Charged with a misrepresenting certain costs and limitations associated with its add-on insurance product, a financial services provider reached a settlement with the Consumer Financial Protection Bureau (CFPB) involving a relatively complex restitution plan requiring the company to acquire or write off of certain customer accounts affected by the company’s actions.
Dallas-based Santander Consumer USA Inc. was said to violate the Consumer Financial Protection Act by failing to properly explain aspects of its S-GUARD GAP product, which a consumer could elect to purchase to cover the “gap” between their primary auto insurance payout and their outstanding auto loan balance if their vehicle were totaled.
The bureau claimed Santander did not adequately describe the benefits and limitations of the product nor did it properly disclose the consumer impact of obtaining a loan extension. Specifically, the bureau’s consent order stated the company failed to clearly and prominently state that the additional interest accrued during the extension period would be paid before any payments to principal when the consumer resumed making payments.
The consent order details how a lack of certain details, as well as inaccuracies, in scripts used by customer service representatives led to charges of deceptive acts or practices.
“Respondent’s customer call representatives did not disclose how principal and interest would be allocated in payments following the extension period,” the consent order states. “Respondent’s customer call representatives told consumers that payments, once resumed at the end of the extension period, would remain the same as before.
“Respondent’s scripts for offering extensions stated that ‘interest would continue to accrue,’ but respondent failed to explain to consumers when that interest would be paid or that the interest accrued during the extension period would have to be paid off in full before the consumer would be able to pay down any principal, resulting in slower principal reduction and more interest paid, even if the consumer made timely payments, over the life of the loan,” the order continued.
Additionally, the order also states that Santander’s representatives failed to explain to customers considering whether to enroll for a loan extension that doing so would result in additional interest costs over the life of the loan.
“Respondent’s call representatives told consumers that interest continued to accrue during the extension and that the loan maturity date would be extended, which likely created the misimpression that the interest would not be paid immediately upon a consumer’s next scheduled payment,” the order states. “In fact, the next payment the consumer made would first be applied to the interest accrued on the unpaid amount financed from the date respondent last received a payment from the consumer.”
The company has been ordered to pay $9.29 million in restitution to certain consumers who purchased the add-on product, a $2.5 million civil money penalty and to clearly and prominently disclose the terms of its loan extensions and the add-on product.
The bureau also has directed Santander to write off any accounts with outstanding balances belonging to customers who bought the add-on product. Santander also must credit all accounts, open or closed, (which the company has not charged off) as having a zero balance. The company then must verify with credit agencies that the accounts are paid in full or closed with a zero balance.
Santander also must attempt to acquire affected customers’ accounts which it sold to third party collectors and securitizers to apply statement credits. If the company cannot acquire an account, it instead has to provide the customer a certified or bank check for $100.
All details about the restitution plan must be spelled out to affected customers.