, 2017, the defendant made materially false or misleading statements in violation of the Securities Act, which artificially inflated the price of the defendant’s stock. Specifically, the plaintiff maintained that the defendant concealed that it allegedly force-placed unneeded collateral protection insurance (CPI) on many of its customers and failed to refund unearned guaranteed auto protection (GAP) premiums to other customers, which led to more than 20,000 customers having their cars repossessed. The plaintiff further alleged that the defendant was aware of these issues but failed to disclose them to investors or the public, and claimed that the facts did not emerge until they were published by the media in July of 2017. As a result, class members who purchased defendant’s stock during the relevant period allegedly suffered economic losses when the stock price declined as a result of two corrective disclosures that revealed the CPI and GAP issues to investors. A hearing later this year will determine the service fee award and attorneys’ fees and expenses (to be no more than 25 percent of the settlement amount). The defendant denies all claims of wrongdoing.
CFPB issues fall supervisory highlights
On November 15, the CFPB released its fall 2022 Supervisory Highlights, which summarizes its supervisory and enforcement actions between January and June 2022 in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, mortgage servicing, and payday lending. Highlights of the findings include:
- Auto Servicing. Bureau examiners identified instances of servicers engaging in unfair, deceptive, or abusive acts or practices connected to add-on product charges, loan modifications, double billing, use of devices that interfered with driving, collection tactics, and payment allocation. For instance, examiners identified occurrences where consumers paid off their loans early, but servicers failed to ensure consumers received refunds for unearned fees related to add-on products.
- Consumer Reporting. The Bureau found deficiencies in credit reporting companies’ (CRCs) compliance with FCRA dispute investigation requirements and furnishers’ compliance with FCRA and Regulation V accuracy and dispute investigation requirements. Examples include: (i) NCRCs that failed to report the outcome of complaint reviews to the Bureau; (ii) furnishers that failed to send updated information to CRCs following a determination that the information reported was not complete or accurate; and (iii) furnishers’ policies and procedures that contained deficiencies related to the accuracy and integrity of furnished information.
- Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) conduct reasonable investigations into billing error notices due to human errors and system weaknesses; and (iii) provide explanations to consumers after determining that no billing error occurred or that a different billing error occurred from that asserted. Examiners also identified Regulation Z violations where credit card issuers improperly mixed original factors and acquisition factors when reevaluating accounts subject to a rate increase, and identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA violations where debt collectors engaged in conduct that harassed, oppressed, or abused the person with whom they were communicating. The report findings also discussed instances where debt collectors communicated with a person other than the consumer about the consumer’s debt when the person had a name similar or identical to the consumer, in violation of the FDCPA.
- Deposits. The Bureau discussed how it conducted prioritized assessments to evaluate how financial institutions handled pandemic relief benefits deposited into consumer accounts. Examiners identified unfairness risks at multiple institutions due to policies and procedures that may have resulted in, among other things, (i) garnishing protected economic impact payments funds in violation of the Consolidated Appropriations Act of 2021; or (ii) failing to apply the appropriate state exemptions to certain consumers’ deposit accounts after receiving garnishment notice.
- Mortgage Origination. Bureau examiners identified Regulation Z violations and deceptive acts or practices prohibited by the CFPA. An example of this is when the settlement service had been performed and the loan originator knew the actual costs of those service, but entered a cost that was completely unrelated to the actual charges that the loan originator knew had been incurred, resulting in information being entered that was not consistent with the best information reasonably available. The Bureau also found that the waiver language in some loan security agreements was misleading, and that a reasonable consumer could understand the provision to waive their right to bring a class action on any claim in federal court.
- Mortgage Servicing. Bureau examiners identified instances where servicers engaged in abusive acts or practices by charging sizable fees for phone payments when consumers were unaware of those fees. Examiners also identified unfair acts or practices and Regulation X policy and procedure violations regarding failure to provide consumers with CARES Act forbearances.
- Payday Lending. Examiners found lenders failed to maintain records of call recordings necessary to demonstrate full compliance with conduct provisions in consent orders generally prohibiting certain misrepresentations.
CFPB issues spring supervisory highlights
On May 2, the CFPB released its spring 2022 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, prepaid accounts, remittances, and student loan servicing. The report’s findings cover examinations completed between July and December 2021. Highlights of the examination findings include:
- Auto Servicing. Bureau examiners identified instances of servicers engaging in unfair, deceptive, or abusive acts or practices connected to wrongful repossessions, misleading final loan payment amounts, and overcharges for add-on products.
