U.S. PIRG Education Fund
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Financing the purchase of a car is a minefield for consumers at even the best of times. Tricks and traps in the auto marketplace can leave consumers paying more for a car than they should – or, worse, to being victimized by predatory and abusive practices by auto dealers and lenders.
COVID-19 has left consumers even more vulnerable. A review of complaints to the Consumer Financial Protection Bureau’s (CFPB) Consumer Complaint Database reveals a sharp spike in consumer complaints about auto purchasing, leasing and financing since the beginning of the pandemic.
With more Americans than ever owing money on their cars, and with the economic damage caused by COVID-19 continuing to mount, consumers need states, localities and the federal government to continue and bolster emergency programs for the duration of the pandemic – such as guaranteeing access to loan relief programs, and banning debt collection, vehicle repossessions and negative credit reporting – and to enforce much-needed programs to protect consumers in the auto marketplace at all times.
Consumer complaints reveal patterns of abusive and deceptive practices in the automobile industry – especially among “subprime lenders.” The pandemic has put a spotlight on auto sales and loan problems that have worsened since the expansion of subprime auto lending following the 2008 financial collapse.
- Since 2017, consumers have submitted nearly 19,000 complaints about auto loans and leases. In addition, consumers have submitted 5,000 complaints about auto debt collection, and thousands more complaints relating to credit report problems caused by auto loans and leases.
- Santander has received more loan and lease complaints than any other company and ranks first or tied for first with the most complaints in 33 states and Washington, D.C. Santander has been the subject of numerous legal actions about its auto lending practices. In May 2020 Santander entered a $550 million settlement with 33 states and the District of Columbia for subprime lending practices, including making loans to customers that had a high probability of defaulting.1
- The top five companies with the most auto debt collection complaints – Santander, Ally, Credit Acceptance Corporation, Westlake and Wells Fargo – all either specialize in or have substantial business in lending to consumers with subprime credit.
- Eight of the 15 most complained about companies have been the subject of CFPB enforcement actions related to auto loans.2 Many have also been the subject of other legal actions, including by state attorneys general. Credit Acceptance Corporation, the most complained-about nonbank finance auto lender, was sued by the state of Massachusetts in August 2020 for alleged violations that included making loans to borrowers that the company knew the consumers would be unable to repay.3
Table ES-1. Eight of the top-most complained about companies have been the subject of CFPB enforcement actions related to auto loans
Table does not include actions not taken by the CFPB, including by other federal or state agencies, state attorneys general, or class action lawsuits.
|Company name||Number of vehicle loan and lease complaints||Summary of harmful auto loan practices targeted by CFPB enforcement action|
|1||Santander||2,347||Failed to properly describe “the benefits and limitations of its S-GUARD GAP product, which it offered as an add-on to its auto loan products.”4 (November 2018)|
|2||Ally Financial||1,437||Engaged in “[d]iscriminatory auto loan pricing practices harming African-American, Hispanic, and Asian and Pacific Islander consumers.”5 (December 2013)|
|3||General Motors Financial Company||938|
|4||Wells Fargo||934||“[V]iolated the Consumer Financial Protection Act (CFPA) in the way it administered a mandatory insurance program related to its auto loans.”6 (April 2018) Participated in “an illegal marketing-services-kickback scheme.”7 (January 2015)|
|6||Toyota Motor Credit Corporation||742||Charged African-American, Asian and Pacific Islander borrowers “higher interest rates than white borrowers for their auto loans, without regard to their creditworthiness.”8 (February 2016)|
|7||JPMorgan Chase||689||Participated in “an illegal marketing-services-kickback scheme.”9 (January 2015)|
|9||Credit Acceptance Corporation||539|
|10||Nissan Motor Acceptance Corporation||515|
|11||Westlake Services, LLC||465||Pressured borrowers “using illegal debt collection tactics.”10 (September 2015)|
|12||American Honda Finance Corp.||453||Harmed African-American, Hispanic, and Asian and Pacific Islander with discriminatory auto loan pricing.11 (July 2015)|
|13||BMW Financial Services||302|
|14||U.S. Bancorp||297||Used “deceptive marketing and lending practices targeting active-duty military.”12 (June 2013)|
|15||Ford Motor Credit||280|
Consumer complaints about auto lending and leasing have increased dramatically during the COVID-19 pandemic.
