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CFPB examines pandemic effect on access to new credit
On August 26, the CFPB released findings regarding trends in credit cards, mortgages, and auto loans for consumers through the Covid-19 pandemic. The post—the fifth and final in a series documenting trends in consumer credit outcomes during the Covid-19 pandemic—examines how access to new credit and the amount of extended credit for new account holders have been impacted by the pandemic. An August 2020 Bureau report (covered by InfoBytes here and updated here) found that while credit limit increases seemed to have been halted for many consumers, there was not a pronounced reduction in available credit card credit since the start of the pandemic (the 2020 report did not discuss access to new credit trends). According to the Bureau’s most recent report, access to new credit declined for credit cards but increased for mortgages and auto loans during the Covid-19 pandemic. Among other things, the Bureau noted that early in the pandemic, the success rate of credit card inquiries declined from around 45 percent in January 2020 to just over 30 percent in May 2020—a “drop well beyond what could be expected from seasonal variation.” Additionally, the volume of credit card inquiries also dropped substantially and did not recover until March 2021, with credit card inquiry success rates also similarly declining “across credit score groups as well as across age groups and subgroups of consumers classified by their census tract or county characteristics.”
Although the report noted that there was “a small and transitory dip” for auto loans in March and April 2020, by February 2021, success rates for auto loan and mortgage inquiries were well above pre-pandemic levels. According to the Bureau, “[t]his result for auto loan and mortgages inquiries contrasts somewhat with responses to the Federal Reserve’s survey of bank loan officers, which indicate that large banks tightened lending standards on auto and mortgage loans during 2020, only loosening standards in 2021.”
Appellate Court affirms defendant waived right to arbitration
On August 18, a Florida District Court of Appeals affirmed a district court’s decision that an auto dealer (defendant) waived its right to compel arbitration after failing to mention an arbitration provision until days before the hearing. The plaintiffs filed a class action complaint alleging that the defendant engaged in deceptive practices regarding fees on car sales. While the defendant raised seven affirmative defenses, it did not raise arbitration, even though an arbitration provision was included in the contract between the defendant and each vehicle purchaser. The defendant moved for judgment on the pleadings and argued “that the type of damages sought in the suit were unavailable under the Florida Deceptive and Unfair Trade Practices Act,” but the court denied the motion. According to the opinion, days before the hearing, the defendant “filed its motion to compel arbitration ‘in opposition to plaintiff’s motion for class certification,’ raising arbitration as an issue for the first time fourteen months after the class action complaint had been filed,” contending that it did not waive its right to arbitrate due to prior filings being defensive in nature. Later, the defendant argued that even if the court found a waiver as to the named plaintiffs, it could not have waived its right to arbitrate with the unnamed class members. The court ruled that the defendant “engaged in class discovery without objecting to it or preserving its right to compel arbitration with the unnamed class members.”
In making its decision, the appellate court cited a 2018 decision by the U.S. Court of Appeals for the Eleventh Circuit, which ruled that a bank had not waived its arbitration rights regarding the unnamed class members because it expressly stated it wished to preserve arbitration rights against those class members when the matter became ripe (covered by InfoBytes here). The appellate court agreed with the court, finding that the defendant acted inconsistently with regard to arbitration in the dispute and therefore waived any right to force the plaintiffs into arbitration.
Maryland affirms penalties of over $3 million against auto lender
On August 11, the Maryland attorney general announced that a circuit court in Maryland affirmed that an auto-lending company’s transactions were illegal loans, not pawn transactions, and upheld the Consumer Protection Division’s imposition of $2.2 million in restitution and a $1.2 million penalty. In its press release, the AG alleged that the company “made predatory loans at outrageous interest rates, illegally repossessed cars, and preyed on Maryland consumers,” in violation of the Maryland Consumer Loan Law, the Maryland Interest and Usury Law, and the Installment Loan-Licensing Provision. According to the memorandum of the court, the loans issued by the company were not considered to be title pawn transactions, but were instead illegal consumer loans which “violated the consumer protection statutes as respondents were not licensed to make loans in Maryland, failed to make the required disclosures to the consumer, engaged in unfair trade practices, exceeded the statutory interest rate caps, took unpermitted security interests for loans of less than $700.00 and engaged in illegal repossession activities.”
FTC obtains $450,000 settlement with auto dealer over fraudulent consumer financial documents
On July 29, the FTC announced a proposed settlement with the owner and manager of a group of auto dealers with locations in Arizona and New Mexico near the Navajo Nation’s border, resolving allegations that the individual defendant advertised misleading discounts and incentives and falsely inflated consumers’ income and down payment information on certain financing applications. As previously covered by InfoBytes, in 2018, the FTC filed an action against the defendants alleging violations of the FTC Act, TILA, and the Consumer Leasing Act (CLA) for submitting falsified consumer financing applications to make consumers appear more creditworthy, resulting in consumers—many of whom are members of the Navajo Nation—defaulting “at a higher rate than properly qualified buyers.” A settlement was reached with the auto dealer defendants last September (covered by InfoBytes here), which required, among other things, that the auto dealer defendants cease all business operations and pay a monetary judgment of over $7 million.
