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Bank reaches auto loan settlement
On June 8, the U.S. District Court for the Central District of California preliminarily approved a class action settlement, resolving allegations that a national bank failed to properly refund payments made pursuant to guaranteed asset protection waiver (GAP Waiver) agreements entered into in connection with auto loans. As previously covered by InfoBytes, the plaintiffs claimed that the bank knowingly collected unearned fees for GAP Waivers and allegedly “concealed its obligation” to issue refunds on GAP Waiver fees for the portion of the GAP Waiver’s initial coverage that was cut short by early payoff. The bank sought dismissal of the suit, arguing, among other things, that—with the exception of one consumer’s claims—all of the plaintiffs’ contracts include “a condition precedent under which the [p]laintiffs must first submit a written refund request for unearned GAP fees before being entitled to a refund,” a condition, the bank argued, which was not fulfilled. The court dismissed breach of contract claims brought by the majority of the plaintiffs, noting that most of the plaintiffs were not excused from complying with the condition precedent in their contracts with the bank. The court did, however, allow claims filed by plaintiffs whose contracts did not contain condition precedent language to proceed.
Under the terms of the preliminary settlement reached between the parties, beginning in 2022 and continuing for four years, the bank is obligated to automatically refund unearned GAP fees to consumers who pay off their auto loans early, and will pay refunds along with compensation for the loss of the use of the funds to class members who have not yet received such payment. The bank will also add $45 million in a “supplemental” settlement fund to cover refunds, additional compensation payments, and other settlement-related costs and expenses. This amount is in addition to the more than $33 million in refunds the bank has already issued. The bank did not admit any wrongdoing and maintained that it did not breach the terms of any GAP agreements or otherwise fail to pay early payoff GAP refunds.
District Court: No private right of action under PA’s Motor Vehicle Sales Finance Act
On May 20, the U.S. District Court for the Eastern District of Pennsylvania partially granted defendants’ motion for summary judgment in an action concerning alleged violations of the Pennsylvania Motor Vehicle Sales Finance Act (MVSFA) and the FCRA. The plaintiff filed an action against the defendants (an auto finance company and the three major consumer reporting agencies (CRAs) alleging he was unable to obtain credit and suffered loss of work, car rental expenses, and emotional distress following the repossession and sale of his vehicle after he allegedly breached his retail installment sale contract by exposing his vehicle to a lien for accumulated storage charges at a repair facility while waiting for a replacement part to arrive. After the vehicle was repossessed, the plaintiff sent letters to the CRAs disputing the reported information and asked that notations, including “voluntary surrender,” be removed from his credit file. According to the plaintiff, the disputed information was removed from his file well outside the 30-day timeframe required under the FCRA to reinvestigate and delete inaccurate information. The plaintiff also alleged that the auto finance company violated the MVSFA’s provisions governing notice of repossession. Upon review, the court granted defendants’ request for summary judgment on the MVSFA claim, agreeing with the auto finance company that the statute’s repossession notice provisions do not confer a private right of action. However, the court denied summary judgment on the FCRA claim, writing that “the record reflects genuine disputes of material fact as to whether [the auto finance company] reported inaccurate information and whether it reasonably investigated [p]laintiff’s disputes.”
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.”
Texas updates guidance related to regulated lenders, continuing to urge them to work with borrowers and allowing employees to work remotely
On April 15, the Texas Office of the Consumer Credit Commissioner updated its advisory bulletin (previously covered here, here, here, here, here, and here) urging regulated lenders to continue to work with borrowers during the Covid-19 crisis. Among other measures, the regulator asks licensees to increase borrower communication regarding the effects of Covid-19 on the lender’s policies (including communication procedures), work out modifications for payment difficulties, review policies for fees, late charges, delinquency practices, and repossessions, and that certain mortgages may be covered by federal foreclosure moratoriums. The guidance also: (i) reminds licensees of legal requirements for using electronic signatures, and (ii) continues to permit licensees to conduct activity from unlicensed locations, subject to certain conditions. The guidance is in effect through May 31, 2021, unless withdrawn or revised.
