Latest Developments in Automotive Finance and Consumer Protection - 2024

Please join us for the next installment of the Morgan Lewis Automotive Hour Webinar series, focused on the latest developments in automotive finance and consumer protection.

Key Takeaways

FTC’s CARS Rule

• The FTC’s CARS rule, which is primarily a price disclosure regulation, aims to increase transparency in the car buying and leasing process, targeting unfair/deceptive practices and what the government refers to as “junk fees.” It imposes restrictions on dealer behavior to benefit customers, such as prohibiting the sale of add-on products that provide no benefit.
• The rule does not cover anti-discrimination, likely due to coverage by the Equal Credit Opportunity Act and previous court decisions against the CFPB’s attempts to regulate discrimination under Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) claims.
• Finance companies need to be aware of this rule, identify potentially risky dealers, and take corrective action or establish rules to prevent bad actors. The enforceability of contracts entered into by CARS Rule violators could be questioned, potentially creating securitization issues. Repeated violations can increase exposure and risk.
• The CFPB, state regulators, and attorneys general may use the CARS Rule to bring enforcement actions against auto finance companies. While the rule does not include a private right of action, it increases the likelihood of enforcement actions from regulators or class actions from consumers.
• The FTC stayed the regulation pending litigation from the National Automobile Dealers Association and Texas Automobile Dealers Association in the US Court of Appeals for the Fifth Circuit. However, compliance steps should still be taken in case the challenge does not succeed on appeal.
• Bottom Line: If there’s a way to leverage this rule to assert claims against finance companies, the plaintiffs’ bar is likely to use it.

Recent CFPB Supervisory Highlights and Enforcement Actions

• Recent examinations revealed some data furnishers continuously provided inaccurate information to credit bureaus, failed to promptly correct/update information, and mishandled refunds for customers owed money for add-on products and services.
• CFPB examiners have also identified deceptive auto loan marketing practices, focusing on issues related to overcharging for optional/add-on products when consumers pay off financing early.
• Examinations highlighted the unfair use of starter interrupt devices when used inconsistently with disclosed purposes and found instances of false threats of legal escalation and auto payments being canceled without sufficient notice.
• Significant enforcement actions have been taken, including one lender paying $60 million in consumer redress and civil monetary penalties.
• Chopra’s Worldview: CFPB Director Rohit Chopra believes anyone benefiting from conduct that harms consumers should be responsible for oversight of that conduct.

Recent State Developments and Overlap with FTC and CFPB Priorities

• California: Under the California Privacy Rights Act, the California Privacy Protection Agency will be reviewing the privacy practices of automakers and others in the auto industry.
• Massachusetts: The Vehicle Data Law is part of the growing “right to repair” movement, requiring original equipment manufacturers (OEMs) to create and implement onboard standardized diagnostic systems accessible without OEM permission. The Massachusetts attorney general’s office has been focusing on the discriminatory pricing of add-on products.
• Colorado: The Colorado attorney general’s office has been pursuing GAP fee refund cases against state-chartered credit unions. State law mandates refunds for unearned fees or premiums paid for GAP insurance. One dealership settled for $4 million in refunds and $100,000 in civil penalties.
• Takeaway: State attorneys general, like the FTC and CFPB, are actively targeting issues such as “junk fees” and looking to support broader efforts against unfair practices.

Questions? Please contact Octavia Litvinov.

Morgan Lewis Automotive Hour is a series of automotive and mobility industry–focused webinars led by members of the Morgan Lewis global automotive team. The 2024 program is designed to provide a comprehensive overview on a variety of topics related to clients in the automotive and mobility industry.