CFPB announces consent order with servicer of auto financing contracts to settle unfair practice claims relating to coverage for vehicle loss or repairs

Ballard Spahr LLP

Ballard Spahr LLP

The CFPB recently announced that it has entered into a consent order with Lobel Financial Corporation, a company that purchases and services retail installment sales contracts (RISC) originated by subprime auto dealers, to settle the Bureau’s claims that Lobel engaged in unfair practices in connection with a product referred to as Loss Damage Waiver (LDW).  The consent order requires Lobel to pay $1,345,224 in consumer redress and a $100,000 civil money penalty,

According to the Bureau’s findings in the consent order, all consumers entering into RIsCs purchased by Lobel were required to enter into Lobel’s LDW agreement.  The agreement provides that if at any time the consumer fails to maintain car insurance subject to certain specifications, Lobel will add LDW coverage to the consumer’s account and impose a monthly charge. Under the LDW agreement, Lobel will pay for the cost of covered repairs and, in the event of a total vehicle loss, cancel the borrower’s debt.  The LDW agreement also provides that Lobel can cancel the agreement and suspend coverage if the consumer becomes 10 or more days delinquent on his or her RISC.

The Bureau found that Lobel engaged in unfair practices in violation of the Consumer Financial Practices Act through the following conduct:

  • Continuing to charge consumers who were more than 10 days delinquent for LDW coverage but denying coverage for repairs or failing to cancel debts of consumers experiencing a total vehicle loss
  • Charging certain fees to consumers who experienced a total vehicle loss that consumers were not obligated to pay under the LDW agreement
  • Furnishing information to consumer reporting agencies indicating that consumers owed debts that should have been cancelled under the LDW agreement

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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