CFPB Auto Finance Supervisory Highlights Issue 35

CONSUMER FINANCIA L PROTE CTION BU REAU | OCTO BER 2024 S upervis ory Highlights: S pecia l E di tion A uto Finance Issue 35 (Fall 2024)

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 1 SUPER VISOR Y HIGH LIG HTS, ISSU E 35 (FALL 2024) Table of c ont ents Table of contents......................................................................................................... 1 1. Introduction........................................................................................................... 2 2. Supervi sory Ob serva tions................................................................................... 4 2.1 Origination disclosu res............................................................................. 4 2.2 Repossess ion activit ies............................................................................. 5 2.3 Servicing pract ices.................................................................................... 7 2.4 Add - on product s....................................................................................... 8 2.5 Furnishin g deficien cies.......................................................................... 16 3. Supervi sory De velop ments............................................................................... 19 4. Enforceme nt Actions.......................................................................................... 21 4.1 Public Enf orcement A ction s................................................................... 21

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 2 SUPER VISOR Y HIGH LIG HTS, ISSU E 35 (FALL 2024) 1. Introd uct ion This edition of Superv isory High lights focuse s on the C onsumer Fi nancial Protect ion Bureau ’s (CFPB’ s) work to put th e brake s on wr ongd oing in the auto - f inance market. The impact of th is market on American f amilies is s ignificant. A uto loan deb t exce eds all o ther hou se ho ld - debt catego ries exc ept for home m ortgag es. As of the second qua rter of 2024, American s owe $1.61 6 trillio n in auto loan de bt. 1 The auto - finance market enables peo ple to bu y vehicles necessar y for important life func tions, such as dri ving to w ork, sch ool, and m edical appointments. But wh en auto - financ e companie s vio late the la w i t can hav e seri ous con sequ enc es for fami li es, f rom ha ving to pa y mon ey they d o not owe to losing t heir vehicl e. This Supervisory H ighlights i ssue covers sig nific ant fi ndings a cross a ll aspe cts of con sume rs’ exp erien ces wit h the a ut o - fina nce ma rket. It repo rts on con sum ers being l ured in thr ough decept ive advertis ing about av ailable lo an terms and faili ng to re ceive accurate and comp lete disclosu res at o rigina tion, having their pa ymen ts misa pplied o r inc orrect i nformat ion ab out their p aymen t hist ory re ported t o cred it repo rting com pani es (CRC s), an d fin ding thei r car ha d been r epos sess ed, t houg h they had mad e thei r pa y ments as promi sed. This issue also h ighlights a tr end of s ignificant violations related to the handli ng of ad d - on product s, also know n as optional or ancillary p roducts. Consumers ge nerally finance these ad d - on produc ts at loan or iginatio n, with the product prem ium paid upfront and the n include d in the amo unt financed. Auto - financ e compan ies pr ofit fro m these produ cts throu gh th e origina l cost, the finance costs over the life of the loan, and, in some case s, from the fail ure to ensur e refunds when co nsumers can no long er use the products. Althoug h add - on pr oducts may benefit some con sume rs, exam iner s have id entifi ed unfa ir, dece ptiv e, and abu sive acts or p ractic es through out the lifecycle of add - on pr oducts. Fro m auto loan originat ors includ ing add - on products witho ut consu mers’ c onsen t, to ser vice rs failin g to al low consu mers t o canc el the products during t he initi al can cel l atio n period, faili ng to prov ide the benefit of the pro duct, or failing t o ensure consumers rece ive ref unds when the loan term inates ear ly, add - on pr oduct admini strati on rep resents a significa nt risk to con sum ers that the CFPB will continue to monit or. 1 Federal Reserve Bank of N ew York, Househ old Deb t and Cr edit R eport (Q 2 2024) i s ava ila ble at: https://www.newyorkfed.org/mi croeconomics/hhdc.html

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 3 SUPER VISOR Y HIGH LIG HTS, ISSU E 35 (FALL 2024) The auto - fin ance ma rket is subject to vari ous laws and regul ati ons the CF PB en forces. Under the Consum er Fina ncial Prot ection A ct (CFPA), all covered persons or servi ce pr oviders a re prohibi ted fr om commi ttin g unfair, d ece ptive, o r abusi ve acts or prac tices. Examiner s ’ f indings of unfair, dece ptive, and abusive act s or practic es in auto - finance review s are inc luded in this issue of Supervisory H ighlights. The findings in this editi on of Supe rvisor y Highli ght s cover se lect examinat ions re lated to auto - fina nce t hat w ere g ene ral ly c ompl eted betw een No vemb er 1, 202 3, an d Au gus t 30, 2 024. To mainta in t he anony mity of the su pervis ed ins tituti ons discu ssed in Supervisory H ighlights, refere nces to i nstitutions ge nerally are in the plural and the related findings may p ertain to o ne or more in stitu tions. 2 We invit e read ers wit h quest ions or c ommen ts abo ut Supervisory Highligh ts to c ontac t us a t CFPBSupervision@cfpb.gov. 2 If a supervi sory matter i s referr ed to the Office of Enfor cement, Enf orcement may c ite addi tional violat ions base d on these facts or uncover additional in formation that cou ld impact the concl usion as to what violatio ns may exist. <a href="mailto:CFPBSupervision@cfpb.gov">

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 4 SUPER VISOR Y HIGH LIG HTS, ISSU E 35 (FALL 2024) 2. Supervi sory Obser vatio ns 2.1 Origination disclosures Exami ners iden tifi ed two issu es wit h auto - finance companies’ disclosures at or igination. Specific ally, examin ers iden tifie d issu es with ho w auto - finance companie s marke ted annual percenta ge ra tes (APR s) an d how they di sclo sed pre paymen t penal ties. 2.1.1 Misleadi ng “as l ow as” AP R ma rketing Exami ners foun d tha t subprim e aut o loan or igina tors enga ged i n dec eptive acts or pra ctices. A represe ntation, omission, act, or pr acti ce is dece ptiv e wh en (1) t he rep resentatio n, omission, act, or prac tice misl eads or is l ikely to mi slead t he con sumer; (2) t he c onsume r’s in terpre tation of the repre senta tion, om issi on, act, or practi ce is r eason able un der th e circu mstanc es; and (3) t he mislead ing r epresen tatio n, omis sion, a ct, or pract ice is mat erial. 3 Exami ners foun d tha t subprim e loan origina tors en gaged in decep tive ac ts or practic es through service provi ders when the servi ce provid ers mailed pr escreen ed adverti sement s marketin g rates “as l ow as” speci fied AP R rates t o consum ers wh o in fact had no reas onable chanc e of qualify ing for or bein g offer ed rat es at or nea r tha t level. T he low est inte rest ra te offe red to consume rs by the se rvicers wa s mor e than twi ce t he adv ertised ra te. Th ese m arketin g mat erials were lik ely to mi slead borrow ers. Bo rrower s woul d be rea sona ble to int erpret the “a s low as” rate as a rate for which they had a reaso nable chance of q ualifyi ng or being offe red si nce t he advert isements ind icated the re cipients had been p rescree ned based on i nformatio n in their credit re ports. And t he promin ent “a s low as ” rat e was ma terial to the pr ospecti ve borr ower s’ deci sion whet her t o pu rs ue th e off er. In respo nse to the se findings, the auto loan companies were direc ted to: (i) cease t he dec epti ve practic e, wh ether by the orig inato rs dir ectly or t hrou gh their servic e provi ders, of adv ertisin g specifi ed "as lo w as” ra tes to con sume rs who in fact ha ve n o reasona ble c hance of qualify ing f or or bein g offere d rates a t or nea r that l e vel; (ii) r evi se pol ici es an d pr oce dures to en sur e ser vic e provide rs off er pres creened m arket ing adv ertis ements that in clude fin anci ng term s that ar e not misle ading and are consist ent with t he type of fin ancing terms th e com panies’ bo rrow ers have a 3 Whether a n act or pra ctice is decept ive is inf ormed by decad es of prec edent includi ng that involving Sec tion 5 of th e Federal Trade C ommission Act. S ee CFP B Exam Manual at UDAAP 5.

