When Auto Lenders Violate Consumer Laws
Auto lenders can violate consumer laws by engaging in predatory lending and unfair practices with auto title loans in violation of the Consumer Financial Protection and Truth in Lending Acts. Specifically, a number of these entities are privately held companies that operate using multiple trade names and offer automobile title loans and unsecured loan options. These entities typically extend consumer credit that is subject to finance charges and/or which is payable by written agreement, and when it extends a title loan, takes a security interest in the borrower’s vehicle to secure the loan.
Specifically, a number of them engage in the following practices, all of which violate consumer laws:
- Charging and collecting on non-file-insurance fees where products and/or services do not provide any known benefits or coverage
- Charging and collecting non-file-insurance fees on loans without non-file-insurance coverage
- Failing to disclose these fees as part of annual percentage rates and finance charges
- Servicing prohibited title loans, including those that exceed annual percentage rate caps, sometimes with prohibited arbitration provisions and/or with unreasonable legal requirement provisions
How Liens Recording & Non-File-Insurance Works
To protect themselves from loss, these entities either record a lien on the vehicle title or obtain non-file insurance where, for title loans, losses are covered through non-file insurance, as well as by charging borrowers non-file-insurance fees, where the fees are financed through the loans.
However, if these entities charge borrowers non-file-insurance fees on loans when they have already recorded their liens (and therefore they cannot incur losses), and if they also obtain non-file insurance, technically, no coverage has been provided. They cannot charge borrowers non-file-insurance fees on unsecured loans where there is no collateral for non-file insurance to cover, as well as loans where they fail to obtain the insurance coverage. In other words, by engaging in all of these practices, they are charging borrowers for a product/service that provides no known benefit.
These companies must also implement controls and reviews to ensure that fees are not assessed on loans where liens have been previously recorded. In addition, non-file-insurance fees must be monitored to ensure that they are appropriate when charged and collected; Otherwise, the companies are violating consumer rights.
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When companies engage in these practices, consumer protection lawsuits can be filed. The Consumer Financial Protection Act prohibits abusive, deceptive, and/or unfair acts or practices, where a practice is unfair if it causes or is likely to cause a substantial injury that is not reasonably avoidable and which does not provide a consumer or competitor benefit.
If you or a loved one has concerns about predatory loan practices, contact our Columbus consumer law attorneys at Kohl & Cook Law Firm LLC today to find out how we can help.