Tag Archive | "CFPB"

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.

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CFPB Proposes Implementation of Privacy Notice Exemption


WASHINGTON, D.C. — Last week, the Consumer Financial Protection Bureau (CFPB) proposed to implement an amendment to the Gramm-Leach-Biley Act (GLBA) that will grant certain financial institutions exemption from sending annual privacy notices to customers.

The GLBA generally requires financial institutions to send annual privacy notices to customers. Within the notices, institutions are required to describe whether and how customers’ nonpublic personal information is shared. If an institution does share customers’ NPI data with unaffiliated third parties in ways other than specified by the statute, then the institution is required to notify customers of their right to opt out of sharing and inform them on how to do so, according to a CFPB press release.

In December 2015, the GLBA was amended to exempt a financial institution from the requirements of the GLBA if it limits “its sharing of customer information so that the customer does not have the right to opt out and has not changed its privacy notice from the one previously delivered to its customer,” the press release stated.

Along with granting exemption, the proposed implementation of the December amendment would also establish deadlines for institutions resuming annual privacy notices if their practices change and cease to qualify for the exemption, according to the CFPB.

Implementation of the amendment would also allow financial institutions that qualify for GLBA exemption to post annual privacy notices online rather than deliver them to customers individually. “In light of this, the Bureau is proposing to also remove the alternative delivery method,” the CFPB press release stated.

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NADA Chairman Calls on Dealers to Rally Behind CFPB-Reform Bill


An important number that the nation’s auto dealers should know is 2663. The NADA’s battle to tame the CFPB continues and Senate bill S. 2663 is the next chapter. This bill, entitled, “Reforming CFPB Indirect Auto Financing Guidance Act,” is identical to last year’s House bill-H.R. 1737, which passed the House with a resounding, veto-proof majority vote of 332-96, including 88 Democrats.

NADA commends Sen. Jerry Moran (R-Kan.) for introducing this critical legislation this past March. Democrats and Republicans from both sides of the aisle have recognized a simple truth: Every consumer deserves access to competitive financing and great rates when they buy a new car or truck.

America’s franchised auto dealers strongly support S. 2663, and businesses that make, sell, service, auction and finance motor vehicles have also joined in this support. Practically the entire auto industry is united on this issue. Like H.R. 1737, the bill would rescind the CFPB’s flawed auto finance guidance, and make the bureau more transparent and accountable when issuing future guidance. The bill calls for a public comment period, coordination with regulatory agencies that possess authority over dealers and a study of the impact of the guidance on small businesses and, most importantly, consumers.

S. 2663 is a moderate bill that does not dictate a result. It’s important that dealers urge their Democratic senators to support S. 2663 when it comes up for a vote. Due to the shortened congressional session with the Presidential election looming, we need to be ready for a vote at any time.

The bill allows for transparency and public notice so the public has an opportunity to analyze and to comment on the CFPB’s attempt to change the auto financing market via “guidance.” And it protects fair credit laws and their enforcement in order to safeguard equal opportunity in auto financing.

We’re fighting for what dealers have known from the beginning: our current system of convenient dealer-assisted financing is fair and competitive. It boosts access to affordable credit for consumers and saves them money.

At the same time, NADA supports the Senate in its oversight to ensure that the CFPB’s actions do not hurt consumers, especially those with less-than-perfect credit. If the CFPB intends to disrupt our highly efficient model, it can only be justified through reliable and sound analysis. Yet the CFPB continues to try to eliminate a dealer’s ability to discount credit for consumers, despite a clear prohibition in Dodd-Frank against regulating dealers.

The optional NADA/NAMAD/AIADA Fair Credit Compliance Policy & Program is being adopted by a growing number of franchised dealers. Many are taking the proactive steps to ensure that the deserved participation that we earn when arranging financing falls within the Equal Credit Opportunity Act. Each of the three major credit application aggregators-including several other companies-have licensed the use of the program to facilitate its adoption and implementation by dealers.

The significant flaws in the CFPB’s policy do not serve the nation’s 16,500 franchised dealers-or the consumers they proudly serve.

NADA will continue to support our members through these challenges as we prove that dealers provide the most competitive, efficient consumer benefits on the planet in our current auto finance model.

Visit NADA.org/autofinance to learn more about how the CFPB’s campaign to eliminate discounted financing rates is raising credit costs for consumers.

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CFPB Issues Proposal to End Forced Arbitration


ALBUQUERQUE, N.M. — As expected, the Consumer Financial Protection Bureau used its 34th field hearing to issue its proposed rule prohibiting mandatory arbitration clauses in finance contracts. Companies will still be able to include such clauses in their contracts under the bureau’s proposal; they just won’t be able to use such agreements to stop consumers from being part of a class action in court.

Issued on May 5, the proposal comes more than a year after the bureau issued its 728-page report on the use of pre-dispute arbitration clauses in consumer finance markets. The study, which reviewed more than 1,800 consumer finance arbitration disputes filed over a three-year period beginning in 2010 and more than 3,400 individual federal lawsuits, found that consumers were awarded less than $175,000 in damages and less than $190,000 in debt forbearance in arbitration suits vs. just less than $1 million in federal lawsuits.

