One or more auto lenders have been deceptive in their advertisements for GAP coverage and disclosures of payment deferral terms, the Consumer Financial Protection Bureau said in its Summer Supervisory Highlights report.
The lenders gave customers the impression that GAP would fully cover the remaining balance on a consumer’s loan in a total loss. But the product only covers below a certain loan-to-value ratio, the CFPB said last week.
The CFPB also said that lenders used a telephone script that created a false overall impression that the only effects of taking advantage of an auto loan payment deferral would be to extend the loan and accrue interest during the deferral. They neglected to tell customers that the next payment would be applied to the interest accrued on the balance from the date of the last payment received from the consumer. Then the consumer could end up paying more finance charges than originally disclosed, the CFPB said.
“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 report said.
Jean Noonan, partner at Hudson Cook law firm in Hanover, Md., shed some light on the two issues for Automotive News. With respect to GAP, she said, most coverage does have a loan-to-value limit. But it’s usually a very high limit, such as 150 percent of the vehicle’s value. “It covers deficiency in a great majority of cases,” she said. But there can be instances when a consumer’s debt is more than 150 percent of the value of the vehicle, she said, especially if the consumer rolls in negative equity on the trade-in. “Most prime lenders won’t lend more than 150 percent, but there may be some lenders out there that would go above,” she said.
With respect to the payment following a loan deferral being applied to the interest accrued on the balance from receipt of the last payment, Noonan said the CFPB may be discussing a “very complicated accounting issue” here. “I would expect the difference between the customer’s [payment] expectation and the fact to be very small,” she said.
More failings found
In its Summer Supervisory Highlights, the CFPB also found that weak content management systems belonging to one or more lenders violated Federal consumer financial law by:
- Failing to raise compliance-related issues to the institution’s board of directors or other principal.
- Failing to follow the institution’s policies and procedures in daily practices.
- Failing to monitor and correct business line practices to align with Federal consumer financial law.
- Failing to sufficiently track training completed by employees and the board.
- Failing to adequately follow up on consumer complaints with a 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,” according to the report.
Auto complaints highest
In its separate June Monthly Complaint Report, the CFPB said auto lending made up 60 percent of consumer loan complaints in the past five years .
Those include vehicle loan, vehicle lease and title loan complaints submitted to the CFPB. Nearly half of complaints centered on managing the loan, lease or line of credit. Nearly a quarter of complaints were about problems that occur when customers are unable to pay.
Some consumers complained about payment processing issues, such as not having their payments applied to their accounts in a timely and correct manner or that their account was debited for more than their monthly payment.
Other customers’ complaints emphasized a lack of understanding. Some said they did not completely understand the effects of fees and high interest rates on the total cost of their loans. They also said that they did not understand why their account balances were not decreasing after making monthly payments.
Some consumers also said that warranties they thought they were required to purchase did not cover basic repairs. Lease customers complained that they had to pay wear-and-tear fees that were unfairly high. They said they should be allowed to be present for the vehicle inspection.