In October, the CFPB issued its Supervisory Highlights focusing on auto financing issues. As with many other areas of regulatory concern, the primary concerns were accurate disclosures, adhering to contractual requirements, and add-on products. The guidance lays out specific issues and risks that banks may expect regulators to focus on in future exams.
The Bureauās guidance specifically calls out the term āas low asā in advertising (e.g., āas low as 3.99% APRā), stating that this language is misleading if consumers do not have a reasonable chance of obtaining the stated rate. A prescreened offer, for example, should not state an āas low asā rate that is well below what the bank knows the consumer could qualify for. Similarly, the rate stated should be an actual rate that has been offered to consumers on the advertised product.
Repossessions were also of particular concern in the Supervisory Highlights. The Bureau described issues leading to wrongful repossessions, such as failure to correctly process a payment deferral or the cancellation of a repossession request. It also describes instances where the lenderās lien had not been properly recorded under applicable state law, which would of course make any repossession of the vehicle a potential legal risk in addition to a compliance issue.
In terms of servicing, the Bureau noted that banks that use a different payment allocation method for loans post-maturity should clearly disclose that to consumers. Additionally, servicers should ensure that titles are timely provided to consumers after loan payoff. It is also worth noting that state law may also have timing requirements for lenders to provide title.
The largest area of concern overall, however, was clearly with add-on products. The findings run a full gamut of issues ā charging for products the consumer did not agree to, financing add-on products for which the collateral is not eligible (particularly GAP coverage on salvage vehicles), failure to accurately disclose the payee for add-on products, unreasonably difficult requirements associated with cancelling the products or failure to honor cancellation requests, failure to refund unearned premiums after early termination, inaccurate refund amounts, delays in providing refunds, and continuing to collect periodic payments (or to refund such payments) when the servicer knew the loan balance would be paid by GAP waiver agreements. Each of these practices may present some UDAAP risk, in addition to potential concerns related to Regulation Z requirements or more straightforward legal risks.
Lastly, credit reporting remains a perennial issue. The CFPBās Highlights specifically mention instances in which creditors reported information they knew to be inaccurate or failing to timely update or correct information reported to credit bureaus.
In many of the areas of concern, the Bureau noted that services performed by third parties must still comply with regulatory requirements. Banks working with third party service providers may want to review their third-party risk management programs to ensure that they are requiring vendors to adhere to regulatory requirements and ensure that any third-party monitoring programs have specific components designed to identify the concerns outlined in the Supervisory Highlights.
As always, Compliance Alliance offers a variety of tools to assist members in developing third party risk management or internal audit programs. Our Hotline team is also available to answer any questions you may have.