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In its first enforcement order of the year, the CFPB took aim at the financing practices of a buy here pay here auto dealer. “Buy here pay here dealers” sell the car and originate the auto loan without selling it to a third party.
The CFPB in its press release noted the dealer engaged in abusive financing schemes, hid auto finance charges and misled consumers. The consent order requires the dealer pay $700,000.00 in restitution to consumers and levies a civil monetary penalty of $100,000.00 on the dealer. The civil penalty has been suspended based upon the dealer’s inability to pay. Additionally, the CFPB once again sets forth specific remediation requirements that those in the auto industry should review carefully and always consider.
According to the findings, which are set forth in the Consent Order and are neither admitted nor denied by the dealer, the dealer sold used cars and provided onsite financing to consumers. According to the Consent Order, 98 percent of all purchases were financed onsite and over a two-year period, the dealer offered auto-financing to approximately one thousand people per year. The dealer required consumers to complete credit applications before being shown any cars. Once the dealer determined the monthly payment the consumer could afford, the dealer would only show the consumer vehicles in the dealer’s inventory that met the monthly payment ability of the consumer. None of the cars on the lot displayed purchase prices and the purchase price was not disclosed to the consumer until after the consumer had test driven the car and was ready to purchase the car. The dealer required that, as a condition of providing financing, the consumers agree to purchase a $1,600.00 service contract and a $100.00 GPS payment reminder device. As part of the dealer’s regular practice, the dealer would not negotiate the purchase price of the car with finance customers, though the dealer would negotiate purchase prices with cash customers. Put simply, customers who obtained financing were treated differently by being required to pay full price, purchase a service contract and a GPS reminder device.
Pursuant to the Consent Order, the dealer violated the Truth in Lending Act, as well as the Dodd-Frank UDAAP provision as follows:
Auto dealers should review the Consent Order and take note of several points:
Buy here pay here dealers are encouraged to review their current policies and procedures in light of the Consent Order and adjust their practices accordingly.
Caren Enloe is a partner who concentrates her practice in consumer financial services litigation and compliance, bankruptcy, and commercial litigation with an emphasis on creditor’s rights. She has a deep understanding of the complex compliance environment surrounding the financial services industry and regularly advises financial service companies on licensing and compliance issues involving state and federal consumer protection and finance statutes. Caren is the author of a daily blog titled: Consumer Financial Services Litigation and Compliance where she posts timely and informative updates regarding the CFPB, FTC, and a host of topical litigation issues involving consumer protection law....LEARN MORE