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 5 SUPER VISOR Y HIGH LIG HTS, ISSU E 35 (FALL 2024) reasonab le chance of obtaining; and (iii) ensur e agai nst origin atin g consu mer con tract s throug h service provi ders that a dve rtise and m ark et rat es not off ered by t he compa nies. 2.1.2 Inaccurate discl osures abo ut pr epayment p enal ties The orig ination o f automob ile loan s is govern ed by the Truth in Lendin g Act (TIL A) as implement ed by Regulat ion Z. 4 Examiner s found that au to - loan or iginators vi olated Sec tion 1026.17 (c)(1) of Regu lati on Z beca use the ir discl osur es did no t accu rately refle ct the t erms of th e prepaym ent penal ty. Sec tion 1026. 17(c)(1) states that the dis closur es shall reflect th e terms of the le gal oblig ation betw een th e pa rties. Th e TILA discl osure sta ted “P rep ayment — if y ou pay early, you may have to pay a penalt y.” I n contrast, the associ ated retail i nstallment sales contract stated that there was no finance charge if the loan is paid ear ly. In respo nse to these findings, the e ntit ies modi fied t he ir di sclo sure s to come into comp lia nce with Re gulation Z. 2.2 Repossession activities To secur e an a uto loan, l end ers requ ire bor rower s to giv e credit ors a sec urity intere st in th e vehicl e. If a bo rrower d efaul ts, a credi tor ma y exer cise its contra ctual rights to repos sess th e secured vehicl e. The mag nitud e of rep ossession s i s signifi cant, w ith th e numb er of rep ossessi ons in 2024 e stimated to reach 1.6 m illion. 5 Servic ers coll ect and proce ss auto l oan or l ease payment s from borrow ers an d are eit her cre ditors or act on beha lf of cre ditors. Genera lly, service rs do no t imm ediately repos sess a v ehicle u pon d efault an d inst ead atte mpt to con tact consume rs before re poss ess ion, usu ally by phon e or mail. Servi cers may give c onsume rs in default the op portuni ty to a void rep ossessi on by catc h ing up on p ast - due paymen ts or making promis es to pay. Servic er s general ly us e servic e provi ders t o condu ct repo ssessi ons. While s ome reposs ession s are una voida ble, Su pervisi on pays parti cular att ention to se rvice rs’ repo ssession of auto mobiles. Loan holders and servicers are respo nsible for e nsurin g tha t their r eposse ssion - related practic es, and the pra ctic es of thei r servic e pr oviders, d o not violate the law. 6 4 12 C.F.R. Part 1026. 5 Cox Automoti ve, Q2 Ma nheim u sed vehic le value ind ex cal l, July 9, 2024 avail able at: https://ww w.coxautoinc.co m/wp - content/uploads/20 24/07/July -9- Q2 - 2024 - Manhe im - Used -Vehicle- Va lue - Ind ex - Call - Presentation.pdf 6 CFPB bulletin 2022 - 04: Mit igating harm fr om reposs ession of automob iles is available at: https://www.consumerfi nance.gov/c omplianc e/supervisory - guidance/cfpb -bulletin- 2022 -04-mitigating- harm - from - reposse ssion - of - autom obile s/

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 6 SUPER VISOR Y HIGH LIG HTS, ISSU E 35 (FALL 2024) 2.2.1 Wrongful rep oss ession Exami ners foun d tha t service rs enga ged in un fair a cts or pra ctice s. An ac t or pra ctic e is unfai r when it ca uses o r is likel y to caus e sub stantial inj ury to cons umer s; the in jury is not r easona bly avoida ble by c onsum ers; a nd the inju ry is n ot outwei ghed by count ervail ing ben efits to consume rs or t o compe tition. 7 Exami ners foun d tha t service rs enga ged in un fair a cts or pra ctice s when they erroneou sly reposs essed con sum ers’ ve hicles (a) when their r epres entati ves or s ervic e provi ders fail ed to cancel o rders to reposs es s vehicl es, or act on thos e canc ellation s, w hen con sumers had mad e payment s or obtain ed extension s that should ha v e pre vented r eposse ssion s; an d (b) when consume rs had re quested, o r the servi cer had a pprov ed, a COVID - 19 r elat ed lo an d efer men t or loan mod ification, consumers had o th erwis e ma de tim ely paym ents, or consum ers ma de arrangem ents to pay an amount suf ficient to c ancel the rep ossessi on. These p ractice s cause or are l ikely t o cause s ubsta ntial injury b ecause they crea te a s ubstan tial risk tha t consum ers wil l be er roneo usly d eprived of their v ehicl es. Bor rower s who ar e depriv ed of their vehicl es are likel y to suffer inju ry in the form of in abili ty to trav el to w ork an d resul ting lost wa ges and by inabili ty to use the ir vehicl es for other cri tical daily n eeds. Consu mers cou ld not reas onably avoid t he inj ury becau se bor rowers had no c ontrol over t he servi cers’ reposs ession prac tices, i ncludi ng err ors rel ating t o paym ent proc essing, repo ssession order s, reposs ession hold s, and th eir C OVID - 19 related d eferm ent prac tices. The i njury wa s not outweig hed by any coun terva iling bene fits to consum ers or compe tition. In resp onse to th ese fin din gs, th e servic ers wer e direct ed to c ease rep osses sing v ehicles a nd failing t o promptl y return vehic les when co nsumers have made time ly payments o r payment arrangem ents or have obtained a loan modi fication sufficient to pre vent rep osse ssio ns. S ome s ervice rs also have im plement ed poli cies a nd pro cedure s to ens ure tha t they do n ot rep ossess vehicl es when con sum ers hav e made pay ment s or obtain ed ex tensi ons suff icien t to prev ent reposs ession s. 2.2.2 Repossessi ng t hird parti es’ veh icles without a recorded l ien Exami ners foun d tha t service rs enga ged in un fair a cts or pra ctice s when t hey fail ed to re cord liens and then repos sessed vehi cles witho ut a valid li en. When as signing ve hicles for reposs ession, servi cers di d not ve rify t hat they had a valid lien. As a re su lt, they re posses sed 7 12 U.S.C. § 5531.

