The CFPB recently issued a consent order against 3rd Generation, Inc., doing business as California Auto Finance (California Auto), regarding interest charged on consumers’ late payment of the fee charged for California Auto’s Loss Damage Waiver (LDW) product.  The consent order requires California Auto to refund $168,162 to customers with paid-off accounts, issue $117,582 in credits to customers with active accounts (or refund the difference if the credit would exceed the customer’s balance), and correct or update information furnished to consumer reporting agencies about consumers whose account were charged-off.  California Auto must also pay a $50,000 civil money penalty.

California Auto purchases and services subprime retail installment sales contracts (RICs) entered into by consumers with auto dealers.  Under the terms of the RICs, consumers agree that if they fail to maintain auto insurance, California Auto can add the LDW product to the consumer’s account.  LDW covers cancellation of the consumer’s debt in the event of a total vehicle loss or the cost of a repair if the vehicle was not a total loss.

In the consent order, the CFPB makes the following findings and conclusions:

  • If the LDW product is added, the principal amount owed under the RIC is increased by the charge for the LDW product, which is sometimes thousands of dollars.
  • California Auto’s LDW contract and subsequent notices to consumers about LDW describe the product as either an extra dollar amount per month or as a fee included in a new monthly payment.
  • The contract and notices did not disclose that California Auto charges interest on late payments of LDW fees.
  • Charging consumers interest for late payment of LDW fees without their knowledge or consent is an unfair act or practice in violation of the CFPA.

In addition to requiring consumer redress and payment of a civil money penalty, the consent order prohibits California Auto from charging interest on LDW fees “without clearly and conspicuously disclosing the material terms and conditions to consumers.”