The Consumer Financial Protection Bureau (CFPB) Wednesday took its first action against a “buy-here, pay-here” car dealer.
According to the CFPB, the dealer, DriveTime, harmed consumers by making harassing debt collection calls and providing inaccurate credit information to credit reporting agencies. DriveTime must pay $8,000,000 as a civil money penalty, end its unfair debt collection tactics, fix its credit reporting practices, and arrange for harmed consumers to obtain free credit reports.
Arizona-based DriveTime Automotive Group, Inc. and its finance company, DT Acceptance Corporation, make up the largest buy-here, pay-here car dealer in the nation. Buy-here, pay-here means that the dealer sells the car as well as originates and services the auto loan.
DriveTime’s average customer has an annual income of $37,000 to $50,000 and has a FICO score between 461 and 554. It operates 117 dealerships in 20 states and, as of December 31, 2013, held more than 150,000 outstanding auto installment contracts.
Generally, at least 45 percent of DriveTime’s auto installment contracts were delinquent at a given time. When DriveTime consumers fell behind on their installment payments, DriveTime’s extensive collections operation began calling them. DriveTime had at least 290 collection employees in two domestic call centers and 80 contractors in Barbados. These employees and contractors placed tens of thousands of collection calls each weekday. At the end of 2013, DriveTime had approximately 69,000 installment contracts past due that these employees would have been calling about.
The CFPB found that DriveTime violated federal consumer financial laws, through Dodd-Frank’s UDAAP provision, with actions such as:
- Harassing borrowers at work: DriveTime collectors often called borrowers at work, and DriveTime management encouraged these calls.
- Harassing borrowers’ references: DriveTime required consumers to provide the names and phone numbers of at least four references when they applied for financing. When consumers fell behind on their payments, DriveTime called these references.
- Making excessive, repeated calls to wrong numbers: To reach consumers who fell behind, DriveTime frequently used third-party databases to find new phone numbers. These databases were often wrong. Upon receiving DriveTime’s calls, numerous third parties told DriveTime they had the wrong number and requested that DriveTime stop calling them. Despite such requests, DriveTime continued to make these calls. In some cases, DriveTime called these wrong numbers for over a year before stopping.
- Providing inaccurate repossession information to credit reporting agencies: DriveTime furnishes consumer account information for approximately 350,000 accounts to all three major consumer reporting agencies. In a number of cases, DriveTime gave the agencies information that inaccurately reflected the timing of repossessions and dates of first delinquency.
- Failing to properly handle credit information furnishing disputes: DriveTime also mishandled consumers’ complaints about the inaccurate information it had provided to the credit reporting agencies. In several instances, consumers disputed the same account information several times without the inaccurate information being corrected. In other cases, DriveTime informed the consumers in writing that the information had been corrected, when it had not been. This was a violation of the Fair Credit Reporting Act, which requires that companies properly investigate disputes.
- Failing to implement reasonable procedures to ensure the accuracy of consumers’ credit information: DriveTime failed to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information it furnished to credit reporting agencies.
Pursuant to the Dodd-Frank Act, the CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices or that otherwise violate federal consumer financial laws.
The CFPB’s consent order requires DriveTime to:
- End unfair calling practices
- Disclose collection options to consumers
- Cease furnishing inaccurate repossession information
- Correct credit reporting information
- Provide credit reports to harmed consumers
- Implement an audit program
- Pay an $8 million penalty