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 7 SUPER VISOR Y HIGH LIG HTS, ISSU E 35 (FALL 2024) vehicl es from c onsum ers w ho did n ot have an y pri or affilia tion w ith th e servic ers. Service rs had no right t o repo ssess th ese ve hicles becaus e they did not hav e a vali d lien a nd, by r eposse ssing them, they ca used substa ntial injury in the form of lost wa ges, the costs of arra nging a lterna tive transp ortati on, or b eing de prived of the abil ity to meet oth er imp ortant n eeds. C onsum ers cou ld not reas onably forese e tha t their ve hicle w ould be reposs essed by servicer s with wh ich th ey did not have a ny pri or rela tion sh ip or affiliat ion. The injury to consum ers was n ot outweigh ed by countervailin g benefits t o consumer s or competit ion, includi ng the cost of im plementing controls to pr event wron gful repos sessi ons. In resp onse to th ese fin din gs, servi cers i mpl emen ted polic ies and p roced ures t o ensur e that t hey record ed lien s for al l vehic les and reposs essed v ehicl es only w hen they had reco rded a lien. 2.3 Servicing practices Examiners iden tified two issues r elated t o gene ral servi cing p ractice s. First, ser vicers fa iled t o adhere to their discl osed pay ment - all ocati on m ethod ology f or po st - maturity loans. Seco nd, service rs faile d to tim ely provide consum ers wit h title a fter l oan payo ff. 2.3.1 Improper p aym ent alloca tion Exami ners foun d tha t service rs enga ged in b oth a decepti ve and unf air a ct or pra ctic e by applyi ng borro wers’ auto - loan pay ments to p ost - maturity lo ans in a di fferent order than th at disclos ed to c onsume rs on the ir websi tes, w hich resul ted in borrow ers ha ving to pay la te fees. The webs ites disc losed a part icular payme nt allocatio n order with no indicatio ns that the disclos ed order did n ot a pply to pos t - matur ity loa ns. Fo r post - mat urity loa ns, the s ervice rs applied payments i n a differe nt order th an that disclo sed on the websites. The websit es state d that paym ents woul d be applie d to the current payme nt due, inclu ding both i nterest and princip al, be fore o utstanding late charges. The service rs, ho wev er, appl ied paym ents on pos t - maturi ty loan s first t o the mo st recen t paym ent d ue, then to oth er charge s (such as late fees), and then t o other pay me nts due. Ex amine rs foun d that the paym ent all ocation order t he service rs use d for su ch pay ments re sulted in the p rinci pal bala nce not b eing pa id off on schedul e, and that the s ervic ers th en ass essed lat e fees. The rep resenta tion on the w ebsites was lik ely to mi slead con sum ers wit h post - ma turity loans becaus e it was a false sta te ment, a nd th ere wa s no in dicati on that th e discl osed ord er did n ot apply to pos t - maturi ty lo ans. Con sume rs may r easona bly tak e the we bsite s at face va lue reg arding the payme nt - appli cation order. The dis closu res are m aterial beca use consu mers ma y

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 8 SUPER VISOR Y HIGH LIG HTS, ISSU E 35 (FALL 2024) use i nformation abou t the payme nt - applicat ion order to make decisio ns about the amount and timing of their pa ymen ts. B orrowe rs may u se thi s informa tion t o attem pt t o avoid l ate fe es and ensure that their lo ans are fu lly paid off as planned. This pra ctice wa s also un fai r. It was l ikely t o cause substan tial in jury b ecause it preven ted consume rs fro m submi ttin g payment s in a wa y tha t could a llow the m to pay off the ir princi pal balance s on schedu le and avo id late fees. The injury w as not reaso nab ly avoidabl e bec ause consumer s had no re ason to antic ipate that the service rs would app ly their p ayments in a mann er that c ontradi cts th e inform ation on its w ebsite. The inj ury is n ot outw eighed by any countervailin g benefits t o consumer s or competit ion. In resp onse to th e find ings, ser vice rs revis ed their polic ies and pr oced ures to ensure t hat payme nts are applied to all loans i n the order th at is disclo sed to co nsumers and e nsured full remedia tion f or all a ccoun ts that in curr ed late fe es due to paym ents being applied i n a differe nt order tha n that di scl osed on the websi te. 2.3.2 Excess ive delay in prov iding title Exami ners foun d tha t auto - loan servi cers enga ge d in unfa ir acts o r practi ces becaus e consum ers suffere d substant ial injury whe n the servicers failed, t hrough servic e providers, t o timely deliv er the titl es to ve hicles aft er a l oan or lea se payo ff or when con sumer s reque sted th e title in connect ion with tr ansferring vehicle registratio ns to a dif ferent state. Examiners f ound tha t th e service rs’ polici es are generall y to pr ovide titl e docum entati on wit hin two busin ess days but that delivery tim es significan tl y exceed ed t h is tim eline. Consu mers w ho do n ot hav e posse ssion of their ve hicle ti tle doc ument su ffer ha rm, m ost sig nifican tly th e inabili ty to l egally sell thei r vehicles, the incur rence of add itional ins urance expe nses, and the threat o f having their ve hicles towed. C onsum ers had n o abili ty to ma ke the s ervi cers, or t he ser vice pro vider s, mor e quickly process or deli ver the titles. And th e injury wa s no t outw eighed by c ount erva iling ben efits t o consume rs or t o compe titio n. In resp onse to th ese fin din gs, th e servic ers wer e direct ed to c eas e d elay ing th e del iv ery o f veh icle titles a fter a loa n payo ff, l ease buy out, or re quest t o transf er r egistrat ion to a diffe rent stat e. 2.4 Add - on products When cons umers purch ase an automob ile, auto de alers and f inance companies typi cally offe r consume rs ad d - on pro ducts. These p roducts g ene rall y fall into one of tw o ca tegories, credi t products a nd ve hicle p roduct s. Credi t produ cts wi ll a ssist with the remai n ing loan balance owed

