Examiners found that servicers engaged in an unfair act or practice by charging consumers for unnecessary CPI.
Washington, DC – 29 June 2021 – On Tuesday, the Consumer Financial Protection Bureau (CFPB) released its Summer 2021 Supervisory Highlights. Within its scope are the usual issues of Fair Debt Collections Practices Act (FDCPA) and Fair Credit Reporting Act (FCRA) infractions. But this year’s edition takes exception with one of auto lending’s most contentious of topics, Collateral Protection Insurance (CPI).
Read the Entire CFPB Summer 2021 Supervisory Highlights Here!
Below are some CPI issues identified by the CFPB in their examinations over the past year.
2.1.2 Charging for unnecessary CPI
- Paid CPI Premiums Should be Refunded Direct to the borrower. – Some servicers caused additional injury because they applied any refunds of paid CPI charges to principal instead of returning those amounts directly to the consumer.
- Bad addresses or addresses in CPI tracking do not match lender core system addresses. Consumers could not reasonably avoid the injury for at least three reasons. First, in many instances, servicers sent notices regarding CPI charges to inaccurate addresses, so consumers had no notice that servicers planned to place CPI.
- Lenders not accepting Insurance Cards as proof of insurance. Second, servicers did not have adequate procedures for processing insurance cards submitted by consumers as proof of insurance.
- Lenders failing to submit to vendors insurance documents or, CPI vendors failure to recognize and adjust CPI accordingly. Third, in many instances, servicers failed to process insurance documentation from consumers. The substantial injury to consumers was not outweighed by any countervailing benefits to consumers or competition, such as the cost of improving notices and improving document processing.
At the end of these sections, it appears as though the examined subjects made immediate remedy to these discrepancies by ceasing all CPI placement. Servicers have ceased issuing CPI policies.
2.1.3 Charging for CPI after repossession
- Charging CPI premiums after the date of repossession. CPI automatically terminates on the date of repossession, per the terms of the contract, and consumers should not be charged after this date. Despite this, servicers charged consumers for CPI after repossession in four different circumstances.
- Failure to communicate effective dates of CPI cancellation that match the date of recovery. First, servicers failed to communicate the date of repossession to the CPI service provider due to system errors.
- Inaccurate pro-rata and per-diem calculation in the adjustment of CPI refunds. Second, servicers used an incorrect formula to calculate the CPI charges that needed to be removed due to the repossession.
- This is oddly, a replication of complaint number two and appears to be the precursor of it. This deficiency mentions employee error, while the first implies system error. Third, servicers’ employees entered the wrong repossession date into their system of record, resulting in improper termination dates.
- Again, somewhat replicative of the prior issues surrounding the application of erroneous or improper cancellation dates. Fourth, servicers charged consumers—who had a vehicle repossessed and subsequently reinstated the loan—for the days the vehicle was in the servicer’s possession, despite the automatic termination of the policy on the date of repossession.
Collateral Protection Insurance (CPI), or Force Placed Insurance (FPI) as some prefer it called, has long been a touchy but necessary evil in the world of auto loan servicing. If ever there was a process to make a steady paying borrower a delinquent one, it’s been through a perceived lapse of insurance coverage.
Often considered a process best left in the capable hands of the experts, the CPI vendor, many lenders have erred in assuming that the experts are infallible. While the CPI vendors are quite capable, often some of the brunt of blame belongs to the lender and own processes.
The fact that the CFPB brings collateral protection insurance into its review is really of no surprise. It has long been a system riddled with borrower friction and a constant source of delinquency. Whether or not a lender suspects and of these deficiencies to exist within their own processes, it is always advisable to conduct a thorough review of them annually, if not more often.
CPI can turn a happy member into a disgruntled one and a current loan into a delinquent one. Please consult you CPI vendor and legal counsel as necessary and with regularity. Don’t assume anything. Verify, verify, verify!
CFPB Shines a Light on CPI Servicing Infractions
CPI – Collateral protection Insurance
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