Santander Bank is on the verge of facing action from the Consumer Financial Protection Bureau (CFPB) due to allegedly overcharging customers who were taking out auto loans with Santander according to Reuters. This action could be as soon as this week. Santander has not officially commented on media requests at the moment.
So what is the deal? Well, like many of the banks and entities that have been put on the CFPB hot seat, Santander bank is charged with overcharging its customers. The lawsuit focuses on guaranteed auto protection (GAP) coverage, a financial product that Santander Bank offers with auto loans.
GAP covers car buyers for serious collisions and accidents, and it’s an additional coverage to pre-existing auto insurance. In some cases, GAP could cover the full balance of an auto loan provided that auto insurance covers the cost of replacement.
While it sounds beneficial, this product is under scrutiny for potentially being used to overcharge Santander’s auto loan borrowers.
Santander Bank’s financial product is typically sold at the dealership level, and the costs associated with the product are generally included in the car loan. However, for those who did purchase the product, it is alleged that these clients saw a dramatic increase in their loan rates when GAP was added. Federal and state officials are looking into the matter. If the rate increases are not on par with the value of GAP coverage, then a potential lawsuit could be applicable.
This is not the first time Santander Bank has been in trouble with regulators. Earlier this year, Santander was fined $10 million for “illegal overdraft practices.” In 2015, the company settled a $9.35 million suit with the Justice Department for improperly repossessing cars of active and recently retired U.S. servicemen and woman.
For consumers, this is good news. Although currently facing their own leadership challenges, the Consumer Financial Protection Bureau is still active in oversight, and this action could potentially help auto loan borrowers save some money. These kinds of probes should help consumers in the long run, so long as allegations are not unfounded.
Critics Are Split on the CFPB
Some critics claim the CFPB levies fines and takes action without ample basis while others believe the CFPB’s actions are absolutely necessary. There are two ways to look at it, and they are situated on either side, and both have a different impact on consumers.
First, critics argue the CFPB’s actions could establish a dangerous regulation precedent and foster an environment that discourages banks and financial companies from doing business. If this precedent results from hasty actions, then critics argue the CFPB would hurt the financial industry unnecessarily, and consequently, consumers may be harmed due to limited business opportunities with such discouraged companies.
On the other hand, supporters of the CFPB claim these actions are instrumental in holding businesses accountable for faulty practices. Needless to say, if a bank was drastically overcharging its consumers illegally, this is a big problem that needs to stop. Since the CFPB has the power to punish such companies for malpractice as well as cover consumers for their losses, supporters would say this is an extremely important task that the CFPB must handle. Consumers would benefit because they can expect fair business and treatment from financial companies.
At any rate, it’s a two-way street. The CFPB can certainly be criticized for hurting business and consumers, but it can also be useful in protecting consumers. The future leadership changes will play a critical role in the CFPB’s future. It remains to be seen which side of the street this change will take consumers down.