CFPB: Disputed auto loans close fast, but flags hang

According to new research from the Consumer Financial Protection Bureau, about 17% of consumer credit disputes over auto loans result in immediate loan closures, and another 4% are resolved three months after the customer alleges an error. More than 40% of auto loans with a litigation flag were closed within four years, the agency said.

Auto loans were much more likely than other forms of debt to be closed when a customer raises an objection, although the indicator of litigation remained, the CFPB found. The other types of loans studied were more likely to be resolved through different methods, such as clearing the dispute code, deleting the account, or no new account updates, according to the CFPB.

“Part of the high rate of closed auto loan accounts is due to the relatively shorter term of auto loans, as many of these accounts were paid off within the normal payment schedule,” the agency wrote. “Other closed auto loans go straight from a substantial balance to full repayment, without proof of a lump sum payment.”

Consumers filed a credit dispute in about 0.75% of auto loans between 2012 and 2019, according to the CFPB. That number could potentially grow – the agency noted that complaints about credit reports in general more than doubled in 2020.

“Because of the importance of credit reports to the consumer credit system, the accuracy of credit reports is an ongoing policy concern,” the CFPB wrote in the introduction to its report. “Studies have found that a substantial minority of consumers have errors in their credit reports with the three National Consumer Reporting Agencies (CRA), including errors that can significantly affect consumers’ credit scores. .”

The average auto loan had been listed for more than two years before a dispute arose, according to the CFPB. Only 39% of these loans were initially declared delinquent.

The bureau noted that its previous research had shown that actual payment information could be inconsistent and that some cases “were incorrectly marked as still open but had been revised to appear as closed,” the agency wrote.

One example of this came in federal court just two days after the agency announced its research.

A Pennsylvania woman sued GM Financial and TransUnion in U.S. District Court on Nov. 2, alleging the two failed to reflect her settlement of a $10,124.71 delinquent auto loan with the captive finance company. Elizabeth Richardson said GM Financial eventually debited the loan and agreed to settle it with a $3,000 payment from her. However, she alleged, her credit report continued to show a debt of $7,124, reflecting a normal payment rather than a settlement amount.

Richardson filed a Fair Credit Reporting Act dispute. Equifax and Experian updated their records to remove the account or mark it as paid. But GM Financial and TransUnion did not resolve the issue for that office within 30 days, she said, suing GM Financial for one alleged violation of law and TransUnion for two.

GM Financial and TransUnion declined to comment on pending litigation, per company policy.

The CFPB found that credit scores rose slightly after disputes, with the average car borrower scoring 596 and then gaining 6.3 points.

Customers raising disputes over their auto loans were more likely to be younger, have deep subprime credit scores at loan time, and live in predominantly black census tracts. The CFPB noted that the proportion of auto credit disputants falling into the subprime category was about double that of “non-disputants”, and that the proportion of people in majority black areas who filed disputes on the auto credit was more than three times higher than the majority percentage. -white areas.