On May 23, 2021, Vemable partner Allen Denson was quoted in SubPrime Auto Finance News on a recent Consumer Financial Protection Bureau (CFPB) consent order issued against California Auto Finance for engaging in unfair practices against their customers in violation of the Consumer Financial Protection Act of 2010 (CFPA). The violations centered around what the regulator deemed to be unfair charges.
According to the article, California Auto Finance required its customers to agree that if they had insufficient insurance coverage for their vehicles, they would add loss-damage-waiver (LDW) coverage to their accounts. When a customer’s LDW payment was late, California Auto Finance would charge interest on the late payment. Between 2016 and 2021, the CFPB determined California Auto Finance charged about 5,800 customer accounts a total of $565,813 in interest on late payments of LDW fees without disclosing the charges.
“The major issue in this order is that consumers were automatically enrolled in a product without their full consent. The finance company then added that charge to the principal balance and charged interest on top of that,” Denson said. “The lesson for finance companies is to make sure that consumers provide informed consent to enroll in optional products. And that lenders disclose charges that consumers will pay when they enroll,” he continued.
The consent order requires California Auto Finance to refund to or credit customers harmed by the conduct, furnish corrected information to credit reporting agencies, and pay a civil penalty of $50,000. It also prohibits the company from charging interest on late payments without disclosing costs.
“The monetary amount paid here actually could have been much worse,” Denson added.
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