AFSA Corrects CFPB’s Misconceptions on Powerbooking
This week, AFSA commented on the Consumer Financial Protection Bureau’s Summer 2023 Supervisory Highlights. This CFPB report shares its perspective on certain practices, including new or updated areas of focus in supervisory reviews. However, using the Highlights to paint with broad brushstrokes specific actions as unfair or deceptive can be dangerous, especially when the CFPB fails to provide sufficient details about the underlying facts of investigations or the application of its analysis to those facts.
AFSA wrote to the CFPB, pointing out one recent example where the Bureau misidentified blame for a certain practice. The issue described by the CFPB is referred to in the industry as “powerbooking” and is not appropriately characterized as “fraudulent loan charges.” The term “powerbooking” refers to instances in which an auto dealer misrepresents to the finance source the features of the financed vehicle, e.g., whether there are leather seats, a navigation system, or a bedliner in a pickup. From the dealer’s perspective, the purpose of this misrepresentation is to overstate the value of the collateral, thus favorably influencing the finance source’s decision about whether to purchase a retail installment sale contract, and on what terms. “Powerbooking” is fraud in which the finance source is misled so that it is more likely to approve the deal at all, and so that it will offer more beneficial terms to the customer than the collateral otherwise supports. Ironically, consumers who enter into retail installment sale contracts with dealers who engage in powerbooking should generally get more favorable financing than they would absent the fraud on the finance source.
Powerbooking is not a common practice, and banks, finance companies, and auto dealers have procedures in place to help reduce this type of fraud. However, in instances where this practice occurs, the CFPB misunderstands both (a) where the fault lies in this practice when identifying it as an “abusive act or practice,” and (b) its authority over the practice given that it is unrelated to the consumer transaction and causes no consumer injury. The CFPB assumes, without discussion and without logical basis, that if the dealer misrepresents the options on a vehicle to the finance source, the dealer must have made the same misrepresentation to the consumer regarding the vehicle and sold the vehicle at a price consistent with the inflated features. That is simply not the case, especially when the consumer can see the vehicle’s options when inspecting and test driving the vehicle and agrees to the selling price thereafter.
AFSA shares and appreciates the CFPB’s interest in reducing fraud. However, our letter makes clear that the CFPB’s concerns with respect to powerbooking as a source of consumer harm are misplaced. The consumer is not the injured party, and the finance source has neither caused nor supported any consumer harm. It is the finance source that is injured by the powerbooking dealer’s misrepresentations. Consequently, this misconduct has no place in the Supervisory Highlights report or the CFPB’s enforcement docket. AFSA asked that the CFPB withdraw that portion from the Supervisory Highlights and offered to meet with the CFPB to further discuss powerbooking.
October 26th, 2023
