CFPB issues ‘fine print’ warning to auto lenders

The Consumer Financial Protection Bureau is cracking down on terms and conditions in consumer financial products, prompting auto lenders to closely review contracts. The CFPB on June 4 published a circular warning that the use of “unlawful or unenforceable terms and conditions in contracts” violates the Consumer Financial Protection Act. . Covered entities or persons could be in violation if they include terms, including waiver provisions, in consumer contracts that are illegal or unenforceable under federal or state law. “Companies use this fine print tactic to try to trick consumers into believing they have given up certain legal rights or protections,” the CFPB stated. The bureau also made it clear that companies found to violate fine print and term regulations are liable even if the language is taken from widely available contract templates. In auto finance, the CFPB cites an example where an auto loan servicer included language in contracts that the bureau found to violate the Consumer Financial Protection Act’s prohibition of deceptive language, according to the circular. “A respondent auto loan servicer violated the CFPA’s deception prohibition when it used loan extension agreements or written confirmations that included language that created the net misimpression that consumers could not exercise bankruptcy protection rights, which was false,” the CFPB circular states. “In fact, an agreement to waive an individual’s right to file for bankruptcy is void as against public policy, rendering terms that purport to waive such right generally unenforceable.” The CFPB is focused on whether notices or terms and conditions in consumer loans and leases attempt to limit consumers' rights "when they don't have the ability to do so under state law," Ken Rojc , managing partner of the Auto Finance Group at law firm Nisen & Elliott , told Auto Finance News . "That's going to be considered a deceptive prey practice," he said. "We might see emerging investigation and regulation in this area. . If the CFPB is looking at your portfolio, they may be honing in on your contracts to see: [Do] your lease, loan and retail installment contracts have these types of waivers that are either in fine print or not clearly disclosed? And are they attempting to foreclose or preempt rights that consumers have?" Focus on deception Terms and conditions go hand in hand with the CFPB’s efforts to stifle the use of “junk fees” and other potentially hidden practices or costs in consumer lending, Joann Needleman , member at law firm Clark Hill , told AFN . . Needleman leads the firm’s financial services regulatory and compliance practice. The CFPB in April 2023 issued an abusive practices policy statement defining when acts or practices are deemed “abusive” under the bureau’s enforcement authority. . Examples include an act that “interferes with the ability of the consumer to understand a term or condition of a consumer financial product or service” or situations in which consumers do not understand the costs , risks or conditions of a product or service. The CFPB is concerned about online terms and conditions, specifically that “consumers are not understanding what those terms mean, especially when it comes to data and what they're able to do with respect to credit-reporting disputes,” Needleman said. “It's consistent with what the bureau has been saying for a year or more.” The bureau has also been active in sharing supervisory guidance following the U. .S. . Supreme Court’s ruling in May that upheld the CFPB’s funding system , Needleman said. “There's been a bottleneck of all the things that [the CFPB has] wanted to do while the Supreme Court was deciding,” she said. “They're going to continue to unleash, and they're going to try to curb consumer lending and make it more difficult and more expensive on the lender side, which, ultimately, the consumers will pay for that.” The CFPB’s latest warning could signal regulatory changes down the road, Needleman said. “It's a circular, not necessarily a rule, but what we see from the CFPB is circulars can weave their way into enforcement actions and supervision because that's a standard that they want to hold covered entities to,” she said. -- Additional reporting by Ashley Savage The latest tabulation of the Top 100 auto lenders and lessors by originations and outstandings is now available. . See BigWheelsData.

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