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 9 SUPER VISOR Y HIGH LIG HTS, ISSU E 35 (FALL 2024) by the con sume r under certain circ umstan ces; th ese pr oducts cease t o prov ide any b enefits when the l oan is termina ted. F or exam ple, “g ua rantee d a sset p rotect ion ” (GAP) pro ducts ar e credit pr oduct s that a re offe red to h elp pay off the l oan if th e car is t otaled o r stolen. Vehi cle products relat e to the vehicl e itself; these product s may con tinue t o provi de b enefit s after t he loan is t erminated. For example, consume rs may purcha se a v ehicl e servic e contra ct to pa y for the cost of certa in repa irs. The a dd - on p roduc ts apply on ly for s pecific p eriods, and only under certai n circumst ances. 8 Dealers and finance companies often char ge consumers all payme nts for add - on produc ts as a lump s um at origi nation. Dealer s and finance companie s generally i nclude the lu mp sum co st of add - on prod ucts as par t of the vehicle fi nancing agree ment, and co nsume rs typ ically make payment s for t hese prod ucts th roug hout the l oan ter m. Th e add - on produ cts of ten al low consume rs to can cel ea rly for a partia l refund of the product c ost. Upon e arly terminat ion, the acco unt general ly is eligi ble for a p ro rata re fund of the prepaid premiu ms for t he unus ed porti on of th e produ cts – of ten call ed “u near ned ” pr emiu ms. In t he defau lt scenario, the refund amo unt shou ld be applied t o any defi ciency balance, and the borrowe r receives any remaining refund amount. For early payoff s, the fu ll amount of th e refund should g o to the borrow er. When t he loan termina tes earl y, cr edit pr oducts n o long er offer a ny possi ble b enefit t o consumer s because coverage i s tied to the financed lo an, which i s paid off. Absent a refund, consumer s may wi nd up paying for services they can no long er use, as the re levant pro ducts termina te when the loa n termin ates. In additi on, vehicl e produc ts suc h as se rvice con tract covera ge termin ate u pon defa ult, w hen th e borro wer no lon ger po ssesse s the ve hicle. 2.4.1 Collecting and r etaining amount s for add - on produc ts consume rs did not agr ee to p urchase Exami ners foun d tha t subprim e aut o - finance companie s eng aged in abus ive act s or practice s. The CFPA prohi bits two type s of abusi ve pra ctice s. First, mat erially interf ering wi th the a bility of a con sumer to u nder stand a term or c ondition of a pr oduct or servi ce is abusive. Secon d, taking u nreasonable advantage o f one of the three statut orily spe cified market i mbala nces is abusive. Those marke t imbalances i nclude (1) a consumer’s lack of under standing o f the 8 See gener ally CF PB Superv isory Hig hlights, I ssu e 28 (F all 2 022), a vaila ble at: Su pervisor y Highligh ts, Issue 28, Fall 20 22 | Co nsume r Fina nci al Prot ection B ureau (con sum erfina nce.g ov)

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 10 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) materia l risks, cost s or con ditions of a prod uct or servic e, (2) a c onsum er’s in ability to prot ect their int erests in sel ecting or u sing a p roduc t or se rvice, or (3) a consum er’s reasona ble rel iance on a cove red per son to a ct in th eir inte rests. 9 Examiner s found tha t subpri me aut o - finance c ompanie s eng age d in abusi ve acts or practic es when the y collect ed and ret ained amounts for optional ad d - on pro ducts th at consu mers d id not agr ee to pur chase. The com pan ies co ntra cte d with serv ice prov ide r s to market refinance lo an option s to exist ing bor rowers a nd pre pare o rigina tion docu men ts. Th e compa nies’ c ontra ct s with the s ervi ce provi ders i nclud ed provi sion s requiring that refinanced loans include a minimum num ber of so - called “tang ible benefit s.” The tangi ble benefi ts incl uded add - on products, such as an e xte nded service cont ract or other vehicle prot ection produ ct, a nd an optional GAP wa iver p roduct. Recor ded cal ls bet ween the s ervic e provi ders and b orro wers during which the servic e provide r s walked the bo rrower s throug h the p rocess of signin g the refi nanced loan agr eement elec tronicall y revealed t hat the se rvice prov ider s had f ailed to disc lose or explain t he add - on p roducts that had bee n included and financed as p art of the refi nanced loan s. Th e companies had failed to conduct co mprehensive comp liance monitoring of the service prov iders. By colle cting and retaining amo unts for ad d - on p roduct s that c onsume rs did n ot agr ee to purcha se, wit hout poli cies or proced ures t o ensur e or veri fy that con sum ers a uthoriz ed thes e purcha ses, ser vicer s took unreason able a dvantag e of con sum ers’ ina bility to prot ect the ir intere sts in sel ectin g or usi ng a prod uct or s ervi ce. Con sumer s who did n ot know ab out or consent to being charged for add - on produc ts wer e not abl e to pr otect th eir inter ests. In re spon se to thes e fin dings, t he en ti ties w ere d ir ected to ceas e col lec ting an d retai nin g amounts for o ptional product s tha t consum ers di d not a gree to purcha se or that t hey a greed t o purcha se bas ed on misr epres entati ons as to prod ucts’ v oluntary natu re or cost. The entiti es were al so directed to engage qualified external cons ultants to advise, report, and evaluate th e entitie s’ rem ediation plan s to ensu re that they ca ptured all consu mer ha rm rela ted to t hese finding s, and to p rovide remediat ion t o all c onsume rs identi fied by the e xternal cons ultants. I n additi on, the en titi es were di rected t o updat e and revis e langua ge in cont ra cts wit h their s ervice provide rs to s et forth clear ex pecta tions a bout th e servic e provi ders’ compl iance wi th and conseq uences f or failu re to comply w ith applic able Feder al consumer financial laws. The compa nies w ere furt her di rected t o enhan ce thei r risk - management prog ram to mitig ate unwarra nted risks to c onsum ers fr om ser vice pro viders a nd to en sure t hat ser vice pro vider s understa nd their con sumer com plian ce responsi bil ities and comply with Federa l consu mer financial law s. The entitie s were dire cted to enh ance complianc e monito ring and audi t pract ices 9 12 U.S.C. § 5 531(d).

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 11 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) for all co nsumer - facin g servic e provi ders a nd any staff tha t facili tate th e purcha se of o ptiona l product s to ensure compliance with all ap plicable Federal co nsumer financial p rotect ion laws. Final ly, the entitie s were direct ed to ensure that c onsum ers understa nd the volu ntary natu re and cos t of option al pro ducts a nd tha t ther e are n o efforts i n pla ce to co erce con sumers i nto buying suc h products. T hey w ere di rect ed to inclu de, as par t of compliance moni toring and audit practic es, the re cordi ng of all calls. They w er e furt her direc t ed to conduct second - l ev el reviews of all retail ins tall ment con tracts prior to f undin g and to regula r ly revi ew cal ls betw een service provi ders and c on sumers wh ere th e terms a nd featu res of p otentia l a uto loans a re dis cus sed. 2.4.2 Financin g of voi d add - o n produ cts on sal vage v ehicl es Certain ad d - on produc ts, like GAP prod ucts, ar e void, a nd th erefor e lack a ny val ue to the consume r, if th e vehicl e has a sa lvag e title, m eani ng it had l oss ev ents r ecorde d on th e vehicle ’s title histo ry (e.g., a record o f an acci dent or damage associat ed with the vehicle). Befor e financing a v eh ic le, servi cers may perfo rm a ti tle chec k t o det ermi ne w het her a vehi cle has a salvage t itle. Exami ners foun d tha t auto ser vicers en gage d in abusi ve acts or prac tices by tak ing unrea sonabl e advanta ge of c onsume rs’ la ck of und erstan ding of mate rial risks, cost s, or c ondition s by su sp e nd ing title ch eck pr ocedure s for c ertai n originating de alers and the n financing GA P products tha t were void due to loss ev ents reco rded on the vehicl es ’ titl e histo ries. As a res ult of not che cking ti tle his tori es, the s ervicer s finan ced a uto loans w ith G AP pro ducts tha t deliv ered no b enef it to c ons umer s bu t in crea sed th e amounts financ ed and the monthly payme nts. Additio nally, s ervic ers pa id for titl e check s in s ome situa tions but n ot when f inanci ng GAP contra cts origi nat ed by certa in pr eferre d lend ers. Fa iling to c ondu ct title c hecks in these instanc es also pr ovided servic ers wit h cost sa vings. In obtaining these benefits, s ervic ers t ook unreaso nable adv antage of cons umers’ lack of unders tanding of material risks, costs, or conditi ons ass ociat ed with t he GAP product. The c onsumer s paid f or GAP c overag e but d id not benefi t from t he covera ge beca use of t he exclu sion for salvag e veh icles. In re spon se to thes e fin dings, t he en ti ties w ere d ir ected to devel op a nd i mpl emen t pol ici es an d procedu res to c onduc t title hi story s earch es to det ermine t he con dition of vehi cles’ eli gibil ity for add - on produc ts.

