Forced Arbitration in Auto Financing

Today, the Consumer Financial Protection Bureau is holding a field hearing in Indianapolis to discuss auto financing and address consumer concerns in the auto lending market. The CFPB is also studying the use of forced arbitration in auto financing and other consumer financial products and services. Here’s one consumer’s experience with an auto finance company and the terms in the fine print:

Claims Against Auto Financing Company for “Convenience” Charges Could Not Be Pursued As a Class Action.

Several states, including Pennsylvania, require that all finance charges for a car loan must be specified in a single contract.[1] A number of car finance companies appear to have flouted this law by imposing, “convenience” charges for making a loan payment by phone or on-line, despite the fact that their contracts did not specify any charge for such a payment. Worse, some finance companies solicited and encouraged borrowers to make telephonic or on-line payments without disclosing the additional “convenience” charges.

This was the case with CitiFinancial Auto Corp. (CitiFinancial) and Santander Consumer USA (Santander) that allegedly charged additional fees ranging from $10 to $15 for each telephonic or on-line payment without any prior disclosure of the charges in the car finance contract.[2] In March 2013, Leyna Novak, a Pennsylvania auto buyer, attempted to pursue a class action lawsuit against CitiFinancial and Santander alleging they violated the Pennsylvania Motor Vehicle Sales Finance Act (MVSFA) by imposing the added unauthorized fees.[3] Unfortunately, Novak did not know that an amended agreement of her auto loan, which she signed in 2009 to modify her payment terms, contained an arbitration clause and class action ban. The terms of the arbitration clause prevented Ms. Novak from pursuing a private action for an alleged wrong doing in a court of law and serving as a class member in a class action.[4]  

“Given Concepcion, once we discovered there was an arbitration clause in Ms. Novak’s amended contract, my hands were tied. I simply could not pursue the claims individually in arbitration because it was not economically feasible to do so,” said Michael Donovan, Novak’s attorney.[5]

Get more sources and details on Ms. Novak’s case in the report (pages 6 and 7): Cases That Would Have Been, Three Years After AT&T Mobility v. Concepcion, Claims of Corporate Wrongdoing Continue to Pile Up.