The pandemic kicked off a broad assortment of abusive and deceptive credit and financial schemes that have left consumers facing mountains of debt and abusive collection practices.
As usual, car dealers and their financial arms topped the list of violators. Many lenders happily wrote loans for more than the value of the car being purchased and then used illegal collection practices when consumers fell behind on their payments, according to the Consumer Financial Protection Bureau (CFPB), which released a report about the unsavory practices today.
“Today’s report furthers our efforts to highlight conduct that violates federal law, including the prohibition on abusive practices in consumer financial services,” said CFPB Director Rohit Chopra. “The CFPB is also inspecting more financial data brokers engaged in consumer reporting, as well as nonbank entities using authorities that previously went unused.”
Higher car prices, more delinquencies
Car prices rose sharply during the pandemic, the report noted, leading to larger loan amounts, higher monthly payments, and consequently, a higher rate of loan delinquencies.
CFPB examiners found that consumers were misled in marketing materials by auto lenders about the quality of car they were eligible for under the terms of an auto loan offer. The pictured cars were often significantly larger, more expensive, and newer than the advertised loan offers were good for.
Examiners also found multiple instances of unfair or abusive acts or practices by loan servicers, including:
- Charging fraudulent interest on inflated loan balances: Servicers charged interest on loans based on fraudulent representations by dealers that the vehicle had options and enhancements that it did not actually have.
- Cancelling automatic payments without sufficient notice, leading to unavoidable late fees: Servicers did not properly notify consumers that the final payment of an auto loan often had to be made manually to close out the loan, and were surprised when they were hit with late fees even though they had automatically paid their balance for years.
- Engaging in illegal collection practices after repossession: Servicers engaged in the practice of blanket cross-collateralization by accelerating and requiring payments from all consumers on unrelated debts, such as credit cards, before consumers could reclaim their repossessed vehicles.
The CFPB has taken action against lenders that bury key details in loan origination and servicing, deliberately setting up consumers to fall into a cycle of debt, and also took action against an auto lender that employed shoddy debt collection and credit reporting practices that tarnished consumers’ credit reports.
Unlawful medical debt collection attempts
Examiners found debt collectors continued collection attempts for work-related medical debt even after receiving sufficient information to render the debt uncollectible under state worker’s compensation law.
The debt collectors violated the Fair Debt Collection Practices Act by collecting an amount not permitted by law or agreement, by falsely representing the character, amount, or legal status of a debt, by engaging in conduct which had the natural consequence of harassing, oppressing, or abusing the consumer, and by using false, deceptive, or misleading representations in connection with the collection of a debt.
Illegal payday lender collection
The CFPB examinations also found unfair and abusive acts employed by payday lenders in their collection practices. Lenders would put language in loan agreements that prohibited consumers from revoking their consent for the lender to call, text, or e-mail the consumers about collection on the outstanding balance.
Lenders also made false collection threats that would often claim the authority to garnish wages of borrowers, when no such authority exists. In some cases, the lender would actually make an unauthorized wage deduction by sending demand notices to consumers’ employers that incorrectly conveyed that the employer was required to remit to the lenders from the consumer’s wages the full amount of the consumer’s loan balance when that was not actually the case.