Texas updates guidance for motor vehicle sales finance licensees, continuing to urge them to work with consumers and allowing employees to work remotely
On April 15, the Texas Office of the Consumer Credit Commissioner updated its advisory bulletin (previously discussed here, here, here, here, here, here, here, and here) urging motor vehicle sales finance licensees to continue to work with consumers during the Covid-19 crisis. Among other measures, the regulator asks licensees to increase consumer communication regarding the effects of Covid-19 on the lender’s policies (including communication procedures), work out modifications for payment difficulties, review policies for fees, late charges, delinquency practices, and repossessions, and that there may be limits on allowable deferment charges, and refers a consumer to the protections included in advisory bulletin B16-4. The guidance also: (i) reminds licensees of legal requirements for using electronic signatures, and (ii) continues to permit licensees to conduct activity from unlicensed locations, subject to certain conditions. The guidance is in effect through May 31, 2021, unless withdrawn or revised.
Texas Office of Consumer Credit updates guidance urging motor vehicle sales finance licensees to work with borrowers
On February 18, the Texas Office of the Consumer Credit Commissioner updated its advisory bulletin urging motor vehicle sales finance licensees to work with consumers during the Covid-19 crisis (previously covered here, here, here, here, here, here, and here). Among other measures, the guidance urges licensees to increase consumer communication regarding the effects of Covid-19 for licensees, work out modifications for payment difficulties, and review policies for fees, late charges, delinquency practices, and repossessions. The guidance also: (i) reminds licensees of legal requirements for using electronic signatures and (ii) continues to permit licensees to conduct activity from unlicensed locations, subject to certain conditions. The guidance is in effect through March 31, 2021, unless withdrawn or revised.
Court holds Arizona car dealerships violated TILA and CLA
On February 5, the U.S. District Court for the District of Arizona granted in part and denied in part summary judgment in favor of the FTC, concluding the owners of a car dealership with locations in Arizona and New Mexico (collectively, “defendants”) failed to include legally required information in violation of TILA and the Consumer Leasing Act (CLA). As previously covered by InfoBytes, in August 2020, the FTC brought charges against the defendants for violations of TILA, the CLA, and FTC Act, on the grounds that the defendants purportedly falsified consumers’ income and down payments on credit applications in order to make the consumers seem more creditworthy, which resulted in consumers “default[ing] at a higher rate than properly qualified buyers.” The FTC asserted that these advertising practices were deceptive in that they concealed the true nature and terms of the financing or leasing offers and thus were in violation of federal law for failing to disclose the required terms.
Subsequently, the corporate defendants stipulated to a permanent injunction and monetary judgment and the FTC moved for summary judgment against the co-owners. As against the owners, the court granted summary judgment in favor of the FTC on the TILA and CLA claims, concluding that the advertisements were “missing legally required information such as the terms of repayment or the annual percentage rate.” However, the court denied summary judgment as to the FTC Act claims, after the defendants provided declarations from a small sample of consumers admitting to knowing the down payment and income information was misreported. The court determined that based on the declarations, a reasonable jury could infer that “consumers were not likely deceived or misled, only led astray and persuaded to participate in a lie.” However, the court did not grant full relief requested by the FTC. In particular, the court did not grant summary judgment on the FTC Act claims and held it was premature to hold one of the owners individually responsible for the TILA and CLA claims. Provided these findings presented unresolved factual issues, the court found reason to delay the entry of judgment.
CFPB issues Covid-19 supervisory highlights
On January 19, the CFPB released a special edition of Supervisory Highlights detailing the agency’s Covid-19 prioritized assessment (PA) observations. Since May 2020, the Bureau has conducted PAs in response to the pandemic in order to obtain real-time information from supervised entities operating in markets that pose an elevated risk of pandemic-related consumer harm. According to the Bureau, the PAs are not designed to identify federal consumer financial law violations, but are intended to spot and assess risks in order to prevent consumer harm. Targeted information requests were sent to entities seeking information on, among other things, ways entities are assisting and communicating with consumers, Covid-19-related institutional challenges, compliance management system changes made in response to the pandemic, and service provider data. Highlights of the Bureau’s findings include:
- Mortgage servicing. The CARES Act established certain forbearance protections for homeowners. The Bureau pointed out that many servicers faced significant challenges, including operational constraints, resource burdens, and service interruptions. Consumer risks were also present, with several servicers (i) providing incomplete or inaccurate information regarding CARES Act forbearances, failing to timely process forbearance requests, or enrolling borrowers in unwanted or automatic forbearances; (ii) sending collection and default notices, assessing late fees, and initiating foreclosures for borrowers in forbearance; (iii) inaccurately handling borrowers’ preauthorized electronic funds transfers; and (iv) failing to take appropriate loss mitigation steps.
