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On August 2, the CFPB filed a lawsuit in Georgia federal court against an auto-loan servicer alleging that the company engaged in various illegal practices that harmed consumers with auto loans. The auto-loan servicer offered both Guaranteed Asset Protection (“GAP”) and collateral-protection insurance, which are products that consumers can buy when they buy or lease a car.

The CFPB alleged that the auto loan servicer engaged in the following activities:

  • Illegally disabled cars. The auto-loan servicer disabled vehicles with “kill switches” or “starter interrupters” after promising consumers that it would not do so. Many auto lenders require that cars are installed with devices using GPS technology that allow the lender or servicer to prevent a borrower from starting a car.
  • Failed to refund premiums to consumers. The auto-loan servicer offered consumers GAP products, which cover some of the difference between the amount a borrower owes on their auto loan and what the car insurance will pay if the vehicle is stolen, damaged, or totaled. When consumers paid off their loans early or the auto-loan servicer repossessed a car and charged off an account, consumers were entitled to refunds of any GAP premiums paid in advance for periods where they would no longer have coverage. The auto-loan servicer failed to obtain millions of dollars in refunds from the GAP administrator.
  • Double-billed consumers and misapplied payments. When consumers were enrolled in collateral-protection coverage by an affiliate of the auto-loan servicer, they were also charged for that same coverage by the auto-loan servicer.
  • Wrongfully repossessed vehicles. The auto-loan servicer repossessed the vehicles of some consumers who were not subject to repossession or had taken action to stop the repossession. In some instances, the auto-loan servicer sold the vehicles that it had wrongfully repossessed.

Through the lawsuit, the CFPB is seeking to obtain redress for affected consumers and civil monetary penalties while also preventing any future violations.

Putting it into Practice: The CFPB remains focused on rooting out illegal activity in the auto market, especially given the rising cost of cars during the pandemic and recent increase in auto loan debt across the country. Auto loans are the third-largest category of outstanding consumer debt, after mortgages and student loans. Auto lenders and servicers should take note of the CFPB’s increased monitoring of the auto lending market, including enforcement actions taken against auto finance companies for wrongful repossessionspoor credit reporting practices, and misrepresenting the cost of credit.