Massachusetts DOB Fines Auto Finance Company for Exceeding APR Cap

Massachusetts Division of Banks

On July 25, 2017, the Massachusetts Division of Banks (DOB) entered into a consent order with a motor vehicle sales finance company and its subsidiary, resolving allegations that its charges for motor vehicle retail installment contracts exceeded the APR cap under Massachusetts law.

In March 2016, the Massachusetts Office of the Attorney General (AG) and the company voluntarily entered into an Assurance of Discontinuance (AOD)—which was binding upon the company and any of its agents, subsidiaries and subdivisions—concerning the AG’s allegations that the company violated Massachusetts General Law c. 93A, §2, by charging an impermissible APR when debt cancellation coverage (GAP) premiums were included as part of the finance charge.  Under the AOD, the company agreed to refund all finance, delinquency, and collection charges, and waive all future charges, for any motor vehicle retail installment contracts it purchased where the inclusion of GAP in the calculation caused the APR to exceed 21%.  However, the DOB alleged that from January 16, 2015 through December 20, 2016, the subsidiary purchased 157 motor vehicle retail instalment contracts from one or more retail sellers while operating without a license from the DOB, and of those contracts, 33 had APR in excess of 21%.  These accounts were not included in the universe of “Affected Loans” remediated under the AOD, and thus finance charges for the affected consumers were not refunded in the manner prescribed by the AOD.

The consent order requires that the subsidiary cease engaging in the activity of a motor vehicle sales finance company in Massachusetts without first obtaining the appropriate license from the DOB, and pay an administrative penalty of $50,000.00.  Further, in accordance with the remediation procedures set forth in the AOD, the company and/or the subsidiary must, for the 33 affected contracts, refund all charges and waive all future charges.  The subsidiary must also implement controls to ensure it does not acquire Massachusetts motor vehicle retail installment contracts with APRs in excess of 21% when GAP is included.

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