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CFPB Takes Aim at F&I Products

May 7, 2013

Less than two months after the Consumer Financial Protection Bureau (CFPB) confirmed it was watching policies related to dealer participation by issuing guidance to indirect auto lenders, the bureau appears to be targeting the sale of extended warranties and other F&I products.

Reports suggest that the CFPB has issued subpoenas to U.S. auto lenders related to the sale of products such as extended-service contracts and other add-ons. Service Contract Industry Council (SCIC) Executive Director and General Counsel Timothy J. Meenan said the move is “possible and probable” based on media reports, but he has yet to receive confirmation.

“It appears that they are looking at lending practices for sales of automobiles, and also looking at issues involving add-on products,” Meenan said.

In March, the CFPB said it would hold lenders that offer auto loans through dealerships responsible for unlawful, discriminatory pricing. It alleged that bank policies which allow auto dealers to mark up the interest rates on retail installment sale transactions in exchange for services rendered have caused a disparate impact, meaning that members of minority groups pay higher rates. Several banking institutions, including Ally Financial, received letters stating that they could face lawsuits under the Equal Credit Opportunity Act (ECOA).

Groups such as the National Automobile Dealers Association (NADA) and the National Association of Minority Automobile Dealers (NAMAD) have denounced the bureau’s actions, as the CFPB has not revealed how it is conducting its analysis. Using the disparate impact theory, the CFPB has taken the position that violations of the ECOA can be pursued based solely on statistics — meaning a lender can potentially be held responsible for unintentional impacts on minorities.

NADA’s Director of Public Relations, Charles Cyrill, said the organization was not aware of any CFPB action related to F&I add-ons. “We have not received any information about CFPB investigations regarding optional products other than dealer reserve,” he explained.

The CFPB has not publicly confirmed the targeting of F&I products, but a spokesman contacted by F&I and Showroom did not deny recent reports.

“When I look at what the CFPB's been doing with mortgages and with, say, credit card companies, they've gone after things that are potentially misleading,” Meenan said. He explained that while credit card companies have been known to sign up customers for add-on products without their knowledge or understanding, car buyers must sign a contract for F&I add-ons that says, “Yes, I want this.”

Last year, the CFPB reached settlements with credit card issuers such as Capital One Bank, which agreed to refund approximately $140 million to 2 million customers, as well as pay a $25 million penalty for the way it marketed add-on products like payment protection.

“I think those kinds of misleading practices don't really apply to automobile service contracts,” Meenan said. “You can, in the first 45 days, cancel a service contract and get all your money back. And thereafter, you can get the pro rata share back… There are lots of good consumer protections in these products that I think the CFPB will find attractive.”

The CFPB is not the only agency looking at the auto industry. At a panel discussion at George Mason University on May 2, Jon M. Seward, deputy at the U.S. Department of Justice’s Housing and Civil Enforcement Section, said that the DOJ has experienced a shift in referrals of violations from federal bank regulators including the CFPB.

“We’re seeing a lot more referrals involving pricing discrimination allegations in the unsecured consumer lending space; a number of auto-related referrals either involving indirect auto lending or some involving buy-here, pay-here car dealerships,” Seward said in a video obtained by F&I and Showroom.

In December 2012, the department signed a memorandum of understanding with the CFPB aimed at strengthening their coordination in connection with fair lending investigations. That’s why, Meenan says, “We’re not taking anything lightly… We are in a fact-finding mode using local council and others to find out what it is the CFPB is after.”

— Brittany-Marie Swanson


  1. 1. Joe Opolski [ May 07, 2013 @ 12:56PM ]

    OK---what's next? Is the ham sandwich I had for lunch OK, or is the CFPB going to investigate how, as an end user, I somehow manipulated the pig into the bread? My head hurts

  2. 2. Joe Opolski [ May 07, 2013 @ 12:56PM ]

    OK---what's next? Is the ham sandwich I had for lunch OK, or is the CFPB going to investigate how, as an end user, I somehow manipulated the pig into the bread? My head hurts

  3. 3. Bubba B [ May 07, 2013 @ 01:03PM ]

    Seems to me that if the CFPB had complete control to regulate all commerce nationwide, no private businesses would be allowed to make any kind of profit whatsoever. Also, it seems that the CFPB operates under the assumption that all people are complete morons and need everything spelled out to them. You get a few rogue dealers and banks, so let's develop enormously burdensome regulation that all legitimate companies have to comply with. Almost like some rogue terrorists who hijacked some planes 11 or so years ago and the TSA was formed... ahh nevermind, bad analogy - I shouldn't go there.

  4. 4. William V. Fowler [ May 07, 2013 @ 01:42PM ]

    It goes even further than what your stating. I have put together a Power Point presentation coverning most of the areas the CFPB as well as State agencies plan to go.

    If you would like to access it just send me an e-mail:

  5. 5. Brian Reed [ May 07, 2013 @ 01:57PM ]

    The article does create concerns if this is a road that the CFPB is really going down. My opinion though is that the CFPB is trying to do more to educate themselves on F&I products versus create "guidance" of any type.

  6. 6. Texas F&I [ May 07, 2013 @ 05:31PM ] The type of things coming out of the CFPB would almost make you think they are The Onion articles. I think it's fairly obvious to anyone with an IQ above 80 that the CFPB decided that dealer reserve (and now it looks like F&I adds) are bad things, then went about finding a way to attack it through this ridiculous Disparate Impact theory. I would be willing to bet that "protecting minorities" is more a means to an end rather than the actual goal.

    I've said it before and I'll say it again if you use this ridiculous Disparate Impact theory you could go after anything whether it be auto loans, vehicle sales prices, trade values, hell even the cost of a gallon of gas if it's higher in an "urban" area vs the suburbs. After all it doesn't have to be the result of someone or a business actively targeting minorities, only if they are affected at all.

    The CFPB may end up actually hurting some people and DENYING their ability to get a loan. How many times have any of us gotten a Line 5 callback with a huge fee to get someone financed and the only area the store can make a profit is reserve? They take that away guess what, the customer doesn't get a car. Or are they going to legislate that if the person is a "protected class" the dealer must sell them a car even if they lose money?

    Now if some is charging someone a higher rate, packing payments, selling a car for more, etc BECAUSE they are black, hispanic, asian, a woman etc take them to court. Make an example of them. I don't think anyone involved in this business would have a problem with that, and would in fact applaud it.

  7. 7. BlackwidowZ06 [ May 11, 2013 @ 07:45AM ]

    How about our tax dollars going to something really useful such as deporting illegal immigrants and students with expired visas. Everyday all I hear is blah, blah, blah on this issue. Or how about we garnish the wages of people who default on loans they agreed to pay. That will be a wake up call.

  8. 8. William V. Fowler [ December 17, 2015 @ 07:57AM ]

    I suggest you start looking at the CFPB as an investigating body and as they investigate they are collecting information that they will turn over to the proper authorities both federal and state. At present they have the authority to go through financing sources after financing sources to uncover unlawful or discriminator acts of any party involved in a sales transaction, what they uncover during that investigation can and will be used in a court of law.


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