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 12 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) 2.4.3 Failure t o identi fy payee of add - on produc ts Examiner s found that auto lo an origi nators violated Section 1026.18(c)(1)(ii i) of Re gulation Z because the itemi zation of the amount financ ed disclos ures fai led to ident ify the p ayee for optional produ cts pur chased by the consum er. S ection 102 6.18 (c)(1)(iii) re quire s a separa te writte n itemizat ion of amounts financed th at include s any amount s paid to o ther perso ns by the credit or on the consum er’s b ehalf. The pr ovision a lso r equires the cre ditor t o identify thos e persons. The en tities d id n ot identify (or b ought r etai l instal lment sal es con tract s that did not identify) th e payee for op tional prod ucts purchas ed by the cons umer in the item ization of amount financed. In resp onse to th ese fin din gs, th e entiti es chang ed thei r practi ces to c ome into c ompli ance wit h this pro vision of Regul ation Z. 2.4.4 Onerous r equir ements to c anc el add - on pr oduc ts Exami ners foun d tha t service rs enga ged in a busive a cts or pra ctic es by re quirin g consu mers t o make two in - person visit s to a dea lership to canc el con tracts f or add - on produ cts. An a ct or practi ce may be ab usive when it takes unre asonable advant age of the i nability of t he consum er to prot ect the in teres ts of th e consum er in s electin g or usin g a con sumer fina ncial product o r service. 10 Servicers s old and a dminist ered add - on pro ducts that we re included in the financ ed amount and were canc elabl e for a p ro rata refund. T he c ontract re quir ed consu mers t o visit the deal ershi p s in perso n to can cel the p rodu ct. The s ervic ers’ pra ctic e was to re quire cons umers t o make tw o in - person visits w hen ca ncell ing t he produ ct, one visit to can cel w here t he servi cer s required the co nsum er s to speak to the general manag er of th e dealersh ip s and a sec ond to pick up t he refund c heck. Service rs took unrea sonabl e advan tage of c onsu mers by requi ring c onsumer s to mak e two in - person v isits and speak with t he gener al managers o f the dealer ships to cance l the add - on product s. The serv icers gaine d an advant age because they avoide d paying a r ef un d whe n the co nsumer cou ld n ot make the two in - person v isits and t he advant age was unre asonable because the ser vicers con trol led the pr ocess a nd crea ted o nerous refund p rocess es in volvin g multi ple in - person vi sits to prev ent consum ers fr om exe rcisin g their ca ncella tion rig hts. Con sum ers wer e unable t o prote ct their in te rests becaus e the con tra cts for th e add - on pr odu ct requ ired cance llation i n - pe rson bu t did not di scl ose a requ irement that con sum ers mak e two trip s to th e 10 12 U.S.C § 5531.

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 13 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) dealers hip. R equirin g tw o separa te visi ts can in terfe re with c onsum ers’ ab ility to protect th eir intere sts becau se of t he ex cessive tim e and effort needed to extrica te the mselv es from the contrac t. In resp onse to th ese fin din gs, servi cers u pdated t heir pol icies a nd proc edu res to b e consis tent with con tractu al terms. 2.4.5 Failure t o hono r contrac tual c ancell ation rights Exami ners found tha t servicers en gaged in abusi ve acts or practic es when add - on prod uct contrac ts allowed for cancellat ion with a p ro rat a refund within th e first y e ar, but the servi cers denied c onsum ers’ ca ncell ation re quests. Servicers s old and a dminist ered add - on prod ucts tha t allow ed consu mers t o canc el the pro duct for a pro rata r efund wit hin t he first y ear. De spite the con tract a llowing f or refun ds, se rvice rs refused t o provi de ref unds w hen cons umers request ed them. Servicer s took unre asonable advantage of consumers by re fusing to allow cons umers to c ancel add - on produc ts wh en the pro ducts w ere canc e l lable un der th e cont ract. T he servi cers ga ined a n advantag e because they avoided paying refunds and the advantage was unreaso nable becau se the ser vicers con trol led the pr ocess a nd pre vente d consum ers fr om exer cising their c ontrac tual cance llation r ights. C ons ume rs wer e una ble to pr otec t th eir i nte rest s beca use even t ho ugh th e contrac t for the ad d - on prod uct allo wed for can cellation the service rs did n ot honor t he provisi ons and co nsumers had no alternat ive method to obtain refu nds. In resp onse to th ese fin din gs, servi cers u pdated t heir pol icies a nd proc edu res to b e consis tent with con tractu al terms. 2.4.6 Failure t o ensur e refunds of un earned pr emium s Exami ners foun d tha t service rs enga ged in un fair a cts or pra ctice s by faili ng to ensure consume rs rec eived r efunds of un e arn ed premiu ms for a dd - on products up on ear ly ter mination of their a uto loa ns in al l state s, eithe r by ensu ring that deal ers or a dmini stra tors pro vided refunds or by pro viding t he refunds th emsel ves. This pra ctice cau sed o r was l ikely to ca use su bstan tial in jury to b orrowe rs beca use th ese product s were of no value once borrowers’ lo ans were ter minated due to early payo ffs, reposs ession, or tota l los s (or in t he case of s ome products, such a s servi ce co ntracts, only o nce the vehi cles w ere repos sesse d or d eclared a total loss), an d thus b orro wers end ed up pay ing f or products they c ould no lo nger use. T his practice r esults in inflat ed payoff a nd deficiency

