Regulators put onus on lenders in ‘junk fee’ crackdown


Auto lenders must review their contract and disclosure processes as the Consumer Financial Protection Bureau expands its investigation of fees charged during the auto purchase and financing processes. 

The FTC along with the CFPB are paying close attention to added fees, Natalia Kruse, Husch Blackwell senior associate attorney, said during Auto Finance Summit 2023. What is considered a “junk fee” by regulators has expanded to include “things that you wouldn’t consider a fee,” she said. 

Both agencies proposed rules in 2022 prohibiting fees regulators deem excessive or unclear and have kept a close eye on fee practices since. The fees can include convenience fees, overdraft and late fees, along with unexpected fees for products or services.  

“This is clearly a concerted effort from the administration and a focus that we’ll see for a while,” Kruse said. “All fees are being scrutinized by regulators.” 

Auto lenders must ensure that contracts properly disclose fees and that fees are being assessed in line with the language included in the contract signed by the consumer, Kruse said. 

“That’s the best you can do; it may still catch attention from a regulator given what we’re seeing them focus on and the litigation that’s coming out,” she said. 

Burden on the lender 

Lenders must also be aware of fees associated with third-party providers such as payment processors, said Raymond Naples, in-house counsel at Santa Ana, Calif.-based subprime auto lender Veros Credit 

“You have systems that consumers use [to make payments] that they pay a fee which is not within the finance company’s control,” he said. “If you’re going to use payment processors that can charge a fee to consumers, disclose that.” 

Regulators have made clear that lenders are responsible for managing the vendors they use and ensuring practices are compliant, said Mark Edelman, chair of the national consumer financial services compliance practice group at McGlinchey. 

For example, the CFPB has taken the stance that if auto financiers miscalculate refunds for add-on products such as Guaranteed Asset Protection, the servicers have engaged in an unfair act or practice, according to the bureau. 

“The latest supervisory highlights put the burden on the financial institution to check the math of the third-party vendor who was calculating the [add-on product] refund,” Edelman said.  

Source : AutoFinanceNews