Tag Archive | "Auto Finance"

CFPB Accuses ‘One or More’ Finance Sources of Deceptive GAP Ads, Payment Deferral Offers


WASHINGTON, D.C. — In its summer edition of Supervisory Highlights, the Consumer Financial Protection Bureau accused one or more finance sources of being deceptive in their advertisements of GAP and in the way they disclose payment deferral terms.

According to the report, the GAP advertisements gave the impression that the product fully covered the remaining balance of a consumer’s loan in the event of a total loss, when, according to the bureau, the products only covered the amounts below a certain loan-to-value ratio.

Bureau examiners also accused one or more auto finance sources of using a telephone script that “created the false overall net impression that the only effects of taking advantage of a loan deferral would be to extend the maturity of the loan and to accrue interest during the deferral. The finance sources, the bureau charged, failed to inform consumers that “the subsequent payment would be applied to the interest earned on the unpaid amount financed from the date of the last payment received from the consumer.” The result, the bureau said, is consumers are paying more finance charges than originally disclosed.

“These violations are under review by the bureau to determine what, if any, remedial and corrective actions should be undertaken by the relevant financial institutions,” the bureau added.

The bureau’s Supervisory Highlights report also noted that examiners determined that “weak [complaint management systems]” in place at one or more institutions allowed violations of federal consumer financial law during the review period. Weaknesses included:

  • Failure to raise compliance-related issues to the institution’s board of directors or other principal.
  • Failure to follow the institution’s policies and procedures in daily practice.
  • Failure to properly monitor and correct business line practices to align with federal consumer financial law.
  • Failure to adequately track training completed by employees and the board.
  • Failure to adequately follow up on consumer complaints with a corresponding failure of compliance audit to highlight deficiencies in the consumer complaint response process.

“The relevant financial institutions have undertaken remedial and corrective actions regarding these violations, which are under review by the bureau,” the report stated.

According to the bureau’s June Complaint Report, the CFPB has logged 23,000 auto finance-related complaints since July 21, 2011, representing 60% of consumer loan complaints. The Top 2 complaints were “Managing the loan, lease or line of credit” at 47%, and “Problems when you are unable to pay” at 22%.

“Taking out a loan or lease or account terms and changes” ranked third at 18%, following by “Shopping for a loan, lease or line of credit” at 11%.

According to the report, consumers complained about payment processing issues, including not having their payment applied to their accounts in a timely or correct manner. Consumers also complained of repossessions without notice or having to voluntarily surrender their vehicle because they could no longer afford their payments.

Consumers also complained that “warranties they believe … they were required to purchase” did not cover basic repairs. “In these complaints, consumers purchased older cars and they were under the impression that the warranty would cover the repairs often associated with cars that have high mileage,” the bureau stated in its report. “Since these repairs were not covered, consumers incurred high costs to fix their cars or in some instances were unable to make further use of the vehicle.”

The bureau also received complaints about misleading advertisements at buy-here, pay-here dealerships. “Consumers explained that dealerships checked their credit even though advertisements stated that their credit would not be considered,” the report stated. “Consumers also complained that although advertisements stated that making timely payments on their loans would help build their credit up, dealerships would not furnish good-standing credit information.”

Consumers also complained about having to pay what they felt were high wear-and-tear fees at the end of their lease. “These consumers explained that they disagreed with the wear-and-tear determinations and believed the process was unfair,” the report stated. “Because there is a subjective element to this determination, consumers indicated that they should be allowed to be present for the inspection.”

The bureau’s complaint report also contained a list of most-complained-about companies, which included Santander, Ally Financial, Wells Fargo, Capital One, Toyota Motor Corp., JPMorgan Chase, Westlake Financial Services, GM Financial, and Nissan Motor Acceptance Corp. The companies listed, according to the bureau, account for 50% of all auto finance-related complaints “sent to companies for response in January to March 2016.

“Of these companies, Toyota Motor Credit Corp. saw the greatest percentage increase in auto lending complaints (94%) from January – March 2015 to January – March 2016,” the report stated, adding that Nissan Motor Acceptance Corp. “saw the lease percentage increase in consumer loan complaints (3%) during the same period.

Posted in Auto Industry NewsComments Off on CFPB Accuses ‘One or More’ Finance Sources of Deceptive GAP Ads, Payment Deferral Offers

Ford Credit Now Offering 84-Month Financing


DEARBORN, Mich. — In a dealer bulletin obtained by F&I and Showroom magazine, Ford Motor Credit announced the availability of 84-month financing on new retail and subvented rate contracts.

The 84-month program, which allows for maximum interest rate markup of 100 basis points on standard contracts, is only available to car buyers with FICO scores at and above 700. The program will require a minimum of $15,000 in financing, with advances set at a maximum 115%.

