Last week, the Consumer Financial Protection Bureau (“CFPB” or “the Bureau”) filed a consent order against “buy-here, pay-here” (BHPH) auto dealer Interstate Auto Group d/b/a Car Hop (“Car Hop”), and its affiliated financing company, Universal Acceptance Corporation (UAC), assessing a $6,465,000 civil penalty for violations of the Fair Credit Reporting Act (FCRA) and the Dodd Frank Consumer Financial Protection Act (CFPA) prohibitions against deceptive acts and practices.
BHPH dealers typically sell vehicles to consumers with poor or insufficient credit histories in need of deep subprime credit. BPHP dealers may both originate and service the loans, at times through affiliated lenders, rather than selling them to third-party indirect lenders with more stringent credit guidelines. According to the Bureau, Car Hop is the nation’s largest BHPB dealer, with 50 locations in 15 states. Car Hop furnished credit for consumer automobile purchases through its related company, UAC, making it a “covered person” under the CFPA. The CFPB also found Car Hop subject to CFPB enforcement authority because it “operates a line of business [involving] extension of retail credit directly to consumers” and does not routinely assign contracts to unaffiliated third party sources.” Instead, CarHop assigned the contracts to UAC, which in turn reported customer account information to consumer reporting agencies (CRAs) on a monthly basis using industry standard electronic format.
The FCRA (§1681s-2(a)) prohibits a furnisher from reporting consumer information to a CRA that the furnisher knows or has reasonable cause to believe is inaccurate.” The CFPB’s Reg V furnisher rule requires furnishers to establish and implement reasonable written policies and procedures regarding the accuracy of consumer information provided to CRAs. §1031 of the CFPA prohibits “unfair, deceptive, or abusive practices” in offering or providing consumer financial products and services.
In its investigation, the Bureau found that on numerous occasions between 2009 and 2013, and on “a wide-spread and systematic basis,” UAC furnished information to CRAs “which it had reason to believe was inaccurate,” affecting more than 84,000 customers. The Bureau said that the information could harm the customers by lowering credit scores, hindering their ability to obtain credit, and hurting job application prospects. UAC also failed to specify an address to which consumers could send notice that information furnished was inaccurate. The CFPB found UAC violated the FCRA and Reg V Furnisher Rule by:
- Reporting inaccurate information on consumers who returned vehicles: Although CarHop permitted customers to voluntarily return vehicles within 72 hours of purchase for a full refund without any penalty or obligation, for some customers who did so, UAC inaccurately reported that the cars had been repossessed, that the consumers still owed money, that the account was paid or closed, or showed a charge off amount.
- Reporting inaccuracies associated with resolved disputes: CarHop often resolved disputes by accepting return of the vehicle and providing the customer with a notice that his or her account was settled with no further financial obligations. But UAC continued to inaccurately report information that said that the vehicle had been repossessed and the customer still had an outstanding balance or had been charged off, for months and years after some customers returned their vehicles and received the notice.
- Failing to establish and implement reasonable written policies and procedures regarding the accuracy of consumer information provided to the CRAs until 2013.
Deceptive acts and practices found to be in violation of the CFPA involved marketing misrepresentations. Specifically, Car Hop represented to consumers that it reports “good credit” to the credit reporting companies and emphasized its part in “helping them build and maintain good credit.” However, through UAC, the company failed to furnish certain positive information, including information that would support “good credit,” for tens of thousands of consumers. The CFPB found that CarHop’s misrepresentations were material and likely to mislead consumers, in violation of §1031 (a) and 1036(a)(1)(B) of the CFPA. Under the terms of the CFPB orders, in addition to paying the $6,465,000 civil penalty CarHop and UACmust:
- Stop misrepresenting that they will report “good credit” or other positive information to the credit reporting companies.
- Notify the CRAs of inaccuracies reported by UAC and provide corrected information or request deletion of incorrect information if accurate information is not available.
- Provide free credit reports to harmed consumers
- Develop and Implement a process for auditing information furnished to CRAs to ensure accuracy of reported information, including monitoring and evaluating disputes received.
- The consent order can be found on the CFPB website.