The CFPB’s Perpetuation Problem

The CFPB's Perpetuation Problem

The New York Times reached out recently for AFSA's perspective regarding the recent Consumer Financial Protection Bureau supervisory review of auto financing practices. We were happy to share some thoughts for the Times' story (subscription required).

As we noted, the CFPB is quick to categorize errors as though they are malicious, intentional … or profitable. This mischaracterization is not helpful to consumers, lenders, or regulatory bodies and is not accurate.

The CFPB not only mischaracterizes the errors, it also perpetuates an image of the vehicle industry as a whole that the Bureau seems more than happy to keep alive: that lenders are incentivized financially to repossess a vehicle. This is simply not true. Repossession is the last resort after protracted non-payment and efforts by the lender to work with the borrower on other repayment options.

We also pointed out to the Times one of our larger concerns: that if regulators come down too heavily in instances of genuine error or unfortunate timing, it actually creates a disincentive for a lender to be as consumer friendly as it works to be. For example, say a borrower fails to make payments for months, declines to respond to mailed, emailed, and phone notices of nonpayment and a lender's offers to assist with a payment plan. After all this, the borrower is notified of a repossession, and perhaps finally contacts the lender or makes a last-minute partial payment but not in time for the lender to cancel the repossession. We believe that scenario may be called an "illegal" repossession by the CFPB.

But here is the rub. By essentially playing gotcha with industry practices that are legal but which the Bureau believes should be handled differently, the agency is creating solutions that may put the borrowers in worse situations by inadvertently creating an incentive for creditors to repossess more quickly. This does not benefit the lender, and it certainly doesn't benefit the borrower, which are the two parties the CFPB has a responsibility to ensure are treated fairly and responsibly.

October 11th, 2024