Vehicle Loans
Vehicle Loans The Consumer Financial Protection Bureau is taking action against harmful servicing practices in order to provide a level playing field in the car loan industry. Some of these methods involve selling extras, such as GPS systems, to customers who buy automobiles.
For instance, if a car is stolen or written off and the borrower still owes more on the loan than the vehicle is worth, guaranteed asset protection (GAP) solutions may be able to help.
The benefits of the optional product are conditional and expire after a set period of time, say, four years from the date of purchase. Financing for a car often involves a single, upfront payment that covers the cost of any optional extras.
This payment is typically collected at the time the loan is originated and is considered part of the overall cost of financing the car. Even if the additional product expires years before the loan term does, consumers are expected to keep making payments on it.
Our auditors have zeroed in on the servicers’ treatment of these ancillary product fees in the event that a loan is paid off before the ancillary product’s usefulness expires. The customer may have paid off the loan early (often by refinancing) or the servicer may have repossessed the vehicle due to the customer’s failure to make payments.
According to a new investigation, servicers participated in unfair practices by not requesting refunds from third-party administrators for “unearned” fees relating to one such add-on product, GAP, and not applying the relevant reimbursements to the accounts following repossession and cancellation of the contracts.
Once customers’ automobiles were no longer in their possession, the GAP product could no longer provide them with any value. Later, when calculating deficient accounts to send to customers and report to third-party debt purchasers, examiners discovered that servicers included these incorrect amounts.
In light of these discoveries, the servicers have compensated affected customers and strengthened their procedures to better handle refund requests for supplementary products in the wake of repossession.
Inaccurate Refunds
Servicers have been accused of unfair actions or practices by the Consumer Financial Protection Bureau (CFPB) for seeking to recover incorrectly estimated deficiency sums after repossession and incorrectly calculating refunds for auxiliary vehicle products. Refunds for things like extended warranties and other purchases made with vehicle loan money were often miscalculated by servicers.
Because of the errors, several borrowers received fewer refunds than expected, and their shortfall balances ended up being hundreds of dollars greater than expected. The debt collectors tried to get the servicers to pay for the deficiencies.
In light of these revelations, the servicers undertook investigations to pinpoint the impacted borrowers and take appropriate action. To prevent borrowers from being overcharged upon loan prepayment, the CFPB will continue to monitor servicer practices.
