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Federal Register / Vol. 86, No. 128 / Thursday, July 8, 2021 / Notices 2.1.2

Charging for Unnecessary CPI

Under the prohibition on unfair acts or practices in sections 1031 and 1036
of the CFPA, an act or practice is unfair when: 1 It causes or is likely to cause substantial injury; 2 the injury is not reasonably avoidable by consumers; and 3 the substantial injury is not outweighed by countervailing benefits to consumers or to competition.
Examiners found that servicers engaged in an unfair act or practice by charging consumers for unnecessary CPI.
Servicers caused consumers substantial injury by adding and maintaining charges for CPI premiums as a result of deficient processes when consumers had adequate insurance in place under their contracts. If a consumer has an adequate insurance policy that covers the vehicle, the CPI
policy provides no benefit to the servicer or consumer. Placing or maintaining charges for CPI when consumers have adequate insurance causes consumers injury because consumers must either pay for the duplicative insurance or incur late fees or other consequences of delinquency.
Additionally, 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.
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. Second, servicers did not have adequate procedures for processing insurance cards submitted by consumers as proof of insurance. 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. Servicers have ceased issuing CPI policies.

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2.1.3 Charging for CPI After Repossession Examiners found that servicers engaged in unfair acts or practices by collecting or attempting to collect CPI
premiums after repossession even though no actual insurance protection was provided for those periods.
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

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after repossession in four different circumstances. First, servicers failed to communicate the date of repossession to the CPI service provider due to system errors. Second, servicers used an incorrect formula to calculate the CPI
charges that needed to be removed due to the repossession. Third, servicers employees entered the wrong repossession date into their system of record, resulting in improper termination dates. Fourth, servicers charged consumerswho had a vehicle repossessed and subsequently reinstated the loanfor the days the vehicle was in the servicers possession, despite the automatic termination of the policy on the date of repossession.
These errors caused consumers substantial injury because they paid amounts they did not owe or were subject to collection attempts for amounts they did not owe. This injury was not reasonably avoidable because consumers did not control the servicers cancellation processes and did not have a reasonable way to determine that the charges were inaccurate. The substantial injury to consumers was not outweighed by any countervailing benefits to consumers or competition. Servicers have ceased issuing CPI policies.
2.1.4 Inaccurate Payment Posting Examiners found that servicers engaged in unfair acts or practices by posting payments to the wrong account or by posting certain payments as principal-only payments instead of periodic installment payments, resulting in late fees and additional interest charges. Servicers engaged in two types of errors.4 First, some payments were applied to the wrong loan account, despite the consumer providing their account information. Second, for some payment types, servicer employees applied the payment as a principal-only payment instead of a periodic payment.
In both instances, consumers accounts were marked as delinquent for the month they made the payment, resulting in late fees and additional interest.
Servicers did not have a reliable method to detect the errors, and primarily relied on consumer complaints to identify misapplied payments. In some instances, even when consumers complained, the servicers did not provide refunds.
This conduct caused or was likely to cause substantial injury to consumers because the servicers misapplied payments, resulting in late fees and additional interest. Consumers could not reasonably avoid the injury because they had no control over the servicers
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misapplication of their payments. Even if consumers contacted the servicers regarding the errors, late fees and interest had accrued. The injury was not outweighed by countervailing benefits to consumers or competition. For example, servicers could improve their procedures to reduce the error rate. In response to examiner findings, servicers remediated affected consumers and implemented new automated systems.
2.1.5 Failure To Follow Disclosed Payment Application Order Under the prohibition against deceptive acts or practices in sections 1031 and 1036 of the CFPA, an act or practice is deceptive when: 1 It misleads or is likely to mislead the consumer; 2 the consumers interpretation is reasonable under the circumstances; and 3 the misleading act or practice is material.
Examiners found that servicers engaged in deceptive acts or practices by representing on their websites a specific payment application order, and subsequently applying payments in a different order. Specifically, servicers represented on their websites that payments would be applied to interest, then principal, then past due payments, before being applied to other charges, such as late fees. Instead, the servicers applied partial payments to late fees first, in contravention of the methodology disclosed on the website.
As the result of applying payments to late fees first, servicers repossessed some consumers vehicles.
The representation that payments would be applied to interest, then principal, then past due payments, and then other charges was likely to mislead consumers because the servicers actually applied payments to late fees first. It was reasonable for consumers under the circumstances to believe that the servicers websites provided accurate information about payment allocation order. In some instances, the underlying contract provides the servicer the right to apply payments in any order. But consumers reasonably relied on the representations on servicers websites regarding payment application. And the representation was material because it was likely to affect consumers decisions about how much to pay. Servicers remediated impacted consumers and now use the disclosed payment application hierarchy.
2.1.6 Inaccurate Payoff Amounts Examiners found that servicers engaged in unfair acts or practices by accepting loan payoff amounts that included overcharges for optional products after incorrectly telling
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