It has been a busy June for the Consumer Financial Protection Bureau (CFPB) in the auto lending space. On June 9, the CFPB released a “Know Before You Owe” shopping sheet for auto loans. On June 27, the CFPB published a report entitled “Consumer Voices on Automobile Financing” (the “Auto Financing Report”). This report contains information on consumers’ challenges in obtaining and understanding auto financing based on focus groups with consumers and narrative consumer complaints. On June 28, the CFPB released its monthly complaint snapshot highlighting consumers’ complaints on auto lending. In the midst of this, the CFPB also published a series of blog posts directed at consumers on how to shop for auto loans.

Although the majority of the CFPB’s documents and articles are focused on consumers, direct and indirect auto lenders can learn from the CFPB’s guidance. Before you drive away for the long weekend, here are some key highlights from the CFPB’s recent slew of auto financing information:

  • Negotiation: The Auto Financing Report indicates that many consumers understand that they can negotiate the price of a vehicle, but not aspects of a loan, such as interest rate or duration of the loan. Others did not fully understand various aspects of the loan during the negotiation process, including the loan term, interest rate, or lender.
  • Loan Duration: The Auto Financing Report warns consumers about auto loan terms that are longer than 60 months, noting that “Consumers who take out longer loans run the risk of being ‘upside down’ on their loans…and also run the risk of simply paying more for their vehicle and loan.” The Know Before You Owe shopping sheet notes that, “A longer loan term will increase the total cost [of the loan].” In remarks before the Consumer Advisory Board, CFPB Director Richard Cordray reiterated the CFPB’s concern about longer loan terms, explaining that, “Sometimes, consumers are still paying off vehicles that they are no longer driving.”
  • Total Cost of Financing: The Auto Financing Report indicates that consumers focus on monthly payments or the total cost of a vehicle, rather than the total cost of financing. Some consumer complaints indicate that consumers are told that they can later refinance with a loan that has more favorable terms. The report, combined with the Know Before You Owe shopping sheet, highlights the CFPB’s focus on ensuring that consumers understand how changing certain aspects of the loan terms could affect the overall cost of the loan.
  • Add-on Products: Although the focus group results indicate that many consumers intentionally purchased add-on products for “peace of mind,” the CFPB’s analysis of consumer complaints notes that consumers report paying for add-on products that they did not want or that they were told were required for loan approval. Other complaints indicate that some consumers were not able to actually use the add-on products. The Know Before You Owe shopping sheet contains entries for these types of products and notes that, “These are optional and will increase the total cost of the loan.”
  • Servicing: The June Monthly Complaint report highlights a number of consumer complaints regarding auto financing, including incorrect and late payment processing, repossessions without proper notification, and high deficiency balances.

Although the publications do not provide direct guidance to those that finance loans, auto lenders should keep the CFPB’s findings in mind when designing consumer-facing materials, including advertisements, disclosures, and scripts. We expect that the CFPB will use the information from its study and consumer complaints to identify places where lenders engage in potentially unfair, deceptive, or abusive acts or practices when offering auto financing to consumers.

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