The CFPB has ordered an auto lender to pay $60 million for creating an obstacle course to cancel optional add-on products, like service contracts and Guaranteed Asset Protection (GAP).

On November 20, 2023, the Consumer Finance Protection Bureau (CFPB) announced that it had ordered the auto lender to pay $60 million for an illegal scheme to prevent borrowers from canceling optional add-on products, like service contracts, Guaranteed Asset Protection (GAP). 

Allegedly, the auto lender directed customers to a dead-end cancellation hotline, withheld refunds, and knowingly tarnished credit reports with false data.

The lender “illegally withheld refunds, made borrowers run through obstacle courses to cancel unwanted services, and tarnished their credit reports,” said CFPB Director Rohit Chopra. “Given the growing burdens of auto loan payments on Americans, we will continue to pursue large auto lenders that cheat their customers.”

According to the CFPB, the investigation started because

“Thousands of consumers complained to the lender that dealers had lied about whether these products were mandatory, included them on contracts without the borrowers’ knowledge, or rushed through paperwork to hide buried terms. Nevertheless, the lender devised a scheme to retain the revenue from these products by making it extremely cumbersome to cancel, and then failed to provide proper refunds for consumers who succeeded in cancelling. The company also falsely told consumer reporting companies that borrowers had missed payments, and it failed to correct consumer reporting errors it knew were wrong.”

(Emphasis added).

The activities of the lender Credit were deemed by the CFPB to be unfair and abusive acts and practices (UDAAPs) in violation of the Consumer Financial Protect Act (CFPA) and to violate the Fair Credit Reporting Act (FCRA). Specifically, the CFPB’s announcement claimed that the auto lender:

Directed consumers to a dead-end cancellation hotline:
The lender prevented many consumers from canceling product bundles by making the process unreasonably difficult. Consumers who wanted to cancel over the phone were directed to a “retention hotline” operated by employees whose primary objective was to dissuade such cancellations. Between 2016 and 2021 alone, the lender funneled more than 118,000 consumer calls through this hotline. Representatives on the hotline were instructed to keep promoting the products until a consumer had verbally requested to cancel three times, at which point the representatives would tell the consumer that it was only possible to cancel by submitting a written request.

Delayed refunds by applying them to principal payments:
Instead of issuing a refund check or lowering the monthly payment amount upon a consumer’s cancellation of bundled products, the lender applied the refund amount as an additional payment toward the principal, reducing the number of monthly payments. Applying the refund in this way effectively delayed the return of the consumer’s money until the end of the sale or lease agreement term. The company used this fact to discourage cancellations, telling consumers on the retention hotline that their monthly payments would not decrease and that they would not receive direct refunds.

Withheld refunds or providing inaccurate refund amounts:
The lender failed to refund prepaid GAP and CLAH premiums to consumers who paid off the loan or ended the lease before the end of the contract. The lender also relied on faulty calculations, which resulted in incorrect refunds for consumers who canceled their vehicle service agreements.

Furnishing false data to consumer reporting companies:
The lender falsely reported customer accounts as delinquent for failure to make monthly account payments even though customers had already returned leased vehicles, and the company did not promptly correct the negative information it had sent to consumer reporting companies even though it knew it was wrong. The lender also failed to maintain reasonable policies and procedures to ensure payment information it sent to consumer reporting companies was accurate.

As a result of said conduct, the lender has been ordered to:

• Pay nearly $48 million in consumer redress;
• Stop its illegal practices; and
• Pay a $12 million fine.

This action should be particularly concerning to dealerships. Other regulatory enforcement agencies, like the Federal Trade Commission, are attempting to pass extremely onerous regulations against auto dealerships to prevent unfair and deceptive acts involving add-on vehicle products, and this action will only serve as a justification for passing these new rules.

Do not be the low-hanging fruit for regulators, and correctly document the process.

To learn more about solutions for managing consumer complaints and compliance in the sales, F&I, and advertising departments, schedule a time to meet with us.