Why it matters

Continuing its focus on the auto lending industry, the Consumer Financial Protection Bureau (CFPB) ordered Westlake Services LLC and subsidiary Wilshire Consumer Credit LLC to pay roughly $48 million for what the agency said were deceptive debt collection practices used to coerce borrowers to make payments on car loans. Employees of the California-based indirect auto lender sometimes posed as pizza delivery workers or family members using fake caller ID information to contact borrowers, the CFPB said. The defendants also threatened to have borrowers arrested or criminally prosecuted. The Bureau alleged that the defendants misled borrowers about monthly interest rates with false statements in advertisements as well as neglected to tell borrowers about the effect of changing payment dates or extending loan terms, resulting in more interest over the life of the loan. To settle the charges, the defendants agreed to pay a $4.25 million civil penalty and provided $44.1 million in restitution and reductions in loan balance to borrowers.

Detailed discussion

The automotive industry has faced heavy scrutiny from regulators over the last few months, with enforcement actions by the Federal Trade Commission and the New York Attorney General’s Office. In addition, the Consumer Financial Protection Bureau (CFPB) released its final rule providing oversight of larger participants in the nonbank auto-financing ecosystem.

Most recently, the Bureau announced an enforcement action against an indirect auto finance company and its auto title lending subsidiary. California-based Westlake Services LLC and Wilshire Consumer Credit LLC ran afoul of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Truth in Lending Act (TILA), and the Fair Debt Collection Practices Act (FDCPA) by relying upon illegal debt collection tactics, the Bureau said.

Westlake specialized in purchasing and servicing auto loans, particularly subprime and near-subprime loans, which it purchased nationwide, while Wilshire also offered auto title loans directly to the consumers via the Internet and serviced loans as well and serviced other loans.

According to the CFPB, the companies used false pretenses to gain access to borrowers, sometimes posing as a repossession company, making explicit or implicit threats to repossess the borrowers’ vehicle. On other occasions they presented themselves as an unrelated business, such as a pizza delivery service or flower shop. These deceptions were made possible by the use of a Web-based service that allowed the companies to choose the phone number and caller ID text displayed for the recipient, the CFPB said.

Borrowers were threatened with criminal prosecution, tricking them into believing they needed to make an urgent payment to avoid an investigation and criminal charges. Where a vehicle had already been repossessed, the companies implied that a payment would get the car released even if that was not the case. Information about debts was disclosed to employers, friends, and family without the permission of the borrower, according to the CFPB.

In addition to the deceptive debt collection practices, Westlake and Wilshire violated federal law with their advertising, customer relations, and account servicing practices, the Bureau alleged. Some collectors changed the due dates on accounts or extended the term of a loan without consulting the borrower or telling them that the change would have a positive effect.

The actual result, the Bureau said: borrowers ended up owing additional interest over the life of the loan.

The companies’ disclosures were also found lacking. Borrowers were not informed of the annual percentage rate (APR) as required by federal law. Instead, Wilshire buried the annual rates in small text and representatives speaking with prospective borrowers would quote a monthly rate or other rate, not the APR.

The CFPB ordered the companies to “overhaul” their debt collection practices and pay a total of more than $48 million: a $4.25 million civil penalty and $44.1 million in redress to borrowers, broken down as $25.8 million in cash and the rest in loan balance reductions.

Going forward, Westlake and Wilshire must comply with the relevant sections of Dodd-Frank, as well as the FDCPA and TILA. The companies can no longer disclose borrowers’ information to third parties, must end unlawful advertisements, and provide borrowers with truthful information about their loans, pursuant to the consent order.

To read the consent order in In the Matter of Westlake Services, click here.