If approved by the court, the proposed order would result in a $450,000 payment to the FTC, and would prohibit the individual defendant, who neither admits nor denies the allegations, from (i) misrepresenting information in any documents associated with a consumer’s purchase, financing, or leasing of a motor vehicle; (ii) misrepresenting the costs or any other material facts related to vehicle financing; or (iii) falsifying loan information. The individual defendant would also be required to provide consumers a reasonable opportunity and sufficient time to review documents associated with the vehicle financing, and is prohibited from violating the TILA and CLA.
Mississippi AG reaches $3.7 million settlement with auto finance company
On July 21, the Mississippi attorney general announced a settlement with an auto finance company to resolve alleged violations of the Mississippi Consumer Protection Act. The AG claimed the auto finance company, among other things, allegedly placed consumers into loans with a high probability of default and engaged in aggressive collection practices. Under the terms of the settlement, the auto finance company will pay $3.7 million to the state, including $1.8 million in consumer restitution, and will stop collecting on loans allegedly extinguished under Mississippi law. Additionally, the auto finance company (i) will account for a borrower’s ability to pay and set a reasonable debt-to-income threshold; (ii) may not require dealers to sell any ancillary products; (iii) will “monitor dealers for possible inflation, power booking, or expense deflation”; (iv) may “not misrepresent a consumer’s prospect of redeeming a vehicle that has been repossessed”; (v) may not require borrowers to make payments through methods requiring additional third-party fees; and (vi) will notify all relevant credit reporting agencies that the borrowers’ debts have been extinguished.
CFPB: Credit applications rebound to pre-pandemic levels
On July 27, the CFPB published a special issue brief finding that consumer applications for auto loans, new mortgages, and revolving credit cards had, for the most part, returned to pre-pandemic levels by May 2021. The brief compares the number of applications made in these categories before the pandemic to the number being made now and provides a state-by-state analysis of the change in applications. Highlights of the brief include: (i) sub-prime borrower credit applications increased in conjunction with federal stimulus payments; (ii) auto loan inquiries dropped 52 percent by the end of March 2020 but returned to their usual pre-pandemic trend by January 2021; however, the Bureau reports wide geographic variability in the demand for auto loans while changes in credit card applications were generally uniform; (iii) new mortgage credit inquiries experienced a smaller drop in March 2020 compared to other credit types but later saw a surge, with inquiries exceeding the usual, seasonally adjusted volume by 10 to 30 percent—a reflection of unusually high activity seen throughout the pandemic; (iv) revolving credit card inquiries declined by over 40 percent and took the longest to rebound, not returning to normal levels until March 2021; and (v) consumers with deep subprime credit scores represented the largest decline in auto loan inquiries compared to prior years, followed by inquiries from consumers with subprime credit scores, with both categories of consumers also showing declines in new mortgage and revolving credit card inquiries. “While consumer credit applications have generally recovered to pre-pandemic levels in the aggregate, we see important differences across consumers,” acting CFPB Director David Uejio stated. “Both borrowers with superprime and subprime credit scores are still not applying for credit as much as they were pre-pandemic. We will continue to keep a close watch on the marketplace as the economic recovery continues, to help ensure all consumers have access to financial products and services that are fair, transparent, and competitive.”
CFPB examines reported assistance trends on consumers’ credit records
On July 13, the CFPB released findings regarding trends in reported assistance on consumers’ credit records. The post—the second in a series documenting trends in consumer credit outcomes during the Covid-19 pandemic (the first covered by InfoBytes here)—examines consumer month-to-month transitions into and out of assistance from January 2020 to April 2021. As previously covered by InfoBytes, last August, the Bureau issued a report examining trends through June 2020 in delinquency rates, payment assistance, credit access, and account balance measures, which showed that generally there was an overall decrease in delinquency rates since the start of the pandemic for auto loans, first-lien mortgages, student loans, and credit cards. According to the Bureau’s recent findings, as of March 2021, auto loans and credit card accounts with assistance were slightly above pre-pandemic levels, and the share of mortgages and student loans on assistance continued to be significantly higher than pre-pandemic levels. Researchers also found that some communities have been disproportionately affected by the health and economic shocks of the pandemic: “majority Black census tracts, majority Hispanic census tracts, older borrowers and borrowers in counties hit hardest by COVID cases and layoffs were most likely to receive assistance in the early months of the pandemic.” Additionally, consumers in majority Hispanic census tracts were “more likely to exit assistance, but consumers in majority Black census tracts were somewhat less likely to exit assistance than their counterparts in majority white census tracts.”
NYDFS announces fair lending settlements with indirect auto lenders
On June 29, NYDFS announced settlements with two New York banks to resolve allegations that the banks violated New York Executive Law § 296-a while engaged in indirect automobile lending. NYDFS alleged that the banks’ practices resulted in members of protected classes paying higher interest rates that were not based on creditworthiness. According to NYDFS, the banks failed to monitor “dealers that were charging members of protected classes, namely race and ethnicity, more in discretionary Dealer Markups than borrowers identified as non-Hispanic White.”