- From March through July 2020, consumers submitted more than 2,800 auto loan and lease complaints – more than any other five-month period in the history of the Consumer Complaint Database.
- Complaints about being denied auto loan payment relief surged to double pre-pandemic volumes.13
- Since March 1, more than one in five auto loan and lease complaint narratives have mentioned the COVID-19 pandemic.
The Consumer Complaint Database reveals a pattern of scams and abusive practices by banks, captive finance companies, and subprime lenders.
- Deceptive add-ons. Dealers will often attempt to sell consumers expensive add-on products such as extended warranties, service plans and insurance products.14 Of complaints in the CFPB database related to add-on products, 29 percent include the term “warranty,” and 39 percent include the term “insurance.”
- High-pressure or deceptive sales tactics. In complaint narratives, consumers describe feeling pressured into expensive loans and add-on products.
- Broken billing and payment systems. More than one in five auto loan and lease complaints are cataloged as having to do with a “billing problem,” with 42 percent of billing complaint narratives mentioning the term “late,” as many consumers describe broken billing systems causing late fees.
- Harassment over repossessions and debt collection. Consumers have submitted more than 5,000 complaints regarding debt collection for auto debt, of which nearly half (45 percent) involve harassing behavior by collectors.
- Yo-yo financing and changing loan terms. More than 280 complaints are about loan terms changing during or after closing – a tactic sometimes used by dealers or lenders to get consumers to accept a higher interest rate than they’d initially been quoted.15 Some complaints describe “yo-yo financing,” in which a dealer tries to change loan terms after a consumer has already driven off in their vehicle.
Rising auto debt and the COVID-19 pandemic leave a growing share of Americans vulnerable to problems with car loans.
- The amount of outstanding auto debt has risen more than 85 percent since the end of 2009, while the number of Americans holding auto debt reached a record high in early 2020.16
- Even before the pandemic started, more than 5 percent of auto loans were at least 90 days delinquent.17
- Longer loan terms and expensive add-on products leave more Americans owing more on their vehicles than they are worth – exacerbating their vulnerability to economic shocks like the COVID-19 pandemic.
- The automobile-dependent design of America’s cities and transportation network leaves many Americans with little choice but to go into debt to own a car. The financial crisis facing transit agencies during COVID-19 could leave even more Americans financially vulnerable due to car dependence.
Each year, roughly 60 million Americans buy or lease a vehicle.18 These consumers deserve protection from the scams and abuse that are all too common in America’s current vehicle finance marketplace – and special protection during the COVID-19 crisis. To protect consumers from auto marketplace scams, policymakers must step up enforcement of consumer protection laws. Specifically:
- For the duration of the pandemic, policymakers must guarantee access to loan relief programs, while banning repossessions, debt collection, and negative credit reporting.
- Policymakers must take permanent action to protect consumers from predatory or abusive auto loan practices, with measures like closing loopholes that allow excessive interest rates, banning forced arbitration in consumer financial contracts (including auto sales), and stepping up enforcement of existing laws.
- Policymakers must make it easier to avoid car ownership, including by expanding transit and minimally ensuring that COVID-19 does not result in slashed transit service.
