By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MOTOR VEHICLE SALES FINANCE
COMPANY LICENSING
Docket No. 2009-011

CONSENT ORDER


In the Matter of
FAFAMA AUTO SALES, INC.
Hopedale, Massachusetts

Motor Vehicle Sales Finance
Company License No. MV0548


WHEREAS, FAFAMA AUTO SALES, INC., Hopedale, Massachusetts ("Fafama" or the "Corporation"), a licensed motor vehicle sales finance company under Massachusetts General Laws chapter 255B, section 2, has entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER ("Consent Agreement") with representatives of the Division of Banks ("Division") dated February 27, 2009, whereby, solely for the purpose of settling this matter, and without admitting any allegations or implications of fact or the existence of any violation of state or federal laws and regulations governing the conduct and operation of a motor vehicle sales finance company, Fafama agrees to the issuance of this CONSENT ORDER ("Order") by the Commissioner of Banks ("Commissioner");

WHEREAS, an examination/inspection of Fafama was conducted pursuant to General Laws chapter 255B, section 3, as of October 29, 2007, to assess the Corporation's level of compliance with applicable Massachusetts statutes and the Division's regulations governing the conduct of those engaged in the business of a motor vehicle sales finance company in the Commonwealth; and

WHEREAS, the Report of Examination/Inspection (the "Report") issued pursuant to the Division's examination/inspection of Fafama as of October 29, 2007 alleged substantial non-compliance with applicable state and federal statutes, rules, and regulations governing the conduct of those engaged in the business of a motor vehicle sales finance company in Massachusetts.

ORDER

NOW COME the parties in the above-captioned matter, the Division and Fafama, and stipulate and agree as follows:

