Is CFPB’s Focus On Junk Fees Justified?

If you are an auto lender or dealer, it’s worth keeping your eye on the complaints consumers lodge with the Consumer Financial Protection Bureau (CFPB), even if your company does not participate in the CFPB’s complaint portal.

For those unfamiliar, the CFPB’s Office of Consumer Response administers a statutorily mandated portal to collect, investigate and respond to consumer complaints. The CFPB uses these complaints to identify bad corporate actors, track emerging consumer protection problems, and to prioritize the use of its regulatory, supervisory and enforcement tools. When I worked in the CFPB’s Office of Supervision Policy, I remember actively using consumer complaints to inform exam topics and prioritization.

The complaints the CFPB gets are no secret. The bureau has opened up its complaint database for anybody – companies, consumers, class action litigators – to analyze, slice and dice. The database contains over 6 million complaints, 1.6 million of which were filed by consumers in 2023. 

These complaints can give advance warning of the CFPB’s upcoming oversight targets and priorities. It’s notable, for example, that consumer complaints about managing auto loans or leases in 2023 spiked by 77% and that CFPB supervisory highlights have recently focused on end-of-loan problems, such as GAP refunds and failing to automatically debit final payments.

Complaints also provide free market feedback from consumers about business practices that bother them. 

Auto Industry Complaints

With all that being said, here’s a recent snapshot of what’s going on in auto. Consumers filed 2,821 consumer complaints in the “vehicle loan or lease category” between June 1, 2024 and Sept. 1, 2024.

Consumers identified the following issues and sub-issues in their complaints:

Loan open without my consent or knowledge (128)

Credit denial (107)

Confusing or misleading advertising or marketing (93)

Changes in terms mid-deal or after closing (33)

High-pressure sales tactics (24)

Problems with additional add-on products or service purchased with the loan (14) 

What does all of this mean for the auto and auto lending industries? For starters, it means the CFPB’s ongoing campaign against what it terms “junk fees” doesn’t reflect consumer experience in the auto lending space, based on what consumers are actually complaining about.

The CFPB has been intensifying its efforts to combat junk fees across various financial products and services, including those in the automotive industry. This initiative has significant implications for Guaranteed Asset Protection (GAP) insurance and other aftermarket products commonly sold alongside vehicle purchases.

However, in taking a closer look at what consumers are actually complaining about:

Consumers are directing their ire elsewhere: During the same three-month period between June and September, consumers filed over 578,000 complaints with the CFPB about their credit reports, 33,000 about debt collection and 11,000 about their savings accounts.

Most auto complaints relate to servicing and when loans go bad: Only 15% of consumer auto complaints relate to getting a loan. Most consumer complaints during this period related to servicing (approximately 28%) and problems at the end of loan or lease, including repossessions (approximately 36%).

Consumers don’t seem to be complaining about the terms of their auto loans or aftermarket products: In reviewing complaint narratives, we saw very few consumers criticizing the substance of their loans or the aftermarket products they owned. Rather, complaints often related to getting unwanted products, poor customer service or charges they didn’t think they owed.

Fraud is an issue consumers raise in auto and in nearly every credit category.

No doubt, fraud continues to rise and the fraudsters are getting more sophisticated by the day.

As the CFPB continues its focus on junk fees, the automotive industry should anticipate further scrutiny and potential supervisory and enforcement actions. High-profile enforcement cases could set precedents for industry practices. The CFPB may work more closely with state-level regulators to address junk fee issues in automotive financing, and efforts to improve consumer understanding of automotive financing and add-on products may increase.

While it is clear the CFPB has the industry under a microscope, it is also important for dealers and lenders to be aware of all the different areas where consumers are complaining so we can continue to make progress in improving overall service levels and the car-buying experience.