Jan. 6: CFPB Updates This Week
Jan. 03, 2023 — The Consumer Financial Protection Bureau (CFPB) released an annual report that details improvements and deficiencies in the nationwide consumer reporting companies’ responses to consumer complaints transmitted by the CFPB. Today’s report includes considerations for the nationwide consumer reporting companies to improve compliance with consumer financial protection laws and, more broadly, to serve consumers better.
The Fair Credit Reporting Act requires the CFPB to submit an annual report about complaints submitted by consumers regarding the nationwide consumer reporting companies: Equifax, Experian, and TransUnion. Today’s report is based on the 488,000 consumer complaints the CFPB transmitted to Equifax, Experian, and TransUnion from October 2021 through September 2022. The findings follow last year’s report that detailed failures by the nationwide companies when responding to consumer complaints submitted to the CFPB. Equifax, Experian, and TransUnion have since acted to remedy some of the issues identified in last year’s report. Specifically, the CFPB found Equifax, Experian, and TransUnion have:
- Changed how they respond to complaints: Equifax, Experian, and TransUnion use of problematic response types described in last year’s report has declined. Most complaints now receive more substantive responses.
- Provided more tailored complaint responses: Across all three companies, most responses now describe the outcomes of consumers’ complaints. In September 2022, the nationwide companies provided a tailored response to more than 50% of complaints that were closed with an explanation or relief.
- Reported greater rates of relief in response to complaints: In 2022, TransUnion reported providing relief in most complaints. Experian reported providing relief in nearly half of complaints. Equifax reported that it did not provide relief, but its written complaint responses suggest that its rates of relief are comparable to the other two companies.
The CFPB expects the three nationwide consumer reporting companies to continue improving how they serve consumers. To that end, the CFPB recommends that Equifax, Experian, and TransUnion:
- Consider consumer burden when implementing automated processes: When companies consider introducing automated processes that will affect their customers, particularly those that relate to a legal right, they should consider consumer burden, especially whether a change will require consumers to do more work to exercise their legal rights.
- Recognize that technology is also improving for consumers: Advances in communications technologies mean consumers do not necessarily need to write complaints on their own. Instead, communications technologies may ease the writing burden. Such innovations, including ones that can generate letters for consumers, may create similar-sounding complaints that are, in fact, from unique individuals with independent concerns. The assumption that similar-sounding letters are from third parties will increasingly be wrong.
- Consider how to transition the market from control and surveillance to consumer participation: One potential reason there are so many reported inaccuracies in consumer reporting data is that consumers are several degrees removed from their own data. Enabling increased consumer participation on the data side of consumer reporting has the potential to create a fairer market with added benefits for consumers, consumer reporting companies, and lenders.
Jan. 04, 2023 — The Consumer Financial Protection Bureau (CFPB) and the New York State Office of the Attorney General sued a predatory auto lender, Credit Acceptance Corporation, for misrepresenting the cost of credit and tricking its customers into high-cost loans on used cars. The car-buying experience turns into a nightmare for many of Credit Acceptance’s borrowers, who face unaffordable monthly payments, vehicle repossessions, and debt collection lawsuits. The joint complaint alleges that, among other things, Credit Acceptance hides costs in loan agreements and sets consumers up to fail. The complaint also alleges that Credit Acceptance violated New York usury limits and other consumer and investor protection laws. The lawsuit seeks to force Credit Acceptance to stop its illegal practices, reimburse harmed consumers, pay back wrongfully earned gains, and pay a penalty.
Specifically, the company allegedly harmed consumers by:
- Hiding the true cost of credit: Since 2014, Credit Acceptance’s loan agreements nationwide have said that consumers would pay interest at an average 22% APR. However, the true cost of credit offered is far higher than what borrowers are told. This is because Credit Acceptance’s business model pushes dealers to manipulate the prices of vehicles sold to Credit Acceptance borrowers, based on borrowers’ projected performance. This increases the principal balance of the loans. By hiding the true cost of the credit in inflated principal balances, Credit Acceptance evades state interest rate caps and deprives consumers of the ability to make informed decisions, to compare financing options, or to avoid high-interest charges.
- Setting up borrowers to fail: Credit Acceptance ensured its own profits by providing loans without regard to whether borrowers could afford them. For almost 4 out of 10 loans, Credit Acceptance predicted that it would not be able to collect the full amount financed by the loan. Credit Acceptance profits even when borrowers are unable to pay their loans in full by using aggressive debt collection methods. As a result of Credit Acceptance’s practices, customers faced late fees, repossessions, auctions, post-repossession collection efforts, lawsuits, and ruined credit profiles.
- Closing its eyes to practices that harmed consumers: The company created financial incentives for dealers to add extra products to loans and then shrugged off whether customers were misled into thinking the add-on products were required. Add-on products, such as vehicle service contracts, are a profit center for Credit Acceptance. They represented about $250 million in revenue in 2020 alone.