On Thursday, January 21, 2016, the CFPB entered into a consent order with a small buy-here pay-here used car dealer. This is the third CFPB settlement against a buy-here pay-here dealer. The settlement resolves allegations that the dealer inaccurately disclosed finance charges to consumers in violation of the Truth in Lending Act (“TILA”) and the prohibition on deceptive acts or practices, and engaged in abusive sales practices.
The dealer offered financing to subprime consumers for used vehicles in the form of retail installment contracts. The CFPB alleged that the dealer would negotiate price terms with consumers paying in cash, but not credit consumers. The CFPB argued that the dealer should have disclosed the costs of a repair warranty and the GPS payment reminder device as finance charges because they were charged to credit consumers and not cash consumers. The CFPB also alleged that the practice of allowing cash consumers to negotiate price terms led to greater dealer markup on credit consumers. The CFPB argued that the discount for cash consumers was a hidden finance charge to credit consumers and should have been disclosed.
The CFPB also alleged that the dealer’s advertisements contained an inaccurate annual percentage rate (“APR”) in violation of TILA and the prohibition on deceptive acts or practices. The CFPB argued that the costs of the repair warranty, GPS payment reminder device, and dealer markup resulted in an APR significantly higher than the rate advertised.
Finally, the CFPB alleged that the dealer’s sales tactics were abusive. The dealer did not display prices on the vehicles on the lot and allegedly did not disclose the prices of the vehicles until after the consumer applied for credit and indicated a desire in moving forward with the transaction. The CFPB argued that this practice, combined with the allegedly inaccurate credit terms described above, left consumers unable to protect their own interests, thereby constituting an abusive practice.
The dealer must pay $700,000 in consumer redress and pay a $100,000 civil money penalty, which will be suspended upon satisfaction of the consumer redress requirement due to respondent’s inability to pay. The dealer must also improve its disclosures and obtain consumers’ signed acknowledgement of those disclosures.
This settlement is the CFPB’s third against a buy-here pay-here dealer in just over a year, and is against a dealer with approximately 1,000 originations per year. Prior settlements resolved allegations of improper debt collection and credit reporting practices. These settlements demonstrate the CFPB’s growing interest in all aspects of the auto finance market, particularly those institutions that operate in the subprime market.