The Consumer Financial Protection Bureau made its first enforcement action in the buy-here, pay-here space and handed out an $8 million penalty against one of the largest operations in the business — DriveTime Automotive Group.
CFPB officials said late Wednesday that DriveTime harmed consumers by making harassing debt collection calls and providing inaccurate credit information to credit reporting agencies.
The bureau said DriveTime must pay $8 million 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.
“Consumers who purchase a car at a buy-here, pay-here dealer deserve to be treated fairly,” CFPB director Richard Cordray said. “DriveTime harassed and harmed countless consumers, many of whom were economically vulnerable.
“Our action forces DriveTime to pay the price for its illegal debt collection tactics and for neglecting the accuracy of consumers’ credit information,” Cordray continued.
In an exclusive statement to BHPH Report sent today, DriveTime executive vice president and general counsel Jon Ehlinger shared the company’s reaction to the actions handed out by the bureau.
“We are pleased to have a resolution to the Consumer Financial Protection Bureau (CFPB) investigation, and appreciate and acknowledge the professionalism shown throughout the process by the CFPB and its enforcement staff,” Ehlinger said.
“Currently, the CFPB supervises large banks that provide auto loans, but not nonbank finance companies. Under a recent proposal to oversee large nonbank lenders, it appears that DriveTime will be subject to supervision by the CFPB beginning as early as 2015,” he continued.
“DriveTime strives to comply with all applicable laws and provide exemplary service to our customers. 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,” Ehlinger went on to say.
“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,” he added.
Ehlinger also mentioned that DriveTime is encouraging any customer with questions or concerns to the company by visiting a special website at .
Breakdown of Actions
The bureau’s investigation showed DriveTime’s average customer has an annual income of $37,000 to $50,000 and has a FICO score between 461 and 554.
DriveTime operates 117 dealerships in 20 states and, as of Dec. 31 of last year, held more than 150,000 outstanding auto installment contracts.
Generally, the CFPB insisted that 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, the bureau described DriveTime’s “extensive” collections operation began calling them.
The CFPB said 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, the CFPB determined DriveTime had approximately 69,000 installment contracts past due that these employees would have been calling on.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) establishes that companies’ practices can be unfair if consumers cannot reasonably avoid being harmed. The bureau determined that several of DriveTime’s debt collection practices were unfair to consumers.
The CFPB found that DriveTime violated federal consumer financial laws and harmed consumers through illegal actions such as:
— Harassing borrowers at work: DriveTime collectors often called borrowers at work, and DriveTime management encouraged these calls. Several consumers requested that DriveTime not call them at work but the CFPB said DriveTime kept calling anyway. For example, officials indicated one consumer was unfairly called 30 times at work after her do-not-call request.
— 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, the bureau indicated DriveTime called these references. Many borrowers and references requested that DriveTime no longer make these calls, but DriveTime did not stop, according to the CFPB. Officials added Some references complained that DriveTime collectors called them for months after they had requested that the company stop. The CFPB determined that this practice was unfair to consumers.
— Making excessive, repeated calls to wrong numbers: To reach consumers who fell behind, DriveTime frequently used third-party databases to find new phone numbers. The bureau determined 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, according to officials. Despite such requests, the CFPB indicated 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, the CFPB found that DriveTime gave the agencies information that inaccurately reflected the timing of repossessions and dates of first delinquency. The bureau explained this situation made it appear on consumers’ credit reports that consumers’ vehicles had been repossessed more recently than the actual date of repossession.
Officials believe this information can have a negative effect on consumers’ credit reports, which in turn can impact their ability to get credit, employment, or housing. The Fair Credit Reporting Act prohibits companies from furnishing inaccurate information when they know or have reasonable cause to believe the information is inaccurate.
— Failing to properly handle credit information furnishing disputes: The CFPB said DriveTime also mishandled consumers’ complaints about the inaccurate information it had provided to the credit reporting agencies. In several instances, officials recounted that consumers disputed the same account information several times without the inaccurate information being corrected. In other cases, the bureau noted 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: The bureau determined 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. The policies and procedures it had in place were not appropriate to the nature, size, complexity, and scope of its furnishing activities, according to officials. The Fair Credit Reporting Act requires that companies have policies and procedures in place to ensure the accuracy and integrity of consumers’ credit information.
More Details About Enforcement Action
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: DriveTime must not communicate with consumers at their workplaces if consumers have requested that DriveTime not call them there or if DriveTime otherwise knows that the consumers’ employers prohibit communications to their workplaces. DriveTime must not call a particular phone number related to an account if any person has requested, orally or in writing, that DriveTime stop calling such number.
— Disclose collection options to consumers: DriveTime must provide a clear and conspicuous written notice to existing customers explaining how they can limit the times of day that DriveTime will call them. For all new customers, DriveTime must provide this notice as part of a written welcome kit. DriveTime must also provide this notice on the welcome call and, if applicable, at the time of the first collection call on the account. DriveTime must accept customers’ oral or written requests to limit calls.
— Cease furnishing inaccurate repossession information: DriveTime must stop furnishing information related to the repossession of a consumer’s vehicle, unless the company has confirmed that the information is correct.
— Correct credit reporting information: If DriveTime furnished information to a credit reporting agency that was inaccurate for multiple accounts for similar reasons, the company must provide corrected information to the agency or request that the agency delete the wrong information from the consumer’s file.
— Provide credit reports to harmed consumers: For those consumers about whom DriveTime furnished inaccurate credit information, DriveTime must provide a notice that explains how to obtain a free credit report from each of the nationwide consumer reporting agencies. If the customer has already received a free report during the preceding 12 months, DriveTime must arrange for the customer to obtain a credit report free of charge.
— Implement an audit program: DriveTime must implement a process for auditing information it furnishes to the credit reporting agencies on a monthly basis and monitoring the disputes it receives. The audit is designed to ensure the integrity and accuracy of the information.
— Pay an $8 million penalty: DriveTime will pay an $8 million penalty to the CFPB’s Civil Penalty Fund.