Should The CFPB Monitor Car Dealerships?

The Consumer Financial Protection Bureau is going after an auto lender in Texas. The CFBP alleges that First Investors Financial Services Group provided what were called “flawed” reports to credit bureaus for thousands of car buyers. The group paid a 2.75 million dollar fine that was levied by the CFPB for what were called false reports. The alleged false information included the number of times that the buyers fell behind on their bills. The CFPB contends that this action damaged the ability for these buyers to get housing or jobs down the road. Richard Cordray, the President of the CFPB spoke out on this issue. He said that, “First Investors showed careless disregard for its customers’ financial lives by knowingly distorting their credit profiles for years.” The source of the misinformation is what the CFPB is calling a “flawed” computer system that has sent out inaccurate information about borrowers since at least 2011.

The investigation into this auto lender is occurring while subprime auto loans continue to cause concern. Speculation during the past few weeks about Subprime auto loans has gained momentum since the NY Times released a report and video that dug into the subprime loan market. A report from Experian shows that loans to individuals with what the NY Times called “dented credit” has increased 130 percent during the past five years. In 2013, one in four auto loans was to someone with a credit score of 640 or lower.

Concern is growing that falsified information on subprime auto loans will lead to problems similar to those that came about during the financial crisis of 2008. The Office of the Controller of the Currency of the United States was quoting as saying that “signs of increasing risk are noteworthy.” One of those signs, repossessions, showed up during the second quarter. Experian reported a 70% increase in the number of vehicles repossesses over Q2 from 2013.

With signs of loans going south, many have criticized the fact that auto dealers are, for the most part governed by the Federal Trade Commission.  The Dodd-Frank Wall Street Reform Act of 2010 didn’t place car dealers under the direct watch of the CFPB. President Obama criticized this occurrence. At the time he said that, “it would allow them (dealers) to inflate rates, insert hidden fees into the fine print of paperwork and include expensive add-ons that catch purchasers by surprise.