The Consumer Financial Protection Bureau (CFPB), a federal government agency, enforces federal consumer financial laws against unfair and deceptive acts or practices to protect consumers in the financial marketplace.¹ Some of the areas of focus by the CFPB include: enforcing laws prohibiting discrimination in consumer finance; fielding consumer complaints; and monitoring the use by consumers of certain financial products.

Earlier this year, the CFPB issued orders to nine large auto lenders requesting information about their auto lending portfolios; filed suit against a Michigan-based subprime indirect auto lender; filed suit against Credit Acceptance Corporation, a large subprime auto lender alleging deceptive practices in the financing of low-income consumers in high-interest auto loans; and ordered U.S. Bank and Dealers’ Financial Services to cease deceptive advertising and lending practices targeting active-duty military personnel.²

Among CFPB initiatives impacting the auto industry is its action “against sloppy servicing practices that cause harm” involving optional, add-on products that dealers sell and consumers can purchase when they buy a vehicle. This includes GAP and other add-on products. CFPB has observed: “auto dealers and finance companies often charge consumers all payments for any add-on products as a lump sum at the origination of the auto loan, and they generally include the lump sum cost as part of the total vehicle financing agreement.”³

Additionally, CFPB investigative findings were published in a report, concluding:

“Our examiners have focused on the way servicers handle these add-on product charges when the loan ends before the add-on product’s potential benefits end. Such early termination may happen because the consumer pays the loan off early, often through refinancing, or because the consumer was delinquent in making payments and the servicer repossessed the consumer’s car … [CFPB] examiners found that servicers engaged in unfair practices by failing to request refunds from the third-party administrators for “unearned” fees related to one such add-on product, GAP, and failing to apply the applicable refunds to the accounts after repossession and cancellation of the contracts. At that point, the consumers did not have the cars that had been subject to the GAP product, and the product no longer offered any possible benefit to consumers.”⁴

And the Federal Trade Commission (FTC), another federal agency which also enforces consumer protection laws targeting unfair and deceptive practices, has introduced the proposed Motor Vehicle Dealers Trade Regulation Rule⁵ proposing stricter regulation of dealer advertising and F&I practices and seeking to ban what the FTC described as “many of the junk add-on fees and bait-and-switch tactics plaguing car buyers,” and by regulating “the sale of ‘add-on’ products and services in a deceptive or unfair manner” to include add-ons such as extended warranties, service and maintenance plans, payment programs, GAP insurance, emergency road service, VIN etching and other theft protection devices and undercoating. The proposed rule was opposed by the National Automobile Dealers Association. In an Automotive News dealer outlook survey earlier this year, a majority of dealers surveyed responded that the proposed rule would be a net negative for the automotive industry.

In April 2023, the CFPB issued another policy statement pertaining to “abusive” practices stating that an abusive practice by a business: “(i) materially interferes with the ability of the consumer to understand a term or condition of a consumer financial product or service, or (ii) takes unreasonable advantage of (a) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service, or (b) inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service, or (c) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.”⁶ Legal experts agree about the ambiguity of this CFPB policy which puts businesses in a compliance “trick bag.”

The level of collaboration of enforcement action by federal agencies and State of Illinois agencies tasked with enforcement of consumer protection laws, such as the Illinois Attorney General’s Office, is well-documented. Dealerships should carefully review existing business practices and policies in light of these federal regulatory initiatives which are ongoing in nature, and the cooperative enforcement efforts with state agencies in Illinois.

Julie A. Cardosi is Principal of the private firm, Law Office of Julie A. Cardosi, P.C., of Springfield, Illinois. She has practiced law for over 35 years and represents the business interests of franchised motor vehicle dealers throughout Illinois. Formerly in-house staff legal counsel for the Illinois Automobile Dealers Association, she concentrates her private practice in the areas of dealership compliance matters, transfers of ownership, mergers and acquisitions, franchise law, commercial real estate transfers, dealership employment and other areas impacting day-to-day dealership operations. She has also served as former Illinois Assistant Attorney General and Deputy Chief of the Consumer Fraud Bureau of the Attorney General’s Office. The material discussed in this article is for general information only and is not intended as legal advice and should not be acted upon as such. Dealers should consult their own private legal counsel for application to their specific circumstances. For more information, Julie can be reached at jcardosi@autocounsel.com, or at 217-787-9782, ext. 1.

1. See https://www.consumerfinance.gov/about-us/the-bureau/
2. Id.
3. See https://www.consumerfinance.gov/about-us/blog/overcharging-for-add-on-products-on-auto-loans/
4. Id.
5. See https://www.regulations.gov/document/FTC-2022-0046-0001
6. https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-guidance-to-address-abusive-conduct-in-consumer-financial-markets/