The Consumer Financial Protection Bureau expanded its probe into the car loan industry by issuing subpoenas to auto lenders over the sale of financial products such as extended warranties, the Wall Street Journal reported, citing people familiar with the investigation.
The consumer bureau is investigating whether terms and prices for auto loans, as well as additional products like extra insurance, are properly disclosed. The probe follows a similar investigation into deceptive marketing practices by credit card companies, the Journal said.
The consumer bureau, created by the 2010 Dodd-Frank financial law and given authority over mortgages, credit cards and other products, has not yet decided if it will investigate the financial arms of automakers, but it does have the authority to fine them if it decides they have broken the law, the Journal said, citing agency officials.
The U.S. Justice Department will also investigate car retailers that give loans to customers with poor credit ratings at a high rate of interest, the Journal said, citing comments by Jon Seward, deputy chief of the department’s housing and civil-enforcement section.
Seward said: “In response to a question about abusive practices associated with buy-here, pay-here dealerships, I responded that DOJ was focused on such issues, but that nothing was public at this time.”
Under the terms of Dodd-Frank, the bureau has no jurisdiction over franchised auto dealers who arrange loans for consumers. The bureau does have authority over buy-here, pay-here stores that typically make loans themselves.
The bureau warned auto lenders against high interest loans in March, saying that the practice discriminates against certain minorities.
Research by the bureau has shown dealers often attach higher markups to loans made to African-American and Hispanic borrowers.
The CFPB could not be reached for comment by Reuters outside of regular business hours.