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 14 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) balance s. Consumer s could not re asonably avo id the i njury because th e servicers retain substan tial c ontrol o ver t heir refun d proc esses a nd th e calcula tion o f payo ff an d defici ency balance s, and co nsumers may not unde rstand that they ce ase to ret ain any be n efit fr om the products f ollo wing ea rly ter minati on of th eir au to loan s or that t hey are eligibl e for a re fund. T he injury is not o utweighed by any counter vailing ben efits to consum ers or comp etition. In re spon se to thes e fin dings, s erv icer s im plem en ted pr oc esse s to en sur e c onsum ers rec eive refunds of un earned p remiums f or ancil lary prod ucts in al l states, inclu ding th ose tha t do not mandate suc h refunds. This applies in in stances of default or total l oss, and upon e arly p ayoff where t he prod ucts no l onger pr ovide benefi ts at t he termin ation of the l oan. Se rvice rs also identifi ed and rem ediate d consum ers from al l states who di d not re ceive su ch refunds. 2.4.7 Inaccurate add - on p roduct refund am ounts Exami ners foun d tha t service rs enga ged in un fair a cts or pra ctice s by faili ng to p rovide t he correc t refund amou nt for add - on pro ducts af ter early te rminatio n of auto loans. In cert ain cases, s ervic ers can celled c onsu mers’ a dd - on products and provi ded refunds but miscalcula ted th e refund amount du e. This ha ppened w hen, for ex ample, the servi cer s used the date of a deficie ncy notice for making a pro rata calcul ation ins tead of th e date of the reposs ession. In oth er insta nces, s ervi cers rely upon cal culati ons per form ed by t hird par ties tha t were n ot consis tent wit h the t erms of the add - on product c ontra ct. This pra ctice cau sed su bstan tial in jury to c onsum ers b ecause t hey did n ot rec eive r efunds to which they were e ntitled. Cons umers cannot reasonably av oid the injury becau se they do not have con trol ov er how s ervic ers calcu late t he refu nds a nd consumers reas onably re lied upo n their servi cer s to corr ect ly calc ulat e th e re fun d s. The injury is n ot outwei ghed by counterva iling benef its to co nsu mers or competit ion. In re spon se to thes e fin dings, s erv icer s r emedi ate d con sum ers a nd i mpl emen ted rev ised p oli cie s and proce dures to e nsure acc urate calcu lations. 2.4.8 Delays in a pplyi ng add - on produc t refunds Exami ners foun d tha t service rs enga ged in un fair a cts or pra ctice s by faili ng to ti mely ap ply refunds of the unused portion of add - on prod uct prem iums t o borro wers’ accoun ts. In one matter, for examp le, refunds were appli ed an average of 84 days aft er the post - repo ssession sal e of th e vehi cle sal e, with a t least one up t o 423 day s afte rwards; in an other ma tter, th e refund delays ra nged f rom 1 50 day s to 664 day s. Even if a consumer i s ultimate ly grante d a refund, the

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 15 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) consume r may b e inju red by the delay in the int erim, d uring which th e con sumer d oes not have access t o funds t o whic h they are enti tled. This pra ctice cau sed o r was l ikely to ca use su bstan tial in jury to b orrowe rs beca use man y consume rs were una ble to access funds to whi ch they were enti tled for sign ifican t amounts of time. T he injury was n ot reas onably a voida ble be cause t he ser vicers con tro lled thei r ref und process es. T he injury i s not o utweigh ed by a ny cou ntervail ing ben efits t o consu mers o r competition. In response to these findings, servicers u pdat ed th eir policies and procedures to ensure consum ers recei ve tim ely an d accurat e refun ds of unearned premiums for add-on products. 2.4.9 Continuing to c ollect paym ents when cons ume rs are covered by a GAP produc t and misc alculati ng refun ds Exami ners foun d tha t service rs enga ged in un fair a cts or pra ctice s by coll ecting m onthl y payme nts even after the y knew the GAP waiver wo uld cover the outstand ing balance, and then failin g to accura tely reimbur se con sumer s who m ade these paym ents. Consum ers oft en purc hase G AP wai ver agr eemen ts at t he t ime t hey finance the vehic le in an ef for t to prevent ow ing a balance on their loan if the vehicle is totaled. A fte r a total l oss event, procee ds from au to in suran ce typical ly cov er only the a ctual value of the v ehicle at the time of loss, which gen erally is less t han th e amoun t finan ced. T he GAP waiver g eneral ly wai ves th e amount owed und er the retail in stal lment c ontrac t or loa n as of t he dat e of the t otal loss, less any unpaid loan paym ents or s imilar charg es, and l ess the actu al cas h valu e of the c ollate ral as of the d ate of a total los s. S ervi cers con tinued to coll ect mont hly paym ents from con sumer s for months after a tot al loss event desp ite kno wing th at thes e consum ers pu rchas ed GAP wai vers to cover the out standing balance. The servi cers ev entual ly refun ded th e paym ents ma de afte r the total los s even t after t he GAP wa iv er claim wa s fi naliz ed, but mi scalcu lated th e amoun t owed to consume rs, r esultin g in unde rpaym ents. This pra ctice cau sed su bstan tial in jury to c onsum ers in two way s. Firs t, ser vicers in jured consume rs beca use c onsume rs were d eprive d of t he use of f unds f or the m onths b etween t he improper paym ent and the in sufficient r efund. Durin g this peri od consum ers m ay be force d to make mu ltiple car p ayments, o ne for their totaled vehi cle and ano ther for a new vehicle. Se cond, service rs inju red con sumer s when s ervicer s misca lcul ated the a mount du e back to con sumer s after th e GAP wai ver p rocess ed, causin g ins ufficie nt refunds. Co nsumers could not reaso nably avoid th e harm becaus e they ha d no con trol over ser vicers’ p racti ces. If con sum ers cea sed making the se payme nts servicers would furni sh negat ive credit re porting informatio n. And the

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 16 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) injury is n o t outw eighed by coun tervaili ng b enefit s when s ervicer s are a ware that t he amo unts, they are collecti ng wil l be w aived un der th e terms of the GAP waiv er. In re spon se to thes e fin dings, s erv icer s r emedi ate d con sum ers a nd i mpl emen ted new p oli cies and p roce dur es to ceas e co llec ti ng the se a mount s. 2.5 Furnishing deficiencies A uto lend ers an d servic ers t hat furn ish inf ormati on to CRCs for in clusion in con sume r repor ts (auto furn ish ers) are sub ject to re quirem ents un der t he Fair C redit Report ing Act (F CRA) a nd its implement ing regulat ion, Regula tion V. 11 For example, the FCRA and Regulation V require auto furnishers to reasonably investigate disputes and to furnish data subject to the relevant accuracy req uirem ents. In recent reviews, examiners found deficiencies in auto furnishers’ complianc e with the FCRA accur acy req uirem ent s. 2.5.1 Reportin g infor mation wi th act ual kno wledge of errors Section 623(a)(1)(A) of the FC RA pro hibits furni shers f rom furn ishin g any informat ion r elating to a consu mer to a ny CR C if the fu rnishe r “kno ws or ha s reasona ble ca use to bel ieve t hat th e infor mation is inac curate.” 12 Howe ver, a fu rnishe r is not s ubje ct to this prohi bition if i t “cl early and cons picuou sly sp ecif ies to th e consum er an a ddres s for” th e submi ssio n by cons umers of notices that sp ecific in form ation is in accu rate. 13 The FCRA d oes not requir e a furnis her to specify suc h an addr ess. Th ough, if a furnis her cle arly and consp icuously specifi es such an address, t he furn isher i s in stead su bject to Secti on 623(a)(1)(B) of the FCRA, whic h provid es that a fu rnishe r viola tes its du ty to f urnish a ccurat e info rmation to the extent i t furnish es informa tion aft er it ha s been n otifi ed by the consu mer, a t the ad dress sp ecifi ed for suc h notic es, th at certain i nformatio n is inaccurat e and such i nformatio n is, in fact, i naccurate. 14 In revie ws of aut o furn ishers, exami ners f ound th at furnis hers f urnish ed inf ormation to C RCs while kno wing or having reaso nable cause to believe such inform ation was inacc urate bec ause the inf ormation fur nished di d not accur ately reflec t the i nformation in the furnish ers’ system s and/or conflicted w ith other i nformation th e furnishe r s repor ted ab out con sumers ’ accoun ts. For examp le, exami ners found th at furnisher s reporte d inaccurate information abo ut hundred s, and in so me cases thousands, of consumers, inc lu ding: inaccurate amounts pas t due for 11 12 C.F.R. Part 1022. 12 15 U.S.C. § 1681s - 2(a)(1)(A). 13 15 U.S.C. § 1681s - 2(a)(1)(C). 14 Id. (cross - r eferencing 15 U.S. C. 1681s - 2(a)(1)(B)).

