CFPB acts against auto lender for unfair practices

The CFPB issued a press release on Friday reporting it had issued a consent order against 3rd Generation, Inc., DBA California Auto Finance for illegally charging interest on late payments on its Loss Damage Waiver (LDW) product without its customers’ knowledge. The CFPB’s order requires California Auto to refund or credit customers harmed by the conduct, furnish corrected information to credit reporting agencies, and pay a civil penalty and also prohibits the company from charging interest on late payments without disclosing costs.

California Auto is an auto-loan finance company serving consumers in California. California Auto services subprime auto loans that were originated by car dealers and later assigned to California Auto. California Auto required its customers to agree that if they had insufficient insurance coverage for their automobiles, they would add “loss-damage-waiver” coverage to their accounts. LDW is a product that, for a monthly fee, covers cancellation of the customer’s debt in the event of a total vehicle loss or the cost of a repair if the vehicle was not a total loss.

The Bureau found that, when a customer’s LDW payment was late, California Auto would charge interest on the late payment, but it did not disclose this interest to the customer. Between 2016 and 2021, California Auto charged about 5,800 customer accounts a total of $565,813 in interest on late payments of loss-damage-waiver fees without disclosing the charges, a practice that the Bureau found to be unfair and a violation of the Consumer Financial Protection Act.

The Bureau's consent order requires California Auto to: