The Consumer Financial Protection Bureau took its first action ever against a car dealership last week. DriveTime Automotive Group Inc., an Arizona-based company that sells vehicles as well as originating and servicing auto loans, was the target. The CFPB alleges that DriveTime’d debt collection practices harmed customers. The proposed consent order can be found here.
DriveTime and its finance company, DT Acceptance Corporation, make up one of the largest so-called “buy here, pay here” used automobile retailers in the United States, operating 117 dealerships in 20 states and holding more than 150,000 outstanding auto installment contracts. “Buy-here, pay-here” dealers typically target economically vulnerable subprime borrowers, offering high-interest loans and aggressive repossession tactics. In DriveTime’s case the average customer has an annual income of $37,000 to $50,000 and a FICO score between 461 and 554.
According to the CFPB, at least 45 percent of DriveTime’s auto installment contracts were delinquent at any given time, with approximately 69,000 installment contracts past due at the end of 2013.
When customers fell behind on their installment payments, DriveTime’s extensive collections operation, which consists of 290 collection employees in two domestic call centers and 80 contractors in Barbados, allegedly began aggressively placing calls.
The CFPB alleges that often the collection calls and practices utilized by DriveTime were in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which establishes that companies’ practices can be found unfair if consumers cannot reasonably avoid being harmed. Harmful consumer debt collection practices allegedly employed by DriveTime fall into four broad categories.
One was harassing borrowers at work. The CFPB found that DriveTime collectors often called borrowers at work, and DriveTime management encouraged such calls. Several consumers tell the CFPB they requested DriveTime not to call them at work, but the company continued anyway.
Another objectionable practice was harassing borrowers’ references. DriveTime customers were required to provide the names and phone numbers of at least four references when they applied for financing. When customers fell behind on payments, the company allegedly called those references repeatedly.
DriveTime also is accused of providing inaccurate and late dates of delinquencies and repossessions to credit reporting agencies. This action made it appear on consumers’ credit reports that consumers’ vehicles had been repossessed more recently than the actual repossession.
Finally, the CFPB alleges that DriveTime systematically failed to implement reasonable procedures to ensure the accuracy of consumers’ credit information. The written records and procedures put in place by DriveTime were not appropriate to the nature, size, complexity, and scope of its furnishing activities.
In additional to an $8 million penalty, the CFPB consent decree requires DriveTime to discontinue its harmful practices and revamp its policies and procedures.