“Today, we are proposing a new regulation for public comment and further consideration. If finalized in its current form, the proposal would ban consumer financial companies from using mandatory pre-dispute arbitration clauses to deny their consumers the right to band together to seek justice and meaningful relief from wrongdoing,” said CFPB Director Richard Cordray at the hearing, held at the Albuquerque Convention Center. “This practice has evolved to the point where it effectively functions as a kind of legal lockout. Companies simply insert these clauses into their contracts for consumer financial products or services and literally, with the stroke of a pen, are able to block any group of consumer from filing joint lawsuits known as class actions.”

Through the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress asked the CFPB to study the use of mandatory arbitration clauses in consumer financial markets. Congress also gave the bureau the power to issue regulations that are “in the public interest, for the protection of consumers, and consistent with the study.”

Released in March 2015, the CFPB’s study concluded that very few consumers bring individual actions against their financial service provider, either in court or in arbitration. It also showed that at least 160 million class members were eligible for relief over the five-year period studied. Those settlements totaled $2.7 billion in cash, in-kind relief, and attorney’s fees and expenses. In its press release announcing the proposed rule, the bureau said the study’s findings do not account for the “the potential value to consumers of class action settlements requiring companies to change their behavior.”

But not all findings in the study supported the elimination of mandatory arbitration clauses. For instance, the study showed that in many class action cases where the principal purpose of seeking class relief was to pressure a settlement, members of the class action got nothing or next to nothing. It also found that class action cases almost never make it to trial, while a significant percentage of arbitration proceedings actually resolve the disputes. The study also showed that arbitration is both faster and more economical than litigation.

“Late last year, the CFPB released a study on arbitration, which the bureau says shows that consumers are harmed by arbitration agreements as opposed to class action lawsuits. However, a careful review of the CFPB’s study demonstrates that the opposite is true …,” the American Financial Services Association wrote in a news brief issued last Thursday. “In 60% of class actions studied by the CFPB, consumers received no remuneration at all.

“In the 15% of cases where consumers received monetary compensation in class actions, they received an average of just $32.25, after waiting an average of 23 months,” the associated added. “In contrast, consumers who prevailed in arbitration agreements, on average, received $5,389. The real winners in class action lawsuits are plaintiff’s attorneys, who divided approximately $424 million in fees.”

The CFPB said its proposal, which will be open for public comment for the next three months, would open up the legal system to consumers so they can file or join a class action someone else files. And while companies will still be able to include arbitration clauses in their contracts under the proposal, the clauses would have to say explicitly that they cannot be used to stop consumers from being part of a class action in court. The proposal would also provide the specific language companies must use.

Additionally, the bureau’s proposal would require companies with arbitration clauses to submit to the CFPB claims, awards, and certain related materials that are filed in arbitration cases. This would allow the bureau to monitor consumer finance arbitrations to ensure that the arbitration process is fair for consumers. The bureau is also considering publishing information it would collect in some form so the public can monitor the arbitration process as well.

“If arbitration truly offers the benefits that its proponents claim, such as providing a less costly and more efficient means of dispute resolution, then it stands to reason that companies will continue to make it available,” Cordray said at the bureau’s hearing. “So the essence of the proposal issued today is that it would prevent mandatory arbitration clauses from imposing legal lockouts to deny groups of consumers the right to pursue justice and secure meaningful relief from wrongdoing.”

That’s not how the AFSA views the bureau’s proposal. “Despite a wealth of evidence suggesting that the bureau’s interpretation of its own study is flawed, today’s rule, in its present form, would have a negative impact on customers by taking away a valuable tool to resolve disputes,” the associated stated. “AFSA will comment on the proposed rule and will continuing its ongoing dialogue with the CFPB.”

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NADA’s Koblenz to Shed Light on CFPB at Agent Summit


LAS VEGAS — Andrew D. Koblenz of the National Automobile Dealers Association (NADA) will speak at the upcoming Agent Summit and provide attendees with insights into the Consumer Financial Protection Bureau (CFPB)’s regulation of the auto finance market, organizers announced Monday. The sixth annual event will be held May 9–11, 2016, at the Venetian Palazzo Las Vegas.

“Understanding the trajectory of the CFPB’s activity regarding the auto finance market is critical to understanding the current regulatory environment in which we find ourselves,” Koblenz said. “It’s also a vital part of evaluating those concrete steps that dealers and lenders can and should be taking in the face of this new regulatory reality.”

Koblenz currently serves as executive vice president of legal and regulatory affairs for NADA, and also oversees the organization’s economic and research department. He is a frequent speaker and valued source for a number of industry events and publications.

At September’s Industry Summit, Koblenz presented “Solving the CFPB Problem,” a comprehensive review of actions undertaken by the CFPB, the effects of those actions on the industry and what the future holds for the oft-maligned agency. He is expected to touch on similar themes at Agent Summit.

“Andy never fails to connect with his audience, because he approaches the topic of compliance with hard-won expertise and disarming humor,” said David Gesualdo, show chair and publisher of Agent Entrepreneur and F&I and Showroom magazines. “He understands both the seriousness and absurdity of the CFPB’s efforts. He is the ideal speaker for a key topic at a critical juncture.”

Registration for Agent Summit is now open at the event’s website as well as by phone, fax and email. Attendees who register by April 4 will enjoy a $100 discount. To inquire about sponsorship and exhibition opportunities, contact Eric Gesualdo via email hidden; JavaScript is required or call 727-612-8826.

Posted in Auto Industry News, Summit UpdatesComments (0)

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.

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