We've spent several of our most recent Tips focusing on recent activity from the FTC, so we think it appropriate that we focus attention on the CFPB, which has been very active and aggressive lately. This is a weekly Tip, not a treatise, so we're going to briefly address a few of the recent moves. Please reach out to info@IgniteCP.com if you'd like more in-depth information.
Judgement against USAF Servicing
The CFPB grabbed headlines by obtaining a $42 Million judgement against USAF Servicing, which was the related finance company of U.S. Auto Sales, a Georgia based BHPH dealer with over 30 dealerships. For those that remember, the CFPB first took action against it in 2023 and the company was forced to file bankruptcy. Now, a judge in Georgia ruled that the servicing entity must pay $42 Million in penalties, including $25 Million in compensatory damages, $5.8 Million in restitution, and a $10 Million civil money penalty. Since the defendant is in bankruptcy, it will be up to the Trustee to marshal any assets and determine how remaining funds will be distributed to satisfy these amounts.
We've been a bit reluctant to address this verdict because the defendant is in bankruptcy and the dealerships ceased operations almost two years ago. It seemed to us that the CFPB was targeting them in an attempt to garner big headlines, which they successfully did, and in our minds there is some question about the CFPB's calculation of damages and whether the final judgement amounts are substantially inflated. Nevertheless, there are some important takeaways here for dealers and finance companies to take to heart:
The big issues surrounded the following:
Improper use of vehicle disabling devices and using them after reaching contrary agreements with customers;
Failure to provide GAP refunds following early payoff
Payment Misapplication
Illegal or wrongful repossessions
There's nothing new here, the CFPB has been focused on these subjects for years and their Supervisory Highlights have emphasized these points. Every creditor should have policies and procedures implemented to guard against these types of violations.
Credit Reporting and Dispute Handling
Our regular readers have heard this before, too. The CFPB has deep concerns over how creditors report account performance history as well as how disputes are handled. It started off the year with a $ 12. 8 Million fine against American Honda Finance Corp. for claims that it engaged in inaccurate credit reporting during the Covid-19 pandemic. The CFPB alleges that hundreds of thousands of consumers were adversely impacted. Key allegations include:
Deferrals were granted to consumers, yet the company continued to report them as delinquent;
The company failed to adequately investigate consumer disputes;
The company failed to send investigation results to the bureaus and consumers, as required under the FCRA
Next, the Bureau hit credit reporting Agency Equifax with a $15 Million penalty over allegations that it:
Ignored consumer documents and evidence submitted with disputes
Allowed previously deleted inaccuracies to be reinserted into reports
Used flawed software which led to inaccurate scores
CFPB's Call for an Increase in State Focus on Consumer Protection
This development really grabbed our attention. Perhaps this initiative is being pushed in anticipation of deregulation at the Federal level in the Trump Administration, but the CFPB has called for states to pick up the pace when it comes to consumer protection.
The CFPB is encouraging states to address what it perceives as gaps (shortcomings?) in state consumer protection laws and calls for the adoption of consumer protection language that more closely matches the federal Consumer Financial Protection Act. Not surprisingly, both "junk fees" and "abusive practices" were highlighted as examples by the CFPB.
We've warned you of our concern for an increase in state consumer protection, just like we saw in several states at the start of the first Trump Administration. There's already been some activity in this area at the state level and we expect more to follow. Keep your eyes open and ear to the ground.
Our Tip of the Week
The competition between the CFPB and FTC for the most fearsome regulator continues. With both of these regulators breathing down your backs, it's important to get (or keep) your compliance house in order. Regular advertising, contract, and policy reviews are imperative, as is a strong compliance management system that includes audit and training functions. Reach out to us at info@ignitecp.com to schedule your annual review and let's get everyone in a position to withstand the scrutiny.
Steve Levine | Chief Legal and Compliance Officer
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