  1. Fafama shall cease engaging directly or indirectly in the business of a motor vehicles sales finance company from any location for which the Corporation has not previously obtained a license from the Commissioner for such location in accordance with Massachusetts General Laws chapter 255B, section 2.
  2. Within thirty (10) days of the effective date of this Order, Fafama shall engage an independent auditing firm ("Auditing Firm") which shall establish a comprehensive accounting system for Fafama, including an inventory and receivables control system, and shall provide audited financial statements based upon data derived from the new system. Such financial statements shall be prepared in accordance with generally accepted accounting principles ("GAAP"), and shall be provided to the Division within ninety (90) days of the retention of the Auditing Firm. Fafama shall obtain the prior written approval of the Commissioner of the Auditing Firm proposed by the Corporation before the revised accounting system is initiated.
  3. Fafama shall submit for approval a Capital Plan that describes how the Corporation will establish and maintain an adjusted positive net worth of at least $20,000. The Capital Plan shall address both internal and external sources of capital augmentation, including capital infusion, conversion of debt to equity, retention of earnings, asset sales or any other means that are acceptable to the Division.
    1. Fafama shall submit a reviewed balance sheet and statement of income and expense for the Corporation, prepared in accordance with generally accepted accounting principles ("GAAP"), which illustrates Fafama's compliance with the provisions set forth in the Section of the Order.
  4. Fafama shall submit a written Profit Plan consisting of goals and strategies for providing the foundation for improved profitability. The written profit plan shall include, at a minimum;
    1. identification of the major areas in, and means by which, management shall seek to improve Fafama's operating performance and enhance capital formation.
    2. realistic and comprehensive budgets
    3. a budget review process to monitor the income and expenses of Fafama to compare actual figures with budgetary projections.
    4. a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components; and
    5. a statement of the Board of Directors commitment to the continued maintenance of acceptable levels of liquidity and capital.
  5. Fafama shall establish, implement and maintain policies and procedures to ensure that the Corporation properly assesses and collects delinquency and collection charges, where the contract so provides, on each installment in default for a period of not less than fifteen (15) days, in an amount not in excess of five percent of each installment or five dollars, whichever is less, in compliance with M.G.L. c. 255B, section 11. Compliance with this Section of the Order shall necessarily require that Fafama revise as necessary all retail installment contracts for use in the Commonwealth of Massachusetts.
    1. Fafama shall conduct a review of all late charges assessed by the Corporation on or after January 1, 2005, and shall reimburse all consumers from whom a late charge was collected that was in excess of five percent of each installment or five dollars, whichever is less and/or which was assessed before fifteen days. The amount of such reimbursements shall equal the amounts collected as delinquency charges that were in excess of the amount allowed by statute. In instances where a late charge was assessed before the expiration of the fifteen (15) day period required by M.G.L. chapter 255B, section 11, the Corporation shall reimburse the consumers for the entire amount of the late fee collected.
    2. Immediately upon the Division's approval of the Auditing Firm, the Auditing Firm shall conduct the loan portfolio review referenced above in Section 3(a) of the Order. Within sixty (60) days of the effective date of this Order, the Auditing Firm shall submit to the Division evidence of all reimbursements issued pursuant to Section 3(a). Evidence of reimbursements issued shall include the consumers' names, account numbers, the amount of reimbursements and the manner in which the reimbursements were calculated, and sufficient evidence to illustrate the credits and/or refunds to each consumer.
  6. Fafama shall establish, implement and maintain policies and procedures to ensure that the Corporation properly assesses and collects returned check fees, where the contract so provides, in amounts not to exceed ten dollars for any check, draft or order for the payment of money submitted in accordance with said contract which is returned unpaid or not honored by a bank or other depository, in accordance with M.G.L. c 255B, section 11. Compliance with the Section of the Order shall necessarily require that Fafama revise as necessary all retail installment contracts for use in the Commonwealth of Massachusetts.
    1. Fafama shall conduct a review of all returned check fees assessed by the Corporation on or after January 1, 2005 and shall reimburse all consumers from whom a returned check fee in excess of ten dollars was collected. The amount of such reimbursements shall equal the amounts collected as returned check fees that were in excess of the amount allowed by statute.
    2. Immediately upon the Division's approval of the Auditing Firm, the Auditing Firm shall conduct the loan portfolio review referenced above in Section 4(a) of the Order. Within sixty (60) days of the effective date of this Order, the Auditing Firm shall submit to the Division evidence of all reimbursements issued pursuant to Section 4(a). Evidence of reimbursements issued shall include the consumers' names, account numbers, the amount of reimbursements and the manner in which the reimbursements were calculated, and sufficient evidence to illustrate the credits and/or refunds to each consumer.
  7. Fafama shall establish, implement and maintain policies and procedures to ensure that the Corporation does not charge, receive, and collect a finance charge in excess of an annual percentage rate (APR) of twenty-one per cent, inclusive of all charges incident to investigating and making the contract and for the extension of the credit provided for in the contract, in accordance with M.G.L. chapter 255B, section 14.
    1. Fafama shall conduct a review of the APR charged on all loan accounts since January 1, 2005 and shall reimburse all consumers who were charged an APR in excess of 21%. The amount of such reimbursements shall equal the total amounts collected as finance charges that were in excess of the APR permitted by M.G.L. chapter 255B, section 14.
    2. Immediately upon the Division's approval of the Auditing Firm, the Auditing Firm shall conduct the loan portfolio review referenced above in Section 5(a) of the Order. Within sixty (60) days of the effective date of this Order, the Auditing Firm shall submit to the Division evidence of all reimbursements issued pursuant to Section 5(a). Evidence of reimbursements issued shall include the consumers' names, account numbers, the amount of reimbursements and the manner in which the reimbursements were calculated, and sufficient evidence to illustrate the credits and/or refunds to each consumer.
