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  • FTC Orders Auto Dealers to Pay $85,000 Civil Penalty over Allegedly Deceptive Advertising Practices

    Consumer Finance

    On August 18, the FTC announced that three Texas-based auto dealers will pay an $85,000 civil penalty to resolve allegations that they violated a 2014 administrative order prohibiting them from deceptively advertising the cost of buying or leasing a car. The FTC complaint alleges, among other things, that since receiving the 2014 order, the auto dealers frequently misrepresented offers to finance or lease motor vehicles by “focusing only on a few attractive items, such as a low monthly payment or annual percentage rate, while concealing material terms that add significant extra costs or that limit who can qualify for the advertised prices.” In addition to the $85,000 civil penalty, the proposed consent order bars the defendants from (i) deceptively advertising a vehicle’s cost of purchase with financing, the cost of leasing, or any other material fact regarding price, sale, financing or leasing; (ii) misrepresenting who is likely to receive financing or leasing and who qualifies for specific finance or lease terms; and (iii) violating the Truth in Lending Act’s and the Consumer Leasing Act’s requirements to clearly and conspicuously disclose credit and lease terms.

    FTC Auto Finance

  • CA Governor Signs Bill to Amend the California Vehicle Code

    Consumer Finance

    On July 25, California Governor Edmund Brown signed into law Assembly Bill (AB) 516. The bill amends or repeals various sections of the California Vehicle Code, and adds Section 4456.2. Pursuant to new section 4456.2, the Department of Motor Vehicles (Department) is required to develop a system for dealers and lessor-retailers to electronically report the sale of a vehicle before it is delivered to the purchaser. The bill outlines minimum requirements for the new dealer reporting system, including assignment of a unique report-of-sale number to each transaction, which must be displayed on the report of sale forms and any temporary license plate. The new system must be ready for operational use no later than January 1, 2019. In addition, AB 516 increases the document processing charge that a dealer may impose on the purchaser or lessee of a vehicle. Specified fee changes will also take effect January 1, 2019.

    Auto Finance

  • Treasury Adopts Methodology for Monitoring the Affordability of Auto Insurance

    Consumer Finance

    On July 13, the Treasury Department announced that the Federal Insurance Office (FIO) adopted a methodology for monitoring the affordability of auto insurance. Under the Dodd-Frank Act, the FIO is authorized to monitor the extent to which affordable personal automobile insurance is made available to traditionally underserved communities and consumers, minorities, and low- and moderate-income (LMI) persons. Pursuant to the new methodology, FIO will calculate affordability by using an affordability index that divides the average annual personal automobile liability premium by the median household income for identified majority-minority or majority-LMI ZIP codes. If the Affordability Index does not exceed to 2%, then FIO will consider personal automobile liability insurance affordable. Finally, to monitor the availability of auto insurance, FIO will obtain and analyze aggregated premium data in addition to using publicly available data through the U.S. Census Bureau.

    Dodd-Frank Auto Finance Department of Treasury

  • FTC Approves Consent Order Against Two Ohio-Based Auto Dealers

    Consumer Finance

    On July 14, the FTC announced the approval of a final consent order against two Ohio-based auto dealers to resolve allegations that they failed to make certain advertising disclosures in violation of the FTC Act, the Consumer Leasing Act (CLA), and the CLA’s implementing Regulation M. Specifically, according to the FTC’s November 2015 complaint, the auto dealers’ lease advertisements (i) failed to disclose, or adequately disclose, that typical consumers would not qualify for advertised terms; and (ii) displayed a monthly payment amount without clearly and conspicuously disclosing terms required by the CLA and Regulation M. Pursuant to the consent order, the auto dealers are prohibited from, among other things, (i) advertising the amount of any payment, or the length or any payment term, without also clearly and conspicuously disclosing all related qualification restrictions, such as those based on the consumer’s credit score; (ii) misrepresenting payment terms; and (iii) advertising payment terms without clearly and conspicuously disclosing terms required by the CLA and Regulation M.

    FTC Auto Finance Enforcement Consumer Leasing Act

  • CFPB Monthly Complaint Snapshot Highlights Consumer Loan Complaints

    Consumer Finance

    On June 28, the CFPB released its monthly complaint report focusing on consumer loans, including vehicle loans and leases, installment loans, title loans, and pawn loans. According to the report, of the 906,400 consumer complaints across all products the CFPB has received as of June 1, 2016, approximately 38,500 were in the consumer loans category. Findings regarding consumer loan complaints highlighted in the report include: (i) just over half of consumer loan complaints pertain to vehicle loans, with installment loans following at 31 percent; (ii) consumers most often complain about issues related to servicing the loan, lease, or line of credit; and (iii) additional common consumer loan complaints include encountering problems when shopping for a loan, when taking out a loan, and when consumers are unable to repay a loan.

    This month’s report includes a “sub product spotlight” to highlight complaints specific to auto lending, which make up 60 percent of the 38,500 consumer loan complaints the CFPB has received since July 21, 2011. Consumer loan complaints specific to auto lending include, but are not limited to: (i) payment processing issues, such as consumers not having their accounts debited timely and correctly; (ii) confusion over fees and interest rates; (iii) repossession of vehicles without notification; (iv) misleading advertising at “Buy Here Pay Here” dealerships; and (v) insufficient warranty coverage, with consumers alleging that they believed they were required to purchase warranties that did not end up covering basic repairs as they expected.

    In addition to a focus on consumer loan complaints, the report identifies Arkansas as its geographical spotlight. As of June 1, Arkansas consumers have submitted 4,200 of the 906,400 total complaints across all products. According to the report, mortgage-related complaints make up 19 percent of complaints from Arkansas, lower than the national average of 26 percent, while debt collection complaints account for 29 percent of Arkansas complaints, higher than the national average of 27 percent.

