Report Highlights Unfair, Deceptive Practices in Consumer Lending

Auto lenders, payday loans, and medical debt carry significant consumer risk

The Consumer Financial Protection Bureau (CFPB) released a report highlighting risks consumers face in the financial marketplace. That report called out several areas of significant risk, including auto loans, payday loans, and medical debt.

“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.”

The report outlines a number of deceptive practices in auto lending, including:

• Charging fraudulent interest on inflated loan balances: Servicers charged interest on loans based on fraudulent representations by dealers that the vehicle had options and enhancements that it did not actually have. When servicers identified discrepancies, they did not reduce the amount that consumers owed on the loan agreements and continued to charge interest tied to financing of the nonexistent options.
• Cancelling automatic payments without sufficient notice, leading to unavoidable late fees: Servicers did not properly notify consumers that the final payment of an auto loan often had to be made manually to close out the loan, and were surprised when they were hit with late fees even though they had automatically paid their balance for years.
• Engaging in illegal collection practices after repossession: Servicers engaged in the practice of blanket cross-collateralization by accelerating and requiring payments from all consumers on unrelated debts, such as credit cards, before consumers could reclaim their repossessed vehicles.

The report also highlighted illegal activity by payday lenders, including making threats of wage garnishment or even communicating to employers that a lender had the right to garnish wages even when no such right had been granted by the borrower or a court.

The purpose of the report is to both make consumers aware of types of activities that are illegal and to provide guidance to financial institutions in order that they may avoid engaging in unlawful lending or collection practices.

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