“Customer demand for 84-month financing is increasing,” the captive stated in its April 5 dealer bulletin. “In the spirit of supporting the sale of Ford and Lincoln vehicles, as well as providing you with a sustained competitive advantage, Ford Credit is offering 84-month new retail financing effective April 5.”

Terms have been stretching, according to recent auto finance data, with consumers looking for ways to keep their monthly payments affordable as vehicle prices continue to rise.

In the fourth quarter 2015, according to Experian Automotive, vehicles loans with terms longer than 60 months accounted for 71% of all new vehicles financed during the period. The firm also noted in its quarterly report that auto loans with terms in the 61- to 72-month term band accounted for 42% of new vehicles, while loans with terms between 73 and 84 months accounted for 29% of all new vehicles financed in the fourth quarter — a 12% jump from the prior-year period.

In its bulletin, the captive urged dealers to consider the impacts of longer term loans, noting that “the longer the contract term, the longer it takes the customer to be in an equity position, and the longer it takes for the customer to return to your showroom to trade.”

The bulletin also urged dealers to educate customers about the high interest costs associated with longer term loans, noting that “shorter term financing and leasing are likely better options” for most customers.

“Terms of more than 72 months have increased to 23% of all new retail financed vehicles in the U.S.,” the bulletin stated. “While extended-term financing is appealing and allows the customer to purchase more vehicle at a lesser payment, it is important to consider the impact on trade-cycle management and customer loyalty.

“Ford and Lincoln are refreshing their vehicles more frequently with improvements to technology, safety features and fuel efficiency,” the bulletin continued. “Longer term financing may also delay a customer’s ability to upgrade to the latest and greatest.”

Posted in Auto Industry NewsComments Off on Ford Credit Now Offering 84-Month Financing

House Committee, CFPB Director to Face Off Next Week


WASHINGTON – Richard Cordray and Republican members of the House Financial Services Committee are set to square off next Wednesday, March 16. It will be the first time the director of the Consumer Financial Protection Bureau (CFPB) will appear before the committee since Republican members issued two staff reports criticizing the bureau’s activities in the auto finance arena.

The last time Cordray appeared before the committee was this past September, according to F&I and Showroom magazine. Since then, Republican committee members published a report on Nov. 24, titled “Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending,” and a second report on Jan. 20, titled “How the Bureau of Consumer Financial Protection Removed Anti-Fraud Safeguards to Achieve Political Goals.”

“The CFPB undoubtedly remains the single most powerful and least accountable federal agency in all of Washington. When it comes to the credit cards, auto loans and mortgages of hardworking taxpayers, the CFPB has unbridled, discretionary power not only to make those less available and more expensive, but to absolutely take them away,” said Chairman Jeb Hensarling (R-TX). “Consequently, Americans are losing both their financial independence and the protection of the rule of law.”

The November report revealed, among other things, that the bureau pursued its potentially “market-tipping” enforcement action against Ally Financial and Ally Bank even though internal bureau documents showed the statistical method used in its case against the finance source was “prone to significant error.” It also revealed that the bureau was able to secure its settlement with Ally because of “undue leverage” – Ally needed Washington regulators’ approval for a broader restructuring of its business.

Republican committee members again hammered the CFPB in their second report, which showed that some settlement checks being dispersed as part of the bureau’s $98 million settlement with Ally Financial and Ally bank had gone to white borrowers. It also charged that the bureau declined to employ a distribution method proposed by the U.S. Department of Justice (DOJ) – one that would provide “strong protection from criticism that we are giving damages to non-Hispanic white borrowers” – because it would limit the number of recipients to between 36,000 and 143,000 instead of the 235,000 consumers the CFPB alleged were harmed by Ally’s dealer markup policy.

“Political exigency required the bureau to design a process that would ensure that a sufficient number of alleged victims would be identified as eligible claimants; after all, if fewer claimants received checks than Director Cordray initially announced, the validity of the bureau’s disparate impact methodology would be called into question,” the report charged.

The reports haven’t slowed the CFPB’s activities, however. On Feb. 3, Toyota Motor Credit Corp. ended its three-year standoff with the CFPB and the DOJ regarding its dealer compensation policies by voluntarily agreeing to lower its markup caps and pay up to $21.9 million in restitution to minority borrowers the two regulators allege paid higher interest rates than white borrowers.

And as noted in the press release announcing Cordray’s appearance next week, the bureau recently announced it plans to propose regulations regarding small-dollar, short-term loans. That release also noted the bureau’s decision followed its regulation of the mortgage market by way of its Qualified Mortgage rule, which the committee charged “harmed consumer access and choice when it comes to mortgage by forcing many community financial institutions to downsize or shut down their mortgage operations.”

