American companies are using unfair, deceptive, and abusive practices as they sells many consumer financial products, the Consumer Financial Protection Bureau said in a new report on what it found as it reviews business practices at financial institutions.
For example, auto lenders have originated loan balances above the real value of the car being purchased and engaged in illegal collection practices while servicing these loans.
The report covers findings from CFPB examinations completed from July 2022 to March 2023.
“Today’s report furthers our efforts to highlight conduct that violates federal law, including the prohibition on abusive practices in consumer financial services,” said CFPB Director Rohit Chopra. “The CFPB is also inspecting more financial data brokers engaged in consumer reporting, as well as nonbank entities using authorities that previously went unused.”
Higher car prices leading to more delinquencies in auto lending
The CFPB found a significant shift in the auto lending market recently. Car prices rose sharply during the pandemic, leading to larger loan amounts, higher monthly payments, and a higher rate of loan delinquencies.
CFPB examiners found that consumers were misled in marketing materials by auto lenders about the quality of car they were eligible for under the terms of an auto loan offer. The pictured cars were often significantly larger, more expensive, and newer than the advertised loan offers were good for.
Examiners also found many instances of unfair or abusive acts or practices by servicers including:
- Charging fraudulent interest on inflated loan balances.
- Cancelling automatic payments without sufficient notice, leading to unavoidable late fees.
- Engaging in illegal collection practices after repossession.
Unlawful debt collection attempts including on medical debt
Examiners found debt collectors continued collection attempts for work-related medical debt after receiving information that they could use to determine the debt uncollectible under state worker’s compensation law.
Illegal payday lender collection practices
The CFPB examinations also found unfair and abusive acts employed by payday lenders in their collection practices. Lenders would put language in loan agreements that prohibited consumers from revoking their consent for the lender to call, text, or e-mail the consumers about collection on the outstanding balance.
In addition, lenders also made false collection threats that would often refer to their authority to garnish wages of borrowers, when no such authority exists. In some cases, the lender would make an unauthorized wage deduction by sending demand notices to consumers’ employers that incorrectly conveyed that the employer was required to send to the lenders from the consumer’s wages the full amount of the consumer’s loan balance. Actually, the consumer had agreed to permit the lenders only to seek a wage deduction in the amount of the individual scheduled payment due.
Click here to see the actions the CFPB is taking on these kinds of issues. The agency’s examination process is confidential so no companies are named included in the report.
