As COVID-19 continues to impact personal finances in the United States, the Consumer Financial Protection Bureau (CFPB) has ramped up enforcement actions intended to safeguard a set of borrowers not protected by the CARES Act. While the CARES Act required lenders to implement debt relief options across a broad swath of loan portfolios, including mortgages and student loans, there has been no material federal directive to provide relief for auto loans.
At the same time, outstanding auto loan debt in the United States had already reached a record high at the outset of the pandemic, totaling $1.34 trillion in the second quarter of this year. Borrowers are registering their distress: the CFPB this year has seen the highest level of consumer complaints ever levied against auto lenders since the CFPB began tracking consumer complaints in 2012.
Although a number of auto lenders have implemented loan relief programs of their own accord, inconsistency across the industry and a lack of consistent regulation at the state level has led to a "full-blown crisis" for consumers facing auto loan delinquencies and potential repossessions, according to a new report from the U.S. PIRG Education Fund and Frontier Group. The CFPB has taken a couple of actions against the auto lending industry in just the last two months, perhaps in part in an attempt to fill the regulatory relief gap applicable to auto lending efforts during the pandemic.
In the most recent action against an auto lender, on October 13, 2020, the CFPB alleged that Nissan Motor Acceptance Corporation (NMAC) engaged in unfair and deceptive acts and practices impacting its borrowers, in violation of the Consumer Financial Protection Act. In particular, the CFPB alleges that NMAC "wrongfully repossessed vehicles; kept personal property in consumers' repossessed vehicles until consumers paid a storage fee; deprived consumers paying by phone of the ability to select payment options with significantly lower fees; and, in its loan extension agreements, made a deceptive statement that appeared to limit consumers' bankruptcy protections."
In relation to the repossession allegations, the CFPB alleges that the unfair and deceptive acts and practices were carried out by NMAC's agents, with the knowledge of NMAC. Such allegations are an important reminder that financial institutions must maintain appropriate oversight of third-party vendors, as the CFPB may impute the actions of such vendors to the financial institutions under certain circumstances. Such oversight is particularly important in the case of repossessions, where the CFPB, state regulators and attorneys general, and consumer protection groups remain particularly vigilant due to the high potential for consumer harm.
The CFPB's Consent Order against NMAC requires the company to provide "up to $1 million" in cash redress to consumers harmed by the alleged actions. The CFPB also ordered the payment of a civil money penalty of $4 million—the 4x multiplier indicative of the seriousness with which the CFPB is taking deceptive and unfair auto lending practices.
Because state governments have recently begun allowing repossessions again, after a brief freeze during the midst of the pandemic, additional CFPB complaint upticks—and perhaps related enforcement actions—may soon follow.1 DWT will continue to monitor developments in the auto lending enforcement space, and in the CFPB enforcement space more broadly, as the effects of the pandemic continue to manifest themselves across lending portfolios.
1 “Demand Boosts Values on Repossessions,” Automotive News, Jackie Charniga, 10.12.20.
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