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 17 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) charged - off acco unts; inaccura te sc hedule d month ly pay ment amo unts for paid or o therwi se closed ac coun ts with z ero bal ances; outda ted pay ment ra tings that co rrespond ed wit h prior reportin g cycl es rat her tha n the cur rent r eportin g cycl e; inac curate dates o f first del inqu ency; and inacc urate ac tual payment amou nts followi ng a payoff or settle ment. In so me instances, the furnis hers’ r eportin g errors were a ttribu ted to t he furni shers u tilizi ng syst ems n ot adequ ately designed to accurate ly furnish information ab out aut o l oans. Examiner s also found that auto furnishers did not cle arly and co nspicuously sp ecify to consume rs an a ddress f or noti ces r elating t o inacc urat e inform ation, and t hus were subject t o the stric ter pro hibiti on un der Secti on 623 (a)(1)(A) of the FC RA agains t fur nishing informat ion the furni shers k now o r have r easona ble caus e to bel ieve is in accu rate. F or ex ample, fu rnis hers disc losed a general - purpose cor porate ad dres s or ot her m ethods o f conta ct on th eir webs ites; howeve r, examin ers foun d that the furnis hers did n ot specify to c onsumer s the r elevan t addres s for not ices re lating to inacc urate i nformation. In respon se to thes e find ings, auto fu rnishe rs are condu cting l ookback s and co rrect ing the furnished inf ormation f or all a ffected consumers. 2.5.2 Failure t o prom ptly update or corr ect inac curat e information Furnis hers, in cludin g aut o furni shers, al so are subj ect to S ection 62 3(a) (2) of t he FCRA, w hich require s furn ishers t o promp tly co rrect a nd upda te furnis hed in format ion after dete rminin g that such inf ormati on is inc ompl ete or ina ccura te. 15 Examiners ar e continu ing to find that auto furnis hers are violatin g t he FCRA du ty to promptl y cor rect and u pdat e inco mplete or i naccu rate information w hen the obl igation arise s. Specifical ly, in recent r eviews of a uto furnis hers, examiner s found th at furnishers continued to furnish inform ation for sever al months, and in some cas es over a year, a fter t he furni sher s deter mined th rough monit orin g or audi t activit ies that the informat ion was inco mplete or i naccurate. For exa mple, exa min ers foun d that fu rnis hers con tinue d to furni sh ina ccura te amoun ts past due and balance inform ation relat ing to certai n consumers ’ charged - off a ccoun ts for ove r a year a nd a half aft er ident ifying the furnished i naccuracie s through internal audi t s. Examine rs also f ound that furn ish ers conti nued to f urnis h inacc urate p ayment hi story profile s an d/or ac count sta tuses for certa in acc ounts f or ove r a year af ter iden tifyin g the in accu racies throug h moni toring. Althoug h the furn ish ers ev entuall y corrected the inaccu racies after signifi cant delay, examiners determined t hat the auto furn ishers’ delay ed reme diation of, inclu ding failu re to submit pro mpt 15 15 U.S.C. § 168 1s - 2(a)(2).

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 18 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) correcti ons to C RCs wi th res pect to, the iden tifi ed furni shing in accura cie s was incon sisten t wit h the FCR A duty t o promp tly cor rect and updat e furnish ed inf ormati on afte r determi ning that such inf ormati on is inc ompl ete or ina ccura te. In respo nse to the se findings, auto furnish ers are enh ancing polic ies and pr ocedures, i ncluding with r espect to i nterna l issu e mana gement, to ens ure they promp tly co rrect or u pdate f urnis hed information a fter determ ining it is inc omplete or i naccurate.

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 19 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) 3. Supervi sory Develo pments Set fort h below are sel ect sup ervisi on pro gram de velopm ents in cludin g advisory opi nions, circular s and pr oposed rules t hat hav e been issued si nce t he last re gular editi on of Supervisory Highligh ts. 3.1.1 CFPB is sued Buy Now Pay Later P roduct FAQs On September 17, 2024, the CFPB issued Buy Now Pay Later (BNPL) Product FAQs. 16 The FAQs provide guidance on applying Regulation Z to Pay- in -Four BNPL products, such as how to apply cr edit card pe riodic stateme nt requireme nts to Pay - in -Four BNPL produc ts that are accessed by digital user accounts. These FAQs follow the interpretive rule in May 2024 that the CFPB released to explain how the Truth in Lending Act and Regulation Z apply to BNPL loans. 17 The CFPB recognizes that many BNPL lenders are working diligently and in good faith to come into compliance with the interpretive rule. The CFPB issued the FAQs to support this transition. In addition, the CFPB has state d it does not intend to seek penalties for violations of the rules addressed in the interpretive rule against any BNPL lender while it is transitioning into compliance in a good faith and expeditious manner. We e xpect that other federal and state regulators wil l follow th e same path. 18 3.1.2 CFPB is sued an advisory opini on - c onsume r p rot ections for h ome s al es f ina nced u nder c o ntracts for d ee ds On August 13, 2024, t he CFPB iss ued an advisor y opinion wh ich affirms the curr ent applica bility of cons umer prote ctions and cred itor obligat ions under T ILA and its i mplement ing Regulat ion Z to tran saction s in whic h a con sume r purcha ses a home un der a “c ontrac t for de ed.” 19 When a credit or sells a h ome t o a buye r und er a contra ct f or deed, that tran sacti on will general ly me et TILA an d Regula tion Z ’s defini tion of credi t. Whe re the tran sacti on is s ecured by the buyer’ s 16 The FAQs are available at: htt ps://w ww.con sumer financ e.g ov/comp lianc e/com plianc e - re sources/consumer - car ds - resources/buy - no w - pay - later - bnpl - product s/buy - now - pay - l ater - product - fa qs/ 17 The interpr etive rule is a vailable a t: cfpbbnpl - interpretive - rule2024 - 05.pdf (con sumerfinanc e.gov) 18 The CFP B blog is avai lab le at: https://www.consumerfi nance.gov/ab out - us/blog /what - buy - now - pay - lat er - lender s - are - doing - to - be - upfront - with - borrowers 19 The adv isory opinion is av aila ble at: https:/ /www.consumer finance. gov/rules - p olicy/ fina l - rules/truth -in- lending - regula tion -z- consumer - p rotect ions - for - h ome - sa les - fina nced - under - contracts - for - deed /

