With the recent confirmation of President Biden’s nomination to head the Consumer Financial Protection Bureau (“CFPB”), Mr. Rohit Chopra, the CFPB has new leadership and likely a more aggressive approach towards business than under prior leadership. In the past year, the CFPB has been particularly aggressive in its investigation of Southern California’s indirect auto finance lenders, including several high-profile settlements with local finance companies.
When the CFPB begins its investigation, it often does so per a Civil Investigate Demand (“CID”) issued per the Consumer Financial Protection Act of 2010. (12 CFR § 1080.) A CID is not public, but provides the CFPB with considerable reach into investigating a business. Oftentimes, since the CID is not active litigation, a business may not take it as seriously as a formal charge or complaint. This would be a mistake. The CID is the first step in the CFPB’s prosecution of a business, and even may lead to prosecution for issues discovered during the CID investigation unrelated to the original issues which gave rise to the CFPB becoming aware of a potential consumer matter. When a business is served with the CID, time is of the essence and counsel should immediately be retained as the CID is generally just the start of the CFPB’s investigation. Oftentimes after providing the information requested per the CID, the CFPB is then likely to seek to take testimony from the business, via a procedure similar to a deposition, shortly thereafter.
In Southern California, the CFPB has been publicly focusing its efforts on investigations related to loss damage waivers. Two areas of notoriety have been the payment, or non-payment, of claims made by consumers to auto finance companies servicing their loss damage waiver product in-house, and the disclosure of finance charges associated with the placement of the loss damage waiver production. While the CFPB’s actions have been concerning for auto finance companies in Southern California, the fact that the loss damage waiver product itself has not been directly targeted, but only its application and disclosures associated therewith, should provide some comfort about the appropriateness of the loss damage waiver product. At least until such time as the CFPB changes its tune.
As further evidence of the CFPB’s interest in auto finance, in September of 2021, the CFPB released “Data Point: Subprime Auto Loan Outcomes by Lender Type.” That report can be found here. As related to indirect, subprime finance companies, the CFPB’s report noted somewhat obvious realities, in that indirect subprime finance companies generally charge higher interest rates and have higher default rates. While certainly concerning for auto finance companies, the CFPB’s report may have noteworthy information from an industry wide prospective.
Given the CFPB’s recent activity in Southern California, its change in leadership, and its issuing of a report directly related to the auto finance industry, auto finance lenders would be well served to ensure compliance with all aspects of their business, but particularly those related to loss damage waiver, including claims procedures and finance charge disclosures associated therewith. If your finance companies has any questions related to the CFPB, or if the CFPB has already contacted your business, immediately consult with counsel.