Speaking yesterday, March 9, at the Consumer Bankers Association’s annual conference in Phoenix, Cordray responded to criticism of its regulation of credit markets by enforcement, saying the criticism is “badly misplaced.”

“Certainly any responsible official or agency charged with enforcing the law is bound to recognize that they should develop a thoughtful strategy for how to deploy their limited resources most efficiently to protect the public,” he said. “That means working toward a pattern of actions that conveys an intelligible direction to the marketplace, so to create deterrence that can be readily understood and implemented.

“Others have framed this criticism as a suggestion that law enforcement officials should think through and explicitly articulate rules for every eventuality before taking any enforcement actions at all,” Cordray added. “But that aspiration would lead to paralysis because it simply sets the bar too high. Particularly in an area like consumer financial protection, the vast majority of our enforcement actions involve some sort of deception or fraud. And courts have long noted that trying to craft specific rules to root out fraud or untruth is a hopeless endeavor, as they would likely fail to cabin ‘ingenuity of the dishonest schemer.'”

Next Wednesday’s hearing begins at 10 a.m. ET at the Rayburn House Office Building. A live stream of the hearing can be found at www.financialservices.house.gov.

Posted in Auto Industry NewsComments Off on House Committee, CFPB Director to Face Off Next Week

Tom Hudson Joins Dealer Summit Roster


TAMPA, Fla. — Prominent consumer finance attorney Thomas B. Hudson has agreed to speak at the upcoming Dealer Summit, organizers said Wednesday. The event will take place May 3–5, 2016, at the Sheraton Riverwalk Tampa Hotel. Hudson’s session, “Subprime and BHPH Dealers: How Regulators Have Changed Your Business Model,” will begin at 2 p.m. on Wednesday, May 4.

“Tom Hudson is universally admired as a dealer advocate and unwavering voice of reason,” said Greg Goebel, president of DealerStrong. “We couldn’t have asked for a better speaker to tackle this important topic.”

Hudson is a partner in the Washington, D.C., office of Hudson Cook LLP and one of the automotive industry’s foremost legal minds. He a frequent speaker and prolific writer, authoring a number of legal guides and publications and serving as a regular contributor to Auto Dealer Today and F&I and Showroom magazines.

Hudson is expected to analyze recent enforcement actions by federal regulators and their effect on automotive finance, including special finance and the buy-here, pay-here (BHPH) segment. Dealers must be willing to adapt to a “new business landscape” and change their business models, he warned, or face legal action that could cost them their livelihoods.

“There are two kinds of dealers in the world — those who know that the regulatory ground has shifted beneath them and those who don’t,” Hudson said. “Dealers need to understand and conform to the new rules or get out of the business before the regulators force them out.”

Registration for Dealer Summit is open at the event’s website. Dealers who register by April 1 will enjoy a $100 early-bird discount. They will also have access to several pre-show activities, including F&I Think Tank and Jim Ziegler’s Profit Masters.

For information about exhibition and sponsorship opportunities, contact show chair David Gesualdo via email hidden; JavaScript is required or at 727-947-4027.

Posted in Summit UpdatesComments (0)

Auto Loan Balances Totaled $968 Billion in Q3


SCHAUMBURG, Ill. — Experian Automotive reported today that outstanding automotive loan balances totaled $968 billion in the third quarter. That’s up $98 million from a year ago and up more than 53% from the post-recession low in 2010.

The firm noted that while outstanding balances have grown substantially, borrowers continue to keep the market stable by making on time payments. It reported that 30-day delinquencies dropped from 2.7% in the year-ago period to 2.5%, while 60-day delinquencies fell from 0.74% in the year-ago quarter to 0.73%.

“Continued growth in the automotive finance market is a clear sign of improved consumer confidence over the past few years,” said Melinda Zabritski, Experian’s senior director of automotive finance. “Since bottoming out in the recession, automotive sales have rebounded steadily — a good sign for consumers, vehicle OEMs, lending organizations and the overall economy.

“What’s critical to this success is that consumers stay on top of their payments,” she added. “If they can continue to manage their financial obligations and make timely payments, the automotive industry can continue to flourish and grow for quite some time.”

The report also found that the largest increase in volume of open loans was in the super-prime category, rising 8.3% from the previous year. Subprime and nonprime followed closely, with increases of 7.8% and 7.7%, respectively. The distribution of open loans by risk segment remains relatively unchanged, Zabritski noted, demonstrating that the surge in outstanding automotive financing is driven by consumers across the board, not a specific segment of the market.

