Buy Here, Pay Here: What to Do if the CFPB Comes Knocking

© Can Stock Photo Inc. / focalpointThis week, the Consumer Financial Protection Bureau leveled an $8 million civil penalty fine against Phoenix-based DriveTime Automotive Group, the nation’s largest “Buy here, pay here” dealership.

According to the bureau, DriveTime allegedly made “harassing debt collection calls” and provided inaccurate credit information to credit reporting agencies. Despite the fact that DriveTime admitted to no wrongdoing in the case, the bureau also ordered the company to take corrective actions, including free credit reports for the impacted consumers.

DriveTime’s fate was foreshadowed by Rick Hackett, former CFPB assistant director focusing on auto lending regulation and current partner at Hudson Cook, who, in a presentation shortly after the bureau announced its proposal to supervise non-bank auto lenders, predicted further scrutiny of the “Buy here, pay here” sector of the market, as well as how best to handle CFPB supervision.

Don’t Forget About Sales

Finance and sales go hand in hand at a dealership. Companies should also take note, he advised, of how that relationship can open them up to enforcement actions related to sales procedures. During the course of supervising the finance process, a CFPB examiner may find something is amiss in sales, which could give the bureau cause to trigger an investigation.

Smaller “Buy Here, Pay Here” Beware

The CFPB’s larger participant rule proposes supervision over non-bank auto lenders who purchase more than 10,000 contracts per year, so while small to medium-size BHPH dealers may not fall under direct bureau supervision, they are not exempt from penalties. The CFPB, Hackett warns, can still levy enforcement actions against BHPH dealers if they sell contracts to a purchaser supervised by the CFPB. Dealers’ data, he said, will show up in the purchaser’s reporting, so anything strange would likely be detected.

Be Prepared

As always, Hackett advises all lenders – regardless of type or size – to adopt and execute a comprehensive compliance management system. If you don’t already have this in place, he said, you’re already behind.




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