- Consumer Reporting. The Bureau found deficiencies in credit reporting companies’ (CRCs) compliance with FCRA dispute investigation requirements and furnishers’ compliance with FCRA and Regulation V accuracy and dispute investigation requirements. Examples include (i) both CRCs and furnishers failed to provide written notice to consumers providing the results of reinvestigations and direct dispute investigations; (ii) furnishers failed to send updated information to CRCs following a determination that the information reported was not complete or accurate; and (iii) furnishers’ policies and procedures contained deficiencies related to the accuracy and integrity of furnished information.
- Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse consumers after determining a billing error had occurred; (iii) conduct reasonable investigations into billing error notices due to human errors and system weaknesses; and (iv) provide consumers with the evidence relied upon to determine a billing error had not occurred. Examiners also identified Regulation Z violations connected to creditors’ acquisitions of pre-existing credit card accounts from other creditors, and identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA and CFPA violations where debt collectors used false or misleading representations in connection with identity theft debt collection. Report findings also discussed instances where debt collectors engaged in unfair practices by failing to timely refund overpayments or credit balances.
- Deposits. The Bureau discussed violations related to Regulation E, which implements the EFTA, including occurrences where institutions (i) placed duplicate holds on certain mobile check deposits that were deemed suspicious instead of a single hold as intended; (ii) failed to honor a timely stop payment request; (iii) failed to complete error investigations following a consumer’s notice of error because the consumer did not submit an affidavit; and (iv) failed to provide consumers with notices of revocation of provisional credit connected with error investigations regarding check deposits at ATMs.
- Mortgage Origination. Bureau examiners identified Regulation Z violations concerning occurrences where loan originators were compensated differently based on the terms of the transaction. Under the Bureau’s 2013 Loan Originator Final Rule, “it is not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms.” Examiners also found that certain lenders failed to retain sufficient documentation to establish the validity for revisions made to credit terms.
- Prepaid Accounts. The Bureau found violations of Regulation E and EFTA related to institutions’ failure to submit prepaid account agreements to the Bureau within the required time frame. Examiners also identified instances where institutions failed to honor oral stop payment requests related to payments originating through certain bill pay systems. The report cited additional findings where institutions failed to properly conduct error investigations.
- Remittances. Bureau examiners identified violations of the EFTA, Regulation E, and deceptive acts and practices. Remittance transfer providers allegedly made false and misleading representations concerning the speed of transfers, and in multiple instances, entered into service agreements with consumers that violated the “prohibition on waivers of rights conferred or causes of action created by EFTA.” Examiners also identified several issues related to the Remittance Rule’s disclosure, timing, and recordkeeping requirements.
- Student Loan Servicing. Bureau examiners identified several unfair acts or practices connected to private student loan servicing, including that servicers failed to make advertised incentive payments (which caused consumers to not receive payments to which they were entitled), and failed to issue timely refund payments in accordance with loan modification payment schedules.
The report also highlights recent supervisory program developments and enforcement actions, including the Bureau’s recent decision to invoke a dormant authority to examine nonbanks (covered by InfoBytes here).
FTC bans auto marketer over deceptive mailings
On January 28, the FTC announced that it had banned a marketing services company and its owner from the auto industry for allegedly misleading consumers that their websites were affiliated with a government stimulus program and sending consumers deceptive mailings regarding prizes they had supposedly won. According to the opinion, the respondents violated the FTC Act by utilizing deceptive and unfair practices such as sending misleading mailings to persuade consumers to visit auto sales sites by suggesting that these sites were affiliated with a government Covid-19 stimulus program when in fact the sales were not part of any such program. The respondents also allegedly quoted monthly payments to purchase vehicles on credit, but did not provide key financing terms required by law that consumers need to determine the true cost of the advertised loans. Additionally, the respondents allegedly sent direct mail advertisements that deceptively indicated that consumers had won specific, valuable prizes that could be collected upon visiting the car dealership. The FTC noted that the respondents conducted such mailings, despite entering into three prior consent orders with state authorities identifying the ads as deceptive. According to the order, the respondents, are, among other things, banned from advertising, selling, or leasing automobiles for 20 years, and are prohibited from misrepresenting any material fact while marketing any product or service of any kind, as well as from any further violations of TILA’s disclosure requirements.
