Take Note of GAP Abuses & Other Violations in CFPB’s Recent Order

Going into 2023, California credit unions should be aware of certain guaranteed asset protection (GAP) product violations and other abuses that were noted in the Consumer Financial Protection Bureau’s (CFPB) consent order issued to Wells Fargo Bank in December that alleges improper practices.

The CFPB’s order states Wells Fargo must pay more than $3.7 billion because it violated an assortment of federal consumer protection regulations, including $2 billion in redress to more than 16 million consumers and a $1.7 billion civil penalty for legal violations.

While the California and Nevada Credit Union Leagues have continued to call on the CFPB to consider how credit unions set themselves apart from other financial service providers (especially those with a history of bad behavior) and tailor its rulemakings appropriately, credit unions should still take note of key findings within the CFPB’s latest consent order.

The bureau’s enforcement action outlines Wells Fargo’s repeated violations over a period of several years and across many of the bank’s largest product lines, including:

• Failure to ensure borrowers received a refund for GAP products when a loan ended early. California’s Assembly Bill 2311 — which creates rights and remedies for consumers who purchase GAP waivers in connection with the purchase of a vehicle pursuant to a conditional-sale contract — went into effect Jan. 1. You can read the California Credit Union League’s detailed summary.
• Illegally assessed fees and interest charges on auto and mortgage loans, unlawfully repossessed vehicles, and payments to auto and mortgage loans misapplied by the bank.
• Illegally charged, unlawful surprise overdraft fees on debit purchases and ATM withdrawals, even if consumers had enough money in their accounts at the time of the transaction. The CFPB  and other federal regulators cautioned financial institutions against this practice, known as authorized positive fees, as early as 2015. Additionally, in October 2022 the CFPB released guidance on “illegal junk fees” on deposit accounts.
• Improperly denied mortgage modifications that covered a seven-year period, and in some cases they resulted in consumers losing their homes to wrongful foreclosures.
• Unlawfully frozen consumer accounts and fee waiver misrepresentation based on a faulty automated filter’s determination that there may have been a fraudulent deposit, even when the bank could have taken other actions that would have not harmed customers.

Click here to read the CFPB’s actual consent order.

For background and context, read League Summarizes Steps Required for GAP Waiver Purchases in CA.