The 2019 Consumer Financial Protection Bureau (CFPB) Fair Lending Report, not surprisingly, raises some issues that may have effects on the BHPH industry. Under the Dodd-Frank Act, the CFPB has the right to regulate certain aspects of lending and finance, and this first report outlines what the CFPB is focusing on this year. Here’s what you need to know.
Many of the changes and concerns in the 2019 CFPB Fair Lending Report will definitely have an affect on dealerships – primarily concerning repossessions and rebates. After examining the practices of captive auto finance companies, which are not specifically named in the report, the CFPB found that some lenders were using false mileage to calculate rebates due on extended warranties after a vehicle was repossessed or totaled. In cases where a customer finances an extended warranty, gap insurance, etc., on the same loan as their vehicle and those ancillary products are canceled by the borrower due to repossession or total loss, the remaining amount is supposed to be rebated at pro-rates, first to the servicer, to cover portions of the deficiency, and then to the customer if applicable. Some loan servicers have been getting larger rebate amounts from canceled extentended warranties, etc., by changing vehicle mileage. Additionally, some loan servicers failed to request rebates for qualifying products at all, claiming that they were “not aware of any such charges” despite documentation in their files suggesting otherwise. Afterward they sent invoices to customers for the full amounts due. As a result, the CFPB now plans to take measures to more closely regulate that process.
Of course, that is not the only change the CFPB has recently made where financing vehicles in concerned. In the Summer 2019 CFPB Supervisory Highlights, the organization claimed that an auto loan originator had been selling GAP insurance to customers whom that originator knew did not need it. In cases where consumers finance vehicles at a low loan-to-value (LTV) ratio, GAP insurance is essentially useless. The customer receives no benefits. In response, the CFPB has ordered the company involved to reimburse $9.29 million to customers who purchased unnecessary GAP insurance, and to pay $2.5 million in civil money penalties. To prevent future issues, the CFBP is also setting an LTV minimum for GAP insurance sales. This change is likely to have a significant impact on dealerships, so stay up-to-date with BHPH Marketplace to learn what LTV minimum is enacted.
All of this means that dealerships can expect greater scrutiny in the future where extended warranties, GAP insurance, and the like are concerned. Checking and double-checking details like rebate eligability, vehicle mileage, and new LTV minimum limits for GAP insurance will be vital to keeping your business out of legal trouble. Make sure you stay abreast of any changes to these regulations in the 2019 CFPB report, and keep an eye out for new additions to the organization’s rules. As always, you can count on BHPH Marketplace to keep you informed. Until then, where these matters are concerned, an ounce of caution is sure to be worth a pound of cure!