The Consumer Financial Protection Bureau concentrated the auto-finance portion of its latest supervisory highlights on two of the most complicated matters when someone needs credit to acquire a vehicle — repossession and the application of insurance proceeds.
Before deploying a repossession agent to find and take back a vehicle, the CFPB acknowledged that many finance companies provide options to consumers in an effort to avoid repossession when a contract is delinquent or in default. The bureau also recognized in the summertime update that finance companies may offer formal extension agreements that allow consumer to forbear payments for a certain period of time or may cancel a repossession order once a consumer makes a payment.
But then, problems came to light, at least according to the CFPB’s investigations.
“One or more recent examinations found that servicers repossessed vehicles after the repossession was supposed to be cancelled. In these instances, the servicers incorrectly coded the account as remaining delinquent, or customer service representatives did not timely cancel the repossession order after the consumer’s agreement with the servicers to avoid repossession. The examinations identified this as an unfair practice,” bureau officials said in the supervisory highlights.
"The practice of wrongfully repossessing vehicles causes substantial injury, because it deprives borrowers of the use of their vehicles and potentially leads to additional associated harm, such as lost wages and adverse credit reporting,” officials continued.
“Such injury is not reasonably avoidable when consumers take action they believed would halt the repossession, and there is no additional action the borrower can take to prevent it,” the CFPB went on to say.
The bureau made one more point about the ramifications of errors happening during the repossession process, stating a financial injury is not outweighed by countervailing benefits to the consumer or to competition.
“No benefits to competition are apparent from erroneous repossessions. And the expense to better monitor repossession activity is unlikely to be substantial enough to affect institutional operations or pricing,” the CFPB said.
In response to the examination findings, the bureau indicated finance companies are stopping the practice, reviewing the accounts of consumers affected by a wrongful repossession and removing or remediating all repossession-related fees.
Before delving into the repossession world, the CFPB recapped what’s happened when it’s investigated finance companies in connection with insurance.
The bureau shared in the supervisory highlights that one or more examinations observed instances in which notes required that insurance proceeds from a total-vehicle loss be applied as a one-time payment to the contract with any remaining balance to be collected according to the consumer’s regular billing schedule.
However, in some instances after consumers experienced a total-vehicle loss, the CFPB said finance companies sent billing statements showing that the insurance proceeds had been applied to the loan payments so that the loan was paid ahead and that the next payment on the remaining balance was due many months or years in the future.
“Servicers then treated consumers who failed to pay by the next month as late, and in some cases also reported the negative information to consumer reporting agencies,” bureau officials said.
“The examination found that servicers engaged in a deceptive practice by sending billing statements indicating that consumers did not need to make a payment until a future date when in fact the consumer needed to make a monthly payment,” they continued. The billing statements contained due dates inconsistent with the note and the servicer’s insurance payment application.
Such information would mislead reasonable consumers to think they did not need to make the next monthly payment. The misrepresentation is material because it likely affected consumers’ conduct with regard to auto loans,” the bureau went on to say.
Had the information been presented differently?
“Consumers would have been more likely to make a monthly payment if they knew that not doing so would result in a late fee, delinquency notice or adverse credit reporting,” the bureau said in its latest compliance update.
In response to examination findings, the CFPB state that finance companies are sending billing statements that accurately reflect the account status of the contract after applying insurance proceeds from a total-vehicle loss.