    CFPB Auto Finance Debt Collection Consumer Lending Installment Loans Title Loans

  • New York AG Settles with Auto Dealership over Alleged Deceptive Practices

    Consumer Finance

    On June 21, New York AG Eric Schneiderman settled with a New York-based auto dealership to resolve allegations of deceptive sales and advertising practices. Specifically, AG Schneiderman alleged that the company charged consumers up to $5,000 for warranties and service contracts without their authorization and convinced consumers to purchase and finance vehicles on terms they could not afford, falsely promising to refinance the loans on more favorable terms in the subsequent months. In addition, the AG’s office received a number of consumer complaints alleging that the company (i) engaged in various bait and switch tactics, including crediting consumers for less than previously agreed on vehicle trade-ins; (ii) charged consumers a greater price for a vehicle than promised; (iii) charged consumers a higher interest rate on the auto loan than promised; (iv) falsely promised lower yearly mileage limits for lease contracts; and (v) forged consumer signatures on contracts. Pursuant to the settlement agreement, the company must pay restitution ranging from $198 for alleged illegal fee charges to more than $4,000 for unauthorized warranties and services contracts, for a total of more than $101,000 to 119 consumers. The settlement further requires that the company “pay restitution to other consumers who come forward within the next three months and who were subjected to the deceptive and illegal practices uncovered by the investigation, with a cap of $50,000.”

    AG’s Schneiderman’s settlement comes after the New York State Police completed a raid and seizure of the company’s business records in May 2012. The company’s finance manager was subsequently arrested for second-degree Scheme to Defraud and third-degree Criminal Possession of a Forged Instrument.

    State Attorney General Auto Finance Consumer Complaints

  • Michigan AG Announces Default Judgment against Auto Title Loan Company

    Consumer Finance

    On June 8, Michigan AG Bill Schuette announced that a Michigan court entered a Default Judgment and Final Order for Permanent Injunction against an auto title loan company, several associated alias companies, and the company manager. The Judgment and Order found the defendants in violation of Michigan law for: (i) engaging in consumer lending without requisite authority or license in Michigan; (ii) charging or receiving interest on title loans in excess of 36%; (iii) misrepresenting in communications with borrowers the status of legal action taken or threatened to be taken in violation of Michigan’s Regulation of Collection Practices Act; (iv) engaging in conduct deemed unlawful under the Michigan Consumer Protection Act during the course of soliciting, selling, and collecting upon unauthorized title loans with illegal interest rates; and (v) transacting business in Michigan without a certificate of authority since at least June 28, 2013. Under the court’s judgment, the company is prohibited from, among other things, (i) making loans in Michigan without proper licensure; (ii) making, servicing, or collecting on any title loans sold or issued to certain Michigan consumers; (iii) accepting title loan interest or other payments made by certain Michigan consumers; (iv) engaging in any collection activities on title loans issued by defendants for certain Michigan consumers; (v) asserting a security interest in any vehicles allegedly pledged as security for repayment of a title loan; and (vi) selling or otherwise transferring interest in any motor vehicle associated with a title loan. The company must also pay a total of $2,208,698, $790,050 of which will be paid to the State and $1,418,648 of which is allocated for consumer restitution.

    State Attorney General Auto Finance Usury

  • CFPB Releases "Know Before You Owe" Auto Initiative

    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.

    CFPB Auto Finance Consumer Complaints

  • South Carolina Approves House Bill 4548, Amends Motor Vehicle Closing Fee Statute

    Consumer Finance

    On June 2, the South Carolina legislature passed House Bill 4548, which amends section 37-2-307, Code of Laws of South Carolina, to give the Department of Consumer Affairs (the Department) the authority to regulate motor vehicle closing fees for reasonableness. Pursuant to HB 4548, if a motor vehicle dealer charges a closing fee of less than $225 per vehicle, the Department will not conduct a review of the amount of the closing fee. For closing fees exceeding $225, the Department may conduct a review for reasonableness that permits including the following in a closing fee: (i) all administrative expenses, costs, staff, supplies, materials, and financial work required to transfer the motor vehicle to the consumer and to obtain the closing of the transaction; (ii) all costs for administrative expenses, costs, staff, supplies, and materials needed by the dealer to ensure compliance with all state, federal, and lender requirements; (iii) all costs for administrative costs, staff, and materials needed to prepare and retrieve documents; (iv) all costs for administrative costs, staff, supplies, and materials required to protect the consumer’s private personal information; and (v) all costs for administrative costs, staff, supplies, and materials required for records retention and storage costs of those records.

    In accordance with the new law, the Department issued a memorandum to South Carolina automobile dealers on June 6, advising them that they have until July 3, 2016 to comply with the recent closing fee amendments. Dealers who already filed their closing fees with the Department and wish to continue to charge the same fee after July 3 “must submit a renewal Motor Vehicle Filing Form along with a ten dollar filing fee to the Department before the Deadline.” Updated filing forms will be available via the Department’s website by June 10, 2016.

    Auto Finance

  • CFPB Announces Consumer Advisory Board Meeting

    Consumer Finance

    On June 9, the CFPB will hold its next Consumer Advisory Board meeting in Little Rock, AR. According to the meeting’s agenda, the Board will discuss (i) an auto lending education initiative; (ii) trends and themes; and (iii) payday lending. Director Cordray and Assistant Director for Regulations Kelly Cochran are among the CFPB personnel who are scheduled to speak at the meeting. The event is open to the public.

    CFPB Payday Lending Auto Finance

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