- David Shepardson, “Santander Agrees to $550 Million U.S. Settlement Over Subprime Auto Loans,” Reuters, 19 May 2020, available at https://www.reuters.com/article/us-usa-autos-lending/santander-agrees-to-550-million-u-s-settlement-over-subprime-auto-loans-idUSKBN22V2GS.↩︎
- Consumer Financial Protection Bureau, Enforcement Actions (filtered for topic “auto loans”), accessed on 15 August 2020 at https://www.consumerfinance.gov/policy-compliance/enforcement/actions/?page=1&title=&topics=auto-loans.↩︎
- State of Massachusetts, AG Healey Sues Major Subprime Auto Lender for Unfair and Deceptive Practices in Its Subprime Auto Loan Business in Massachusetts, 31 August 2020, archived at http://web.archive.org/web/20200901095515/https://www.mass.gov/news/ag-h….↩︎
- Consumer Financial Protection Bureau, Santander Consumer USA, Inc., 20 November 2018, archived at http://web.archive.org/web/20200604230959/https://www.consumerfinance.go….↩︎
- Consumer Financial Protection Bureau, Ally Financial Inc. and Ally Bank, 20 December 2013, archived at http://web.archive.org/web/20200605172826/https://www.consumerfinance.go….↩︎
- Consumer Financial Protection Bureau, Bureau of Consumer Financial Protection Announces Settlement with Wells Fargo for Auto-Loan Administration and Mortgage Practices, 20 April 2018, archived at http://web.archive.org/web/20200820075927/https://www.consumerfinance.go….↩︎
- Consumer Financial Protection Bureau, Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., Elaine Oliphant Cohen, and Todd Cohen, 22 January 2015, archived at http://web.archive.org/web/20200605134519/https://www.consumerfinance.go….↩︎
- Consumer Financial Protection Bureau, Toyota Motor Credit Corporation, 2 February 2016, archived at http://web.archive.org/web/20200605084812/https://www.consumerfinance.go….↩︎
- See note 7.↩︎
- Consumer Financial Protection Bureau, Westlake Services, LLC, d/b/a Westlake Financial Services. LLC, and Wilshire Consumer Credit, LLC, d/b/a as Wilshire Commercial Capital, LLC, 30 September 2015, archived at http://web.archive.org/web/20200605102319/https://www.consumerfinance.go….↩︎
- Consumer Financial Protection Bureau, American Honda Finance Corporation, 14 July 2015, archived at http://web.archive.org/web/20200605111817/https://www.consumerfinance.go….↩︎
- Consumer Financial Protection Bureau, U.S. Bank National Association, 26 June 2013, archived at http://web.archive.org/web/20200407210442/https://www.consumerfinance.go….↩︎
- Complaints for March through July doubled compared to the same period in 2019.↩︎
- In September, for example, the CFPB settled with automobile financial company Lobel Financial Corporation over its sales practices related to Loss Damage Waivers, which are not a form of insurance. “The order requires Lobel to pay $1,345,224 in consumer redress to approximately 4,000 harmed consumers and a $100,000 civil money penalty.” See Consumer Financial Protection Bureau, Consumer Financial Protection Bureau Settles with Auto Lender for Unfair Loss Damage Waiver Practices (press release), 21 September 2020, available at https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-settles-auto-lender-unfair-loss-damage-waiver-practices/↩︎
- Consumer Financial Protection Bureau, Can the Dealer Increase the Interest Rate After I Drive the Vehicle Home?, 5 August 2016, archived at http://web.archive.org/web/20200705180254/https://www.consumerfinance.go….↩︎
- See tables “Number of Accounts by Loan Type” and “Total Debt Balance and Its Composition”: Federal Reserve Bank of New York, Center for Microeconomic Data, Household Debt and Credit Report (Q2 2020), August 2020, data downloaded 26 August 2020 from https://www.newyorkfed.org/ microeconomics/hhdc.html.↩︎
- See table “Percent of Balance 90+ Days Delinquent by Loan Type”: Federal Reserve Bank of New York, Center for Microeconomic Data, Household Debt and Credit Report (Q2 2020), August 2020, data downloaded 26 August 2020 from https://www.newyorkfed.org/ microeconomics/hhdc.html.↩︎
- Purchases of new and used vehicles: Statista, Number of New and Used Light Vehicle Sales in the United States from 2010 to 2019, accessed on 1 September 2020 at https://www.statista.com/statistics/183713/value-of-us-passenger-cas-sales-and-leases-since-1990/; leases: Aaron Kessler, “Auto Leasing Gains Popularity Among American Consumers,” The New York Times, 8 January 2015, available at https://www.nytimes.com/2015/01/09/business/auto-leasing-gains-popularity-among-american-consumers.html.↩︎