Under the terms of the first consent order, the bank—which had voluntarily discontinued its indirect auto lending program in November 2017—agreed to pay a $275,000 civil money penalty, provide restitution to eligible impacted borrowers, and make a $50,000 contribution to local community development organizations. The second bank agreed to “move to a flat-fee business model in connection with indirect auto lending,” provide restitution to impacted borrowers, and undertake fair lending compliance remediation efforts to increase its monitoring of dealers participating in its indirect auto lending program. The consent order also requires the payment of a $350,000 civil money penalty.
CFPB issues summer supervisory highlights
On June 29, the CFPB released its summer 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto loan servicing, consumer reporting, debt collection, deposits, fair lending, mortgage origination and servicing, payday lending, private education loan origination, and student loan servicing. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between January and December of 2020. Highlights of the examination findings include:
- Auto Loan Servicing. Bureau examiners identified unfair acts or practices related to lender-placed collateral protection insurance (CPI), including instances where servicers charged unnecessary CPI or charged for CPI after repossession. Examiners also identified unfair acts or practices related to payoff amounts where consumers had ancillary product rebates due, and also found unfair or deceptive acts or practices related to payment application.
- Consumer Reporting. The Bureau found deficiencies in consumer reporting companies’ (CRCs) FCRA compliance related to the following requirements: (i) accuracy; (ii) security freezes applicable to certain CRCs; and (iii) ID theft block requests. Specifically, examiners found that CRCs continued to include information from furnishers despite receiving furnisher dispute responses that “suggested that the furnishers were no longer sources of reliable, verifiable information about consumers.” Additionally, the report noted instances where furnishers failed to update and correct information or conduct reasonable investigations of direct disputes.
- Debt Collection. The report found that examiners found instances of FDCPA violations where debt collectors (i) made calls to a consumer’s workplace; (ii) communicated with third parties; (iii) failed to stop communications after receiving a written request or a refusal to pay; (iv) harassed consumers regarding their inability to pay; (v) communicated, and threatened to communicate, false credit information to CRCs; (vi) made false representations or used deceptive collection means; (vii) entered inaccurate information regarding state interest rate caps into an automated system; (viii) unlawfully initiated wage garnishments; and (ix) failed to send complete validation notices.
- Deposits. The Bureau discussed violations related to Regulation E and Regulation DD, including error resolution violations, issues with provisional credits, failure to investigate, failure to remediate errors, and overdraft opt-in and disclosure violations.
- Fair Lending. The report noted instances where examiners cited violations of HMDA/ Regulation C involving HMDA loan application register inaccuracies, and instances where lenders, among other things, violated ECOA/Regulation B “by engaging in acts or practices directed at prospective applicants that would have discouraged reasonable people in minority neighborhoods in Metropolitan Statistical Areas (MSAs) from applying for credit.”
- Mortgage Origination. The Bureau cited violations of Regulation Z and the CFPA related to loan originator compensation, title insurance disclosures, and deceptive waivers of borrowers’ rights in security deed riders and loan security agreements.
- Mortgage Servicing. The Bureau cited violations of Regulation X, including those related to dual tracking violations, misrepresentations regarding foreclosure timelines, and PMI terminations.
- Payday Lending. The report discussed violations of the CFPA for payday lenders, including falsely representing an intent to sue or that a credit check would not be run, and presenting deceptive repayment options to borrowers that were contractually eligible for no-cost repayment plans.
- Private Education Loan Origination. Bureau examiners identified deceptive acts or practices related to the marketing of private education loan rates.
- Student Loan Servicing. Bureau examiners found several types of misrepresentations servicers made regarding consumer eligibility for the Public Service Loan Forgiveness (PSLF) program, and identified unfair acts or practices related to a servicer’s “failure to reverse negative consequences of automatic natural disaster forbearances.” Additionally, examiners identified unfair act or practices related to failing to honor consumer payment allocation instructions or providing inaccurate monthly payment amounts to consumers after a loan transfer.
The report also highlights recent supervisory program developments and enforcement actions.
District Court says disputed tradeline is not misleading
On June 8, the U.S. District Court for the Middle District of Alabama granted a defendant auto finance company’s motion for judgment on the pleadings in an action concerning alleged violations of the FCRA. The plaintiff filed an action against the defendants (an auto finance company and a financial service company) alleging that her credit report included an inaccurate or misleading “Errant Tradeline” in violation of the FCRA because it identified a paid off loan as being “closed” with a “$0 balance,” but also indicated that the loan had a monthly payment amount of $669. The plaintiff argued that this created “the impression that she still ha[d] an outstanding loan” as well as upcoming payments and alleged that the inaccurate reporting caused her financial and emotional damages. The plaintiff also claimed that the auto finance company negligently or willfully violated the FCRA because it failed to conduct a proper investigation. Upon review, the court granted the motion by the auto finance company, finding that because the balance listed says “$0,” and the account is listed as “closed,” there is “little opportunity for confusion when the alleged Errant Tradeline is reviewed in context.” The court further noted that “the context of the report reveals that the monthly payment line is neither inaccurate nor misleading.”