- Auto loan servicing. The Bureau noted that many auto loan servicers provided insufficient information to borrowers about the impact of interest accrual during deferment periods, while other servicers continued to withdraw funds for monthly payments even after agreeing to deferments. Additionally, certain borrowers received repossession notices even though servicers had suspended repossession operations during this time.
- Student loan servicing. The CARES Act established protections for certain student loan borrowers, including reduced interest rates and suspended monthly payments for most federal loans owned by the Department of Education. Many private student loan holders also offered payment relief options. The Bureau noted however that servicers faced significant challenges in implementing these protections. For certain servicers, these challenges led to issues which raised the risk of consumer harm, including (i) provision of incorrect or incomplete payment relief options; (ii) failing to maintain regular call center hours; (iii) failing to respond to forbearance extension requests; and (iv) allowing certain payment allocation errors and preauthorized electronic funds transfers.
- Small business lending. The Bureau discussed the Small Business Administration’s Paycheck Protection Program (PPP), noting that when “implementing the PPP, multiple lenders adopted a policy that restricted access to PPP loans beyond the eligibility requirements of the CARES Act and rules and orders issued by the SBA.” The Bureau encouraged lenders to consider and address any fair lending risks associated with PPP lending.
The Supervisory Highlights also examined areas related to credit card accounts, consumer reporting and furnishing, debt collection, deposits, prepaid accounts, and small business lending.
National bank settles DACA discrimination class action
On January 8, the U.S. District Court for the Northern District of California granted final approval to a settlement resolving allegations brought by a national class and a California class against a national bank concerning the denial of credit to recipients who held valid and unexpired Deferred Action for Childhood Arrivals (DACA) status. In a motion for preliminary settlement filed last June, the plaintiffs claimed that the bank allegedly determined DACA recipients to be ineligible for direct auto financing because of their noncitizen status, even though “[t]here is no federal or state law or regulation that prohibits banks from lending to non-citizens generally, or DACA recipients specifically, based on their status as non-citizens.” The bank moved to dismiss, claiming the plaintiffs failed to plead facts sufficient to state claims under the Equal Credit Opportunity Act and the Fair Credit Reporting Act. The parties engaged in discovery, but ultimately agreed to stay the case and engaged a mediator to assist with settlement discussions.
Under the terms of the settlement, the bank is required to provide verified California class members up to $2,500 per claim and national class members up to $300 pending submission of a valid claim. The settlement also provides injunctive relief, a service award to the class representative, attorneys’ fees and costs, and settlement administration costs. Additionally, the bank will amend its direct auto lending practices in order “to extend loans to current and valid DACA recipients on the same terms and conditions as U.S. citizens,” and will provide class counsel an annual status report detailing the status of its programmatic relief for a two year period.
CFPB settles with auto loan company for inaccurate furnishing
On December 22, the CFPB announced a settlement with a nonprime auto loan originator and servicer (company) for allegedly violating the FCRA by providing erroneous consumer loan data to consumer reporting agencies (CRAs). According to the consent order, between January 2016 and August 2019, the company (i) furnished inaccurate information to CRAs it knew or should have known was inaccurate; (ii) failed to promptly update information with the CRAs once it was determined to be inaccurate or incomplete; (iii) failed to furnish dates of first delinquency for severely delinquent or charged off accounts; and (iv) failed to implement reasonable written policies and procedures regarding the accuracy of furnished information. The consent order imposes a civil money penalty of $4.75 million and requires the company to, among other things, correct all inaccuracies identified by the Bureau, conduct monthly reviews of information furnished to CRAs, and establish reasonable written policies and procedures regarding the accuracy and integrity of furnished information.