WASHINGTON The Consumer Financial Protection Bureau made clear its intent to target nonbank auto lenders even before the agency begins formally supervising the sector.
Now, the agency has hit the dealer DriveTime Automotive Group, and its financing arm DT Acceptance Corp., with an $8 million fine, alleging that the group made overly aggressive debt collection calls and provided inaccurate data to the credit reporting agencies. It was the first CFPB enforcement action against a so-called "buy-here, pay-here" dealer, which both sells the car and originates and services the loan.
"Consumers who purchase a car at a buy-here, pay-here dealer deserve to be treated fairly," said CFPB Director Richard Cordray in a press release. "DriveTime harassed and harmed countless consumers, many of whom were economically vulnerable. Our action today forces DriveTime to pay the price for its illegal debt collection tactics and for neglecting the accuracy of consumers' credit information."
The enforcement action, which requires DriveTime to arrange for free credit reports for affected customers, was yet another sign of the bureau's continued interest in the auto sector, where it sees concerns about lending practices. The agency said DriveTime is the nation's largest buy-here, pay-here dealer in the nation. Yet the auto industry has questioned whether the CFPB even has authority to look beyond traditional auto lenders to the dealers that facilitate loan transactions.
The fine announced Wednesday also preceded completion of a formal policy to subject nonbank auto lenders to CFPB exams. In September, the agency proposed a rule to oversee larger nonbank car lenders under special authority granted by the Dodd-Frank Act. But that rule has yet to be finalized. Still, the order states DriveTime conceded there were "facts necessary to establish the bureau's jurisdiction over DriveTime and the subject matter of this action."
"Currently, the CFPB supervises large banks that provide auto loans, but not nonbank finance companies," Jon Ehlinger, DriveTime's executive vice president and general counsel, said in an emailed statement. Under the proposal, he added, "it appears that DriveTime will be subject to supervision by the CFPB beginning as early as 2015."
With the exception of acknowledging the CFPB's authority, DriveTime neither admitted nor denied the agency's conclusions in the order. The bureau alleged that DriveTime hired debt collectors to repeatedly call and "harass" consumers who were late in repaying auto installment loans. The company had at least 290 collection employees domestically and 80 contractors in Barbados who made "tens of thousands of collections calls each weekday," the CFPB said. Roughly 69,000 installment loans were past due at the end of 2013, according to the agency.
"DriveTime collectors often called borrowers at work, and DriveTime management encouraged these calls," the CFPB said. "Several consumers requested that DriveTime not call them at work but DriveTime kept calling anyway. For example, one consumer was unfairly called 30 times at work after her do-not-call request."
DriveTime also harassed references that borrowers had listed on their loan applications, the order alleges. The CFPB said that even when DriveTime used third-party databases to find a borrower's phone number, and ended up getting the wrong phone number, collection agents would repeatedly call that wrong number despite requests to stop.
Among other requirements, the CFPB ordered DriveTime to stop calling consumers' workplaces and making calls to wrong numbers; disclose collection options to consumers in writing; and correct inaccurate information on car repossessions that it had reported to the credit reporting agencies.
Ehlinger said that DriveTime has already sought to address concerns about its customer service and credit bureau reporting. DriveTime has 117 dealerships in 20 states. It typically lends to subprime borrowers with average customer FICO scores of between 461 and 554.
"Over the last several years, prior to the initiation of the CFPB investigation, DriveTime had taken and has continued to take steps to enhance its customer experience, and loan servicing activities, including the handling of do not call requests and credit reporting," he said. "We look forward to an ongoing relationship with the agency, and hope to establish a constructive dialogue designed to improve our customer service and compliance practices in the years ahead."