Alternative Auto Lending
As the auto and auto loan industries heat up – both have seen an increase in sales in the past year – some questionable lending practices have led the Consumer Financial Protection Bureau (CFPB) to begin to look more closely into auto lenders. According to an article in the Wall Street Journal, some car lenders have been found adding on extra products and interest rates without informing the borrower.
Specifically, some lenders were discovered to add insurance and extra warranties when putting together a car loan. Since these extras are included in the overall price, the CFPB has issued subpoenas to some auto lenders to ensure the borrowers are aware of what they are purchasing. Car lenders, however, have said that customers are fully aware that these add-ons are optional.
“In the past few weeks, the CFPB has issued civil subpoenas to banks as well as the finance arms of auto makers, a move that could lead to civil charges and fines. The regulator has asked several dozen questions and made requests for data on auto lenders’ practices, including sales of warranties and insurance,” the Journal said, citing Alan Kaplinsky, a Philadelphia lawyer who represents financial companies.
This increased scrutinization by the CFPB is adding to previous concerns that some car lenders are raising interest rates more than necessary for low-income borrowers and keeping the extra revenue.
Both of these possible practices may lead to more regulations, and more investigation of the industry. Data aggregation software, however, can protect lenders during audits and evaluations. Should more regulations be put in place by the CFPB, having strong data practices can help lenders adapt accordingly.
