CFPB: Auto service ‘junk rates’ are unfair and deceptive

We continue to actively promote the investigation and regulation of so-called junk fees charged by banks and financial companies. Consumer Financial Protection Bureau (CFPB) recently published a special edition of Supervisory Highlights outlining such charges uncovered in various industries, including automotive services. According to the agency, numerous unfair, deceptive, or abusive conduct and practices (UDAAP) issues related to rates charged by auto service companies were uncovered during various auto service inspections. These include:

• Overbilling late fees;
• Claiming unauthorized late fees after contract remand and acceleration.
• Charge an estimated remand fee that is much higher than the average remand cost.and
• Charge “unreasonable and fraudulent” payment fees.

Automotive maintenance companies should be aware of these agency findings, as well as corrective actions mandated by the CFPB.

Overbilling late fees

According to the agency, it found numerous instances of servicers charging consumers late fees in excess of what was allowed in the consumer’s contract. In at least one instance, the servicer coded the system to reflect a system-wide late fee of $25, even though it was limited to 5% of the total. amount.

how or why this Junk feethe Bureau nevertheless determined that such conduct was unfair and/or deceptive and that the businesses involved ceased this practice and refunded all affected consumers overcharges for late fees. made clear that it was necessary to

To the point: Auto service companies must ensure that the late fees they charge comply with the consumer’s contract terms. A one-size-fits-all approach is not enough.

Charging Unauthorized Late Fees After Remanding and Acceleration

Similarly, the agency’s investigation uncovered instances in which servicers charged consumers late fees even after contracts were brought forward.

According to the agency, when the contract is accelerated, “the remaining loan balance will be paid immediately in full, thereby ending the consumer’s contractual obligation to make further periodic payments and servicer’s contractual right to charge late fees for such recurring payments.”

Nevertheless, the CFPB found instances where servicers continued to charge late fees after acceleration and consumers paid to redeem the vehicle.

According to the Bureau, this could also be viewed as unfair and/or deceptive.Following the Bureau’s investigation, these businesses have stopped this practice and have agreed to refund the charges to consumers. .

To the point: According to the CFPB, late fees areForeclosure and acceleration is not allowed. As such, servicers should focus on determining policies and procedures to ensure that such fees are not added to the consumer’s balance if the contract is brought forward or the vehicle is returned.

Claiming Estimated Costs of Collection

The Secretariat also considers the practice of charging an estimated cost of collection substantially higher than the actual cost of collection, even though the servicer has reimbursed the excess amount after receiving the invoice from the collection agent, to be an unfair act or practice. I decided there was.

While some might consider such practices “harmless, harmless,” the Bureau disagrees, stating: Additionally, the servicer stated that consumers would have to pay an estimated $1,000 collection fee in addition to other amounts, which may have discouraged some consumers from collecting their vehicles.

“Some consumers could have afforded the $350 fee, but could not afford the $1,000 fee, so they did not pay and permanently lost access to their vehicle. ”

The agency’s oversight efforts have likewise called for an end to these measures and refunds to affected consumers.

To the point: Servicers should charge consumers for actual remanded costs rather than estimated costs, as even a refund of the difference may not be sufficient to avoid action by the CFPB or state attorney general. If it is the servicer’s practice to charge the consumer a quoted rate before the cost of collection is established, the servicer will periodically compare the actual rate with the quoted rate and consider adjusting the two proportionately. need to do it.

Unfair and Fraudulent Payment Fees

Finally, the CFPB highlighted what it sees as unfair and fraudulent payments in auto maintenance. This is a practice the CFPB has previously highlighted in other contexts and industries. This is to charge and profit from a payment processing fee that “far exceeds the cost for the servicer to process the payment once the consumer is locked into a relationship with the servicer chosen by the dealer.” The agency also accused servicers of offering only a handful of free payment options, and consumers had no say in the payment methods offered (and were users who were bound). pointed out. Nor could the consumer negotiate such rates or switch to a cheaper service his provider. The department ordered the servicer to stop such practices.

To the point: Servicers should consider whether the processing fee is proportionate to the cost of processing such payments. You should also consider whether you have obtained consumer consent before charging such fees, and whether adequate alternative (and free) payment options are offered to consumers.

Jim Sandy is a member (partner) of mcgrincheeadvising clients in cases related to federal and state regulatory matters, arbitrations, consumer complaints filed with the Consumer Financial Protection Bureau (CFPB), and state and federal litigation.

Kelly Lipinski A member (partner) of McGlinchey’s Cleveland office. She works in her group in the firm’s Consumer Financial Services Regulatory and Compliance..

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