CFPB releases report on consumer credit disputes
On November 2, the CFPB released a report on credit report disputes that outlined the demographic characteristics of disputers and the outcomes for accounts with dispute flags. The report highlighted that consumers in majority Black and Hispanic neighborhoods, as well as younger consumers and those with low credit scores, are far more likely to have disputes on their credit reports. The post—part of a series documenting trends in consumer credit outcomes during the Covid-19 pandemic (the first covered by InfoBytes here)—used data on auto loan, student loan, and credit card accounts opened between 2012 and 2019. Among other things, the report found that majority Black and Hispanic neighborhoods continue to face significant challenges with credit records; for example, in almost every credit category outlined in the report, consumers residing in majority Black areas were more than twice as likely to have disputes on their credit reports compared to consumers residing in majority white areas. For auto loans, consumers in majority Black areas were more than three times as likely to have disputes appear on their credit reports compared to majority white areas. The report also noted that approximately 40 percent of student loans with dispute flags are deleted within four years of the dispute, although this represents less than 0.2 percent of all student loans opened between 2012 and 2019.
According to Director Rohit Chopra, “[e]rror-ridden credit reports are far too prevalent and may be undermining an equitable recovery.” The report noted that “an important subject for future research is whether these patterns are driven by differences across groups and credit types in the type or frequency of the underlying issues that result in a dispute flag, or whether they are driven by furnishers’ practices for reporting dispute flags or responding to disputes.” Additionally, the Bureau said in its press release that it “is committed to further researching the root causes of credit information disputes, as well as investigating the reasons for the demographic disparities found in the report.” As previously covered by InfoBytes, the CFPB, along with the FTC and the North Carolina Department of Justice, filed an amicus brief in support of the consumer plaintiffs in Henderson v. The Source for Public Data, L.P., arguing that a public records website, its founder, and two affiliated entities cannot use Section 230 liability protections to shield themselves from credit reporting violations.
CFPB reports low delinquency rates despite Covid-19
On June 16, the CFPB released findings on delinquency trends for auto loans, student loans, mortgages, and credit cards. The post—the first in a series that will document consumer credit trend outcomes during the Covid-19 pandemic—examines how trends have evolved since June 2020. As previously covered by InfoBytes, last August, the Bureau issued a report examining trends through June 2020 in delinquency rates, payment assistance, credit access, and account balance measures, which showed that generally there was an overall decrease in delinquency rates since the start of the pandemic among auto loans, first-lien mortgages, student loans, and credit cards. According to the Bureau’s recent findings, as of March 2021, new delinquencies remain below pre-pandemic levels, despite a slight rise since July 2020 in auto loan and credit card delinquencies. These levels, the Bureau noted, may be attributed to federal, state, and local policy interventions that provide payment assistance and income support to consumers. Researchers also found that overall trends in new delinquencies were consistent across credit score groups, although “trends were more pronounced for consumers with lower credit scores.” Additionally, the Bureau reported that while stimulus payments and increasing vaccination rates may boost economic activity and keep delinquency rates down, accounts that would have been delinquent in the absence of payment assistance may begin to be reported as delinquent as assistance programs begin to end. Later this year, the Bureau will release a post in this series discussing payment assistance trends since June 2020.
CFPB reports on use of payday, auto title, and pawn loans
On May 5, the CFPB released a new report surveying the prevalence, persistence of use, and other credit sources accessible for consumers who utilize payday, auto title, and pawn loans. The report uses the first two rounds of the Bureau’s Making Ends Meet survey, which was conducted before the Covid-19 pandemic in June 2019, and offers a nationally representative assessment of consumers with credit records (covered by InfoBytes here). As such, the survey allows the possibility of combining a survey of the same consumers spanning over two years with credit record data to understand consumers’ decisions about debt. Report highlights include:
- “In June 2019, 4.4 percent of consumers had taken out a payday loan in the previous six months, 2.0 percent had taken out an auto title loan, and 2.5 percent had taken out a pawn loan.” These consumers are more concentrated in the age group between 40 and 61. The report discloses that “because the number of consumers using these loans in the survey is small, there is some survey uncertainty in these estimates.”
- “77 percent of consumers using alternative financial services experienced a shock and had difficulty paying a bill or expense during the same timeframe in which they also reported borrowing a payday, auto title, or pawn loan.”
- “Payday, auto title, and pawn users who experience difficulty paying a bill or expense tend to also use other available credit, suggesting that for some consumers, these loans might be part of a broader and more complicated debt portfolio to deal with difficulties.”