CFPB Fines Auto Lender for Deceptive Practices

Inside Subprime: Nov 28, 2018

By Lindsay Frankel

A subprime auto loan firm is settling for millions after the Consumer Financial Protection Bureau claimed the company deceptively sold a car loan add-on product and lied about interest on loan extensions.

The Dallas-based subprime auto loan firm will pay a $2.5 million fine and more than $9 million back to car loan borrowers.

The CFPB is saying that the auto loan firm broke the Consumer Financial Protection Act of 2010 with its deceptive practices. Those allegations first came to light just a year ago — in November 2017.

The auto loan firm is accused of falsely misleading consumers about the guaranteed asset protection part of an insurance product on its auto loans. The asset protection was sold to more than 44,000 consumers between April 2012 to June 2017.

Those thousands of consumers were sold the asset protection product despite the loans being worth more than 125 percent of the value of the car when it was first purchased. The CFPB said that S didn’t properly inform those borrowers that the asset protection coverage had a 125 percent loan-to-value limit.

So if those borrowers ended up in an accident and totaled their vehicles, the asset protection coverage wouldn’t cover the rest of the loan balance that their primary insurance didn’t cover. That means borrowers would be on the hook for the rest of the car loan.

The company is also accused of misleading consumers about its auto loan extensions for borrowers who missed payments on their car loans. The firm would reach out to borrowers over the phone after they missed just one payment, according to the CFPB, bringing up the loan extension as an option. The lender would tell borrowers that, with the loan extension, those missed payments would be moved to the end of the loan period.

The loan provider representatives would neglect to say that any payments would be first going to the accrued interest on the loan extension, before it could be applied to the loan’s principal balance. That means over time borrowers would be paying more on their loans.

The CFPB says more than 2.3 million extensions were granted since 2011.

Under the settlement, the loan provider doesn’t have to stop marketing or offering the asset protection product, nor is it agreeing to the CFPB’s claims.

But it does have to submit a plan within 60 days of how it’s going to comply with the CFPB’s order, as well as a risk management program focusing on how to counter or prevent deceptive practices related to its loan services.

The company will have 90 days to develop materials to implement that risk management program into employee training, according to the CFPB.

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