CFPB Sues Auto Loan Servicer for UDAAP Violations

The CFPB has filed a lawsuit in a Georgia federal district court against USASF Servicing (USASF) in which the CFPB alleges that USASF engaged in various unfair acts or practices in violation of the Consumer Financial Protection Act.  USASF services retail installment sales contracts (RICs) originated by its affiliate, U.S. Auto Sales, Inc., which the CFPB describes as a “buy-here, pay-here car dealer.”

The complaint alleges that USASF engaged in the following unfair acts or practices:

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• Wrongful activation of starter-interruption devices. USASF’s internal procedures regarding starter-interruption devices (SID) installed in vehicles serviced by USASF provided that USASF would activate warning tones on a SID for the first four days following a missed payment and would disable the vehicle once a consumer was five days past due.  The procedures also provided that USASF would not activate a SID if the consumer had made a promise to make a payment on his or her loan.  USASF admitted to the CFPB that, due to programming errors, system errors, and human errors, it had (1) disabled vehicles at least 5,200 times when the consumer was not in default or made a promise to pay, (2) disabled vehicles at least 1,500 times after explicitly promising consumers it would not do so, and (3) sent warning tones over 71,000 times to consumers who had made a payment or were not in default, with the warning tones persisting for four days or more for many consumers.

• Failure to refund unearned GAP premiums. In connection with repossessed vehicles and charged-off accounts, USASF failed to submit a request for a refund of unearned guaranteed asset protection (GAP) premiums, resulting in over $1 million in refunds that were not obtained and applied to consumer’s deficiency balances.  In connection with early pay-offs, the payoff amount requested by USASF included GAP premiums for the full loan term.  When a third party paid off a consumer’s loan early, USASF would submit a refund claim to the GAP administrator, using the payoff date as the date of GAP cancellation.  When a consumer paid off a loan early, USASF would not submit a refund claim to the GAP administrator unless the consumer specifically requested a refund of unearned GAP premiums.  In this situation, USASF used the date of the refund request rather than the payoff date as the date of GAP cancellation.  USASF failed to provide refunds of GAP premiums and unearned interest totaling at least $4 million for consumers who paid off their loans early and even when a refund was provided, it was inaccurately small because USASF did not request the refund as of the payoff date and did not refund interest on the unearned premiums.
  
  
• Double billing for CPI.  From December 2105 through August 2021, USASF billed consumers twice per billing cycle for collateral protection insurance (CPI).  From 2015 to 2019, it often took more than 60 days for USASF to correct a double-billing error.  From 2019 to 2021, when USASF was using a different servicing system, it took USASF an average of over 120 days to correct a double-billing error.  In over 5,800 instances, USASF failed to correct such errors.
  
  
• Misapplication of payments. The RICs serviced by USASF required it to apply the portion of any payment that exceeded the regularly scheduled payment amount first to accrued interest.  USASF admitted to the Bureau that it misapplied extra payment amounts first to late fees or CPI fees instead of accrued interest at least 8,738 times over nearly five years. 
  
  
• Wrongful repossession.  USASF does not notify consumers of a planned repossession unless state law requires a right-to-cure notice.  USASF uses repossession forwarders that direct local recovery agents to repossess vehicles on USASF’s behalf.  Its communications with repossession agents are limited to notices though a software platform, including putting holds on repossessions that were initially ordered by USASF.  Prior to 2020, USASF did not have a formal process for servicing supervisors to be notified when activity occurred on an account that would trigger a repossession hold, such as a consumer making a payment or a promise to pay, or filing for bankruptcy.  Prior to December 2021, USASF did not have a process to automatically send a hold request to its repossession forwarder when such activity on an account occurred.  USASF admitted to the CFPB that it wrongfully repossessed vehicles 82 times, including repossessing four vehicles where the consumers were on active military duty and the Servicemembers Civil Relief Act prohibited repossession without a court order.

Many of the allegations in the complaint were previously discussed by the CFPB, without naming USASF, as examination findings in the Fall 2022 Supervisory Highlights.  The relief sought by the CFPB in the complaint includes a permanent injunction enjoining USASF from committing future CFPA violations, consumer redress, and a civil money penalty.