CFPB Enters Consent Order With Auto Dealer Over Finance Charges

Enforcement_COOn January 21, the Consumer Financial Protection Bureau (CFPB) announced that it had entered into an administrative consent order with a Colorado “buy here, pay here” used car dealer related to its auto loan financing practices between January 2012 and May 2014.  The consent order alleged that the auto dealer hid the total cost of its vehicles by initiating credit applications and then steering customers to vehicles based on the dealer’s assessment of the customer’s ability to pay a certain monthly payment.  The auto dealer and customer would then execute a retail installment sales contract without the total price of the vehicle being discosed to the customer until the contract was executed.  The consent order further alleged that the auto dealer represented to customers that it would lower the APR of customers who simultaneously purchased a $1,650 repair warranty.  Because this one-time payment offset the reduced APR, the consent order alleged that the auto dealer’s failure to disclose this “finance charge” violated the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R. § 1026.4(a).  The consent order further alleged that the auto dealer required each customer using credit to purchase a GPS payment reminder device to install in their vehicle, but that it failed to disclose this $100 “finance charge,” which also violated TILA and Regulation Z.

Because customers using credit allegedly lacked the ability to negotiate the price of their vehicle, the consent order further alleged that certain vehicle markups were higher for credit customers than cash customers.  The CFPB alleged that this difference was an undisclosed “finance charge” under Regulation Z because it incentivized paying for a vehicle by means other than credit.  By failing to disclose these finance charges, and by using misleading advertisements regarding APR, the consent order alleged that the auto dealer engaged in deceptive acts or practices in violation of the Consumer Financial Protection Act (CFPA), 12 U.S.C. §§ 5531, 5536(a)(1)(B).  Finally, the consent order alleged that the auto dealer engaged in abusive acts or practices under the CFPA by employing sales practices that took advantage of customers by masking APR and failing to disclose the actual costs of the vehicles being sold.

The consent order requires the auto dealer to pay $700,000 in redress to affected consumers, pay a (suspended) $100,000 civil money penalty, and establish a compliance plan approved by the CFPB.