In an alarming revelation, the Consumer Financial Protection Bureau (CFPB) has identified several dishonest practices across a wide array of consumer financial products. This article delves into the latest CFPB Supervisory Highlights report, which covers findings from examinations conducted from July 2022 to March 2023.
1. CFPB’s Role in Identifying Unfair Practices
The CFPB is a pivotal entity in the regulation of financial services, dedicated to uncovering and rectifying conduct violating federal law. According to CFPB Director Rohit Chopra, their latest report strengthens endeavors to expose abusive practices in consumer financial services.
“The CFPB is also inspecting more financial data brokers engaged in consumer reporting, as well as nonbank entities using authorities that previously went unused.” – Rohit Chopra, CFPB Director
2. Auto Lending Market Dynamics
Recent shifts in the auto lending market have raised concerns. The CFPB has noted significant increases in car prices during the pandemic, leading to larger loan amounts, higher monthly payments, and inevitably, a higher rate of loan delinquencies.
2.1 Misleading Marketing Practices
CFPB examiners discovered instances where consumers were deceived by auto lenders about the quality of car they could afford with an auto loan offer. Often, the vehicles depicted in the marketing materials were significantly larger, more expensive, and newer than what the advertised loan offers could cover.
2.2 Unfair Practices by Servicers
The CFPB report also highlighted various unfair and abusive acts by servicers:
- Fraudulent Interest Charges: Servicers charged interest on loans based on false claims by dealers about vehicle features and enhancements. Even upon identifying discrepancies, servicers failed to adjust the consumers’ loan agreements and continued to charge interest on nonexistent features.
- Inadequate Notice for Payment Cancellation: Consumers were not properly informed that the final auto loan payment often needed to be made manually, resulting in unexpected late fees.
- Illegal Collection Practices: After repossession, servicers required payments from consumers on unrelated debts, like credit cards, before they could reclaim their vehicles.
The CFPB has taken action against lenders that hide critical details in loan origination and servicing, intentionally trapping consumers in debt cycles. Actions have also been taken against an auto lender that employed unreliable debt collection and credit reporting practices damaging consumers’ credit reports.
3. Unlawful Medical Debt Collection Attempts
Debt collectors were found to be continuing collection attempts for work-related medical debt even after receiving sufficient information to deem the debt uncollectible under state worker’s compensation law. Such practices violated the Fair Debt Collection Practices Act.
The CFPB has identified ongoing issues with medical debt and is collaborating with other agencies to address the impact of these high costs on consumers.
4. Illegal Payday Lender Collection Practices
The CFPB also identified several unfair and abusive acts by payday lenders in their collection practices. Some of these included:
- Irrevocable Consent: Loan agreements included language that prohibited consumers from revoking their consent for the lender to contact them for collection on the outstanding balance.
- False Collection Threats: Lenders falsely claimed their authority to garnish borrowers’ wages, leading to unauthorized wage deductions in some cases.
The CFPB has supervisory authority over large banks, thrifts, credit unions with assets over $10 billion, and certain nonbanks, including mortgage companies, private student lenders, and payday lenders. It also supervises consumer reporting, student loan servicing, debt collection, auto finance, international money transfers, and other nonbank entities posing risks to consumers.
The CFPB’s supervision program aims to identify compliance issues before they become significant, benefiting supervised entities. Their supervision process remains confidential, and several nonbanks have voluntarily consented to CFPB supervisory authority.
