On Oct. 7, 2024, the Consumer Financial Protection Bureau (CFPB) released the Supervisory Highlights: Auto Finance Special Edition, Issue 35 (Fall 2024), covering auto finance compliance violations. One area of concern could have widespread implications for credit unions and community banks, including subprime auto loan originators, as it relates to advertising rates.

According to Section 5 of the Federal Trade Commission Act, a representation, omission, act or practice is deceptive when:

• The representation, omission, act or practice misleads or is likely to mislead the consumer; 
• The consumer’s interpretation of the representation, omission, act or practice is reasonable under the circumstances; and 
• The misleading representation, omission, act or practice is material. 

The CFPB found some subprime loan originators engaged in deceptive acts or practices through service providers when they mailed prescreened advertisements marketing “as low as” specified APR rates to consumers who in fact had no reasonable chance of qualifying for or being offered rates at or near that level. The lowest interest rate offered to consumers by the servicers was more than twice the advertised rate. Borrowers would be reasonable to interpret the “as low as” rate as a rate for which they had a reasonable chance of qualifying or being offered since the advertisements indicated the recipients had been prescreened based on information in their credit reports. 

The auto loan companies were ordered to stop advertising specified "as low as” rates to consumers who have no reasonable chance of qualifying for or being offered rates at or near that level.  They also were required to revise policies and procedures to ensure service providers offer prescreened marketing advertisements that include financing terms that are not misleading and are consistent with the type of financing terms the companies’ borrowers have a reasonable chance of obtaining.

What is the takeaway for credit unions and community banks?  Carefully consider advertisements and promotions that include “as low as” rates. Analyze beforehand the probability of the target audience obtaining these rates and consider whether they have a reasonable chance of obtaining the “as low as” rates. If you need help reviewing your advertisements for compliance, Doeren Mayhew's regulatory compliance specialists can help.