AFSA’s Response to the Supervisory Highlights
Last week, AFSA responded to the CFPB’s Auto Finance Special Edition of Supervisory Highlights. While the goal of these publications is to “help industry limit risks to consumers and comply with federal consumer financial law,” this most recent edition of the Highlights does not provide sufficient detail for the auto-finance industry to adjust practices to conform to the Highlights. The Supervisory Highlights are not the proper place to address such issues, a more thoughtful approach towards clarity would be through the rulemaking process. AFSA responded to seven specific sections of the Highlights.
- Sec. 2.2.1 on wrongful repossession. AFSA agrees that servicers should take steps to prevent erroneous repossession of consumers’ vehicles. The Highlights seem to focus on situations in which the servicer places a defaulted account for repossession but then fails to timely cancel that repossession after the customer either makes a payment, makes a payment arrangement, or is granted an extension. Servicers view repossession as a last resort because of the negative impact to consumers and the financial loss it generally creates for the servicer. As a result, in order to avoid the negative outcome of a repossession, many servicers continue to work with customers even after the vehicle has been assigned for repossession. Without expounding on the nature of the issue, or what policies or procedures the CFPB would deem as acceptable to prevent this, it is extremely difficult for companies to adjust practices accordingly.
- Sec. 2.2.2 on repossessing vehicles without a recorded lien. We respectfully ask the CFPB for clarification on this section, in which the CFPB states that failing to record liens, or repossessing vehicles without a valid lien, constitutes unfair acts or practices. By placing the emphasis on the existence of a recorded lien, the CFPB is overlooking important considerations relating to the creditor’s rights to collateral. The creditor’s rights to collateral are established by the operation of the retail installment sales contract, vehicle lease, or other agreement with the consumer. The notation of a lien appearing on a vehicle title or registration document provides notice of the security interest delineating priority rights with respect to other creditors and in bankruptcy, but the absence of a recorded lien on a title does not mean a security interest does not exist.
- Sec. 2.3.2. on delays in providing title. While AFSA agrees that titles should be provided in a timely manner, in many instances some delay is necessary to ensure that good funds are received before the title can be released. In such instances, delay in releasing the vehicle lien is in direct correlation to the finance company having to wait for the customer’s payment to clear. To prevent fraud, companies have developed a system to ensure that the vehicle lien is paid in full before releasing the title. Many states dictate specific time frames in which the title must be released, but those timeframes are predicated on receipt of the payment. Until the funds have cleared, the payment has not been received. AFSA member companies have shared instances where a fraudster, either the customer or a third party, has submitted payoff amounts that do not clear their bank accounts. Releasing liens too soon can also be detrimental to the customer.
- Sec. 2.4 on voluntary products. This section appears to reference finance companies selling ancillary products but, typically, it is the dealership that sells these voluntary products. We appreciate the Bureau’s concerns regarding the sale of ancillary products but we ask for clarification in this section in the context of the indirect lender. For instance, could the Bureau explain whether the term “originator” refers to the finance source or the dealership? In an indirect finance transaction, the dealership is actually the originator and the finance source simply buys the contract after the point of sale of the ancillary products. In these cases, the finance source should not be regulated as the seller of the ancillary product.
- Sec. 2.4.6 on providing refunds for voluntary products in all states, even when there is no requirement to issue that refund under the law. In this section the CFPB explains that it expects supervised entities – financial institutions – to issue refunds for voluntary products. However, the Bureau does not acknowledge a dealer’s role in this process. Many of these ancillary products are not credit-related products, and customers must exercise their cancellation rights to get a refund. It is the dealer that makes a profit from selling these products and so the dealer should be responsible for the refund. Moreover, state law governs the refund process in many states.
- Sec. 2.4.7 on the date of calculation for refunding voluntary products. The Highlights assert that the date of making a pro rata calculation should be the date of the repossession. AFSA respectfully requests that the CFPB review this decision. This is a complicated issue, and there should not be a wholesale labeling of an unfair, deceptive, or abusive act or practice. For example, depending on the state there may be a policy that if the customer has a non-financed product that is cancelled upon repossession, that product is terminated. If the contract for the vehicle financing is later reinstated, this could be considered an unfair cancellation.
- Sec 2.4.9 on when a consumer should be notified to stop making payments on a total loss when covered by a GAP product. Examiners found servicers engaged in unfair acts or practices by collecting monthly payments even after they knew the GAP waiver would cover the outstanding balance of a total loss vehicle. The Bureau acknowledges that the GAP waiver generally waives the amount owed under the retail installment contract or loan as of the date of the loss, but not always, and cited circumstances where servicers collected monthly payments from consumers for months after a total loss event despite knowing that these consumers purchased GAP waivers to cover the outstanding balance as a violation
January 15th, 2025
