- Source: consumerfinance.gov
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The CFPB recently found that a national personal loan installment lender engaged in deceptive acts or practices with respect to its marketing, sales practices and financing of add-on products, including credit life insurance, credit disability insurance, identity theft protection, and roadside assistance.
The CFPB determined that the institution:
- Abusively interfered with the consumer’s ability to understand that add-on products are optional;
- Mislead consumers into believing they must purchase add on products in order to obtain a loan;
- Failed to obtain customer consent authorization related to the purchase of the add-on products; and,
- Failed to refund interest that accrued when add-on products were cancelled by consumers during the full refund period.
The CFPB order requires the institution to cease its unlawful activities and pay $20 million.
- $10 million in consumer redress;
- $10 million in civil money penalties.
Financial institutions need to be diligent in its oversight of add-on products. While add-on products generate consistent revenue streams, regulators have repeatedly identified material UDAAP weaknesses which resulted in the issuance of orders, redress requirements, and fines. Institutions need to maintain and sustain a strong focus on sales practices, enrollments, and servicing activities. This can be accomplished through the ongoing review of processes and controls; independent evaluations of scripts and marketing materials prior to use; ensuring add-on product benefits provide meaningful value and align with consumer needs; monitoring and testing purchase authorization consent; and assessing sales incentives, financial and non-financial, to ensure they do not result in unintended employee behaviors.
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