Posted in Auto Industry NewsComments Off on Auto Loan Balances Totaled $968 Billion in Q3

CFPB Considering Ban on Arbitration Clauses


WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) announced it is considering proposing rules that would ban arbitration clauses in consumer financial services contracts, less than five months after 50 members of Congress urged the bureau to eliminate such clauses.

Describing arbitration clauses as a “free pass” to block consumers from suing in groups to obtain relief, the CFPB said the proposals under consideration would give consumers “their day in court and deter companies from wrongdoings.”

“Consumers should not be asked to sign away their legal rights when they open a bank account or credit card,” said CFPB Director Richard Cordray in a statement. “Companies are using the arbitration clause as a free pass to sidestep the courts and avoid accountability for wrongdoing. The proposals under consideration would ban arbitration clauses that block group lawsuits so that consumers can take companies to court to seek the relief they deserve.”

In its press release announcing its intentions, the bureau cited results of a three-year studyit conducted on pre-dispute arbitration clauses. Released this past March, results showed, among other things, that more than 75% of consumers surveyed did not know whether they were subject to an arbitration clause in their agreements with their financial services providers. The report also concluded that it is common for such clauses to be invoked to block class action lawsuits.

The study fueled more than 50 members of Congress, led by U.S. Sen. Al Franken (D-Minn.) and Rep. Hank Johnson (D-Ga.), to issue a letter to the bureau this past May. It urged the regulator to eliminate arbitration clauses in consumer financial contracts.

“In total, the study conducted by the CFPB at Congress’ request roundly confirms that individuals unknowingly sign away their rights through forced arbitration agreements, which do not reduce consumer costs for financial service,” the letter read, in part. “Moreover, forced arbitration shields corporations from liability for abusive, anti-consumer practices, encouraging even more unscrupulous business conduct at the expense of individuals and law-abiding businesses.

“Based on this substantial bedrock of evidence, we urge the CFPB to move forward quickly to use its authority under the Dodd-Frank Act to issue strong rules to prohibit the use of forced arbitration clauses in financial contracts and give consumers a meaningful choice after disputes arise.”

But not everyone took the study’s findings at face value. In April, Tom Hudson, F&I and Showroom’s legal columnist and Hudson Cook LLP partner, criticized the CFPB’s report for its “gaping holes” — such as failing to address the growing consumer-friendliness of arbitration clauses.

“In fact, it isn’t unusual to see clauses that provide for the payment by the creditor of some or all the costs of arbitration,” Hudson wrote. “Creditors also frequently call attention to the presence of an arbitration agreement by using large type, separately boxing the clause or having it separately signed or initiated. The study offers no insight on whether these best practices might change any of its conclusions.

“There is much to dislike about the CFPB’s work on arbitration,” Hudson added. “You’d think arbitration must have some things to recommend it, since Congress passed the Federal Arbitration Act and nearly all states have enacted laws permitting arbitration. But the bureau seems determined not to see any good in the process.”

The American Financial Services Association also took issue with the bureau’s study and proposals, saying in a statement issued to F&I and Showroom that the bureau has not provided any meaningful link beween arbitration and class action lawsuits. It also noted that academic studies have shown that arbitration cases actually produce more in the way of settlements than class action lawsuits.

“As the CFPB study indirectly points out, class action attorneys are the real winners, raking in excess of $424 million in fees awarded in settlements during the period studied,” the statement read. “The bureau that is entrusted to protect consumers is again making it policy to deprive them of that very protection. In essence, the rules that the bureau is proposing would deprive consumers of a low-cost, lawyer-free dispute resolution system and replace it with an expensive, lengthy, and complex judicial process.”

Included in the bureau’s announcement was an outline of the proposals under consideration. They will be reviewed by a panel of “small industry stakeholders” as the bureau’s first step in its potential rulemaking process. The proposals include a complete elimination of arbitration clauses that block class action lawsuits. The ban would apply to credit cards, checking and deposit accounts, prepaid cards, money transfer services, certain auto loans, auto title loans, small dollar or payday loans, private student loans, and installment loans.

Creditors would also have to say explicitly that arbitration clauses found in their agreements do not apply to cases filed as class actions unless and until the class certification is denied by the court or the class claims are dismissed in court. The bureau also wants to require companies that choose to use arbitration clauses for individual disputes to submit to the CFPB the arbitration claims filed and awards issued.

“This will allow the bureau to monitor consumer finance arbitrations to ensure that the process is fair for consumers,” read the CFPB’s press release, which noted that the bureau will seek input from the public, consumer groups, industry and other stakeholders before continuing with its rulemaking process. “The bureau is also considering publishing the claims and awards on its website so the public can monitor them.”

Posted in Auto Industry NewsComments Off on CFPB Considering Ban on Arbitration Clauses

Page 3 of 612345...Last »