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 20 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) dwelling, the buyer will al so genera lly be entitl ed to the pr otecti ons asso cia ted wit h residen tial mortgage loans unde r TILA. 3.1.3 CFPB joi n ed f e deral re gulators to pro pose rule to standardiz e data submitt ed to Federal fin ancial agencies On August 2, 2024, the CFPB joined several oth er federal f inancial re gulatory age ncies i n announ cing a pr opose d rule t o establi sh da ta stan dards f or certa in inf orma tion coll ection s submit ted to fi nancial regulat ory age ncies. 20 The proposal w ould promote in teroperabili ty of financial r egu latory data acr oss the ag encies thro ugh the e stablishme nt of data st andards for identifiers of l egal entitie s and other comm on iden tifiers. 3.1.4 CFPB wa rns ag ainst inti midatio n of whi stleblo wers On Ju ly 24, 2024, th e CFPB issued a circular to la w enforc ement a genci es an d regula tors explai ning how co mpanies may be breaking the law by requi ring emplo yees to sign br oad nondiscl osure agr eement s that co uld deter w histlebl owing. 21 The circular ex plains how, in certai n circumst ances, imposing sweeping nondisclosure agreements that do no t clearl y permit communic ation with law enforce ment may int imidate employees fro m disclosi ng misconduct or cooperat ing wi th in vestiga tions. Thi s coul d imp ede inv estigati ons an d pote ntial ly viola te fede ra l whistle blower p rot ection s. 3.1.5 CFPB propos es rule on ea rned wage acc ess On July 18, 2 024, t he CFPB pr oposed an in terpretive rule explai ning that many paychec k advance prod ucts, som etim es marke ted as “ earn ed wage ” produc ts, a re consu mer loan s sub ject to T ILA. 22 The guidance w ould ensure tha t lende rs un derstand their l egal o bliga tions to d isclos e the cost s and fe es of th ese cred it produc ts to w orker s. 20 The prop osed r ule i s avai lable at: https://www.c onsumer finance.go v/rules - poli cy/fi nal - r ules/truth -in- le nding - regula tion -z- consumer - p rotect ions - for - h ome - sa les - fina nced - under - contracts - for - deed / 21 The circular i s available at: https://w ww.consumerfin ance.gov/comp liance/circu lars/consumer - financ ial - prot ecti on - circul ar - 2024 - 04/ 22 The interpr etive rule is a vailable a t: https:/ /www.feder alregist er.gov/docum ents/202 4/07/31/2024 - 16827/truth - in- lending - reg ulat ion -z- consu mer - credit - offered - to - borrowers -in- advance - of - expected - receipt - of

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 21 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) 4. Enforc em ent Ac tions The CFPB ’s su perviso ry a ctivitie s resul ted in a nd suppo rted th e below en forcem ent ac tions. 4.1 Public Enforcement Ac tions The CFPB ’s su perviso ry a ctivitie s resul ted in a nd suppo rted th e below en forcem ent ac tions. 4.1.1 Navient Co rpor ation On Septem ber 12, 20 24, th e cour t ent ere d a stipulated fi nal judgment and order agains t the student l oan se rvice r Navient for its y ears of failu res an d lawbrea king. 23 The order perman ently ban s the company from se rvicing federal Direc t Loans and forbid s the co mpany fro m dire ctl y servici ng loans issued under the Fe deral Fami ly Education Lo an Program (FFELP) or acquiring, with limited exceptions, any FFELP loans. Thes e bans larg ely rem ove Navi ent fr om a mark et where it, among other i llegal a ctions, s tee red nu merous st uden t loan b orrowe rs into c ostly repaymen t opti ons. Navient a lso ill egall y deprive d student bor rowers o f oppor tuniti es to enr oll in more afforda ble income - drive n re pa yment prog rams and cau sed th em to pay mu ch mo re than t hey shoul d have. Under th e term s of the order, Na vient paid a $20 million p enalty and pro vid e d $100 mi llion for redres s for ha rmed b orrowe rs. 4.1.2 TD Bank On Septem ber 11, 20 24, the CFPB o rdered TD Bank to pay $7. 76 million t o tens of th ousands of victims of the ba nk’s il leg al action s. 24 For yea rs, the bank re peated ly sha red in accurat e, nega tive informa tion a bout its custom ers to con sum er reporti ng com panie s. The in forma tion in clud ed systemic errors a b out c redit car d delin quenci es an d bankru ptcies. In add ition to t he red ress, the CFPB is orderi ng TD Bank to pay a $20 million c ivil mone y penalty. 23 The Pr oposed Order is ava ilab le at: h ttps:// www.con sumerfi nance.gov/e nforce ment/act ions/navie nt - corp orat ion - navient - s oluti ons - inc - a nd - pioneer - cr edit - recovery - inc/ 24 The Con sent Order is available at: https://w ww.cons umerfi nance.g ov/enforce ment/ac tions/td - bank - na - furnishi ng - 2024/

S UPERVISORY H IGHLIGHTS, ISSUE 35 (F ALL 2024) 22 SUPER VISORY HIGH LIGH TS, ISSUE 3 5 (FALL 2024) 4.1.3 Fay Servi cing, L LC On August 21, 2024, th e CFPB ordered Fay Servicing to pay a $2 mi llion penalt y for violations of mortgag e servi cing la ws, a s well as fo r viola tions o f a 2017 agency order t hat a ddresse d its il legal forecl osure pra ctices. 25 The co mpany fai led to imp lement the order’s req uirements and continu ed to br eak t he law. F ay Serv icing t ook pro hibit ed forecl osure a ctio ns again st borro wers reques ting m ortgage a ssista nce, fa iled to offer bo rrow ers mort gag e assista nce opti ons ava ila ble to them, and over charged fo r private mortgage ins urance. In addition t o the civi l money penalt y, the CFPB ’s ord er requi res Fa y Servi cing to pa y co nsumer r edress of $3 mil lion a nd to inv est $2 million t o update its servici ng techno logy and comp liance manageme nt system s. The o rder al so puts c ompensatio n limits on Edw ard Fay, the company’s Chairman o f the Board and Chief Executi ve Office r, if Mr. Fay does not take actions nec essar y to ensure co mpliance with the order. 4.1.4 Fifth Third Bank On July 9, 2024, the CFPB t ook action agains t repeat of fender Fi fth Third Bank fo r a range of illegal activi ties tha t will result in the bank paying $20 mi llion in pe nalties in add ition to paying redress to app roximat ely 3 5,000 ha rmed consum ers, inc ludin g about 1,00 0 who ha d their ca rs reposs essed. 26 Specif ically, the CFPB h as order ed Fifth Third Bank t o pay a $5 m illion pe nalty for for cing v ehicl e insu ran ce onto borr owers w ho ha d cov erage. The CF PB a lso fil ed a pr oposed court order that would require Fifth Thir d Bank to pay a $15 million pe nalty for opening f ake accou nts in the names of its custom ers. 27 The proposed co urt order bans F ifth Third Ba nk from setting employ ee sal es goa ls that inc entivi ze frau dul ently open ing a ccounts. 25 The Consent Ord ers are avai lable at: h ttps://www.consumer finance.gov/ enforcement /actions/ fay - servicin g - llc - 2024/ 26 The Consent Ord er is ava ilable at: https://w ww.cons umerfi nance.g ov/enforce ment/act ions/fi fth -third- ba nk - na - fpi - 2024/ 27 The Opinio n and Order is available at: https://www.co nsumer finance. gov/enfor cement/ac tions/ fifth -third- b ank - national -as sociation/