  8. Fafama shall establish, implement and maintain policies and procedures to ensure that, in instances where the consumer pays the full amount of debt in order to regain possession of collateral repossessed by the Corporation, Fafama charges consumers only for reasonable expenses incurred upon the Corporation's taking possession of the collateral. For the purposes of this Order, "Reasonable Expense" is defined as the amount charged to the Corporation by the repossession agent.
    1. Fafama shall conduct a review of loan accounts since January 1, 2005 in which the collateral was repossessed and then returned to the consumer upon payment of the default and shall reimburse the consumers for all repossession fees that were in excess of the amount charged to Fafama by the repossession agent.
    2. Immediately upon the Division's approval of the Auditing Firm, the Auditing Firm shall conduct the loan portfolio review referenced above in Section 6(a) of the Order. Within sixty (60) days of the effective date of this Order, the Auditing Firm shall submit to the Division evidence of all reimbursements issued pursuant to Section 6(a). Evidence of reimbursements issued shall include the consumers' names, account numbers, the amount of reimbursements and the manner in which the reimbursements were calculated, and sufficient evidence to illustrate the credits and/or refunds to each consumer.
  9. Fafama shall immediately revise all retail installment contracts for use in the Commonwealth of Massachusetts to include the specific disclosure language regarding credit insurance as required pursuant to M.G.L. chapter 255B, section 10.
  10. Fafama shall establish, implement and maintain procedures and policies to ensure that, prior to proceeding against the collateral in the event of a default by the borrower, the Corporation provides the borrower with the notice required under M.G.L. chapter 255B, section 20A. The Corporation shall further establish, implement and maintain procedures to ensure that said notice is in the form required by the M.G.L. chapter 255B, section 20A and is provided within the time limitations set forth therein. Compliance with the Paragraph of the Order shall necessarily require that Fafama ceases to provide the disclosure form entitled "Right of Repossession."
  11. Fafama shall establish, implement, and maintain procedures to ensure that the Corporation's retail installment contracts do not contain blank spaces when presented for signatures, in accordance with M.G.L. chapter 255B, section 12.
  12. Fafama shall establish, implement, and maintain policies and procures to ensure that all financial reporting is correct, accurate and consistent with the operations of the corporation. Fafama shall also establish, implement, and maintain policies and procedures to ensure that the Corporation keeps and uses its books, records, and accounts in a manner which will allow the Commissioner to determine whether Fafama is complying with the provisions of M.G.L. c. 255B and other provisions applicable to the conduct of the licensed business, as required pursuant to the Division's regulation 209 CMR 48.03. Compliance with this Section of the Order shall necessarily require the full cooperation of all Fafama personnel with the Division during any future examinations of the Corporation which shall necessarily provide for complete and timely access to its books, records, accounts, and any other additional, relevant materials pursuant to the provisions of Massachusetts General Laws chapter 255B, section 3.
  13. Fafama shall establish, implement, and maintain polices and procedures to ensure that the Corporation timely submits to the Division complete and accurate annual reports containing all required information pertaining to its business and operations during the preceding calendar year, pursuant to M.G.L. chapter 255B, section 3.
  14. With the Corporation's written response to the Report, submitted pursuant to Section 13 of the Order, Fafama shall submit to the Commissioner the Corporation's revised written compliance program designed to ensure and maintain compliance by the Corporation with the state and federal laws and regulations governing the conduct and operation of those engaged in the business of a motor vehicle sales finance company in Massachusetts. The compliance program, at a minimum, shall:
    1. Establish, implement, and maintain quality control standards which provide for a loan review process to assess the Corporation's compliance with: (a) the statutes, rules, regulations, regulatory bulletins, and other relevant provisions of law applicable to those engaged in the business of a motor vehicle sales finance company in Massachusetts and (b) the provisions of this Order. Such quality control standards shall be designed to prevent the recurrence of the violations and areas of concern addressed in the Report;
    2. Ensure that Fafama compliance program is managed by a qualified manager who shall have responsibility for all consumer compliance and related matters, including, but not limited to, monitoring the Corporation's compliance and ensuring that corrective action is taken to address all alleged violations and areas of concern previously identified by the Division; and
    3. Provide adequate training to applicable staff persons, conducted by qualified and trained personnel, which includes, but is not limited to, proper instruction and ongoing training to ensure proper implementation and execution of the revised policies and procedures implemented pursuant to this Order.
  15. The Corporation shall comply with all laws and regulations applicable to its conducting the business of a motor vehicle sales finance company in Massachusetts, including, but not limited to, Massachusetts General Laws chapter 255B, and the Division's regulation 209 CMR 20.00 et seq. Such obligations shall necessarily include the duty to address and correct, within twenty (20) days of receipt of the Report, all violations and areas of concern as specified in the Report.
    1. Within ten (10) days of the Corporation's receipt of the Report, Fafama shall submit to the Commissioner a written response that addresses each of the violations specified in the Report. The written response shall describe the revised policies and procedures adopted by Fafama to implement all corrective actions set forth in: (i) the "Examiner's Comments and Conclusions" section of the Report and (ii) the provisions of this Order.
  16. On the thirtieth (30 th) day after the end of each calendar quarter following the date of this Order, beginning with the calendar quarter ending March 31, 2009, Fafama shall furnish written progress reports to the Division, which shall address and include the following:
    1. A description of the form, content, and manner of any actions taken to address each Section of this Order and the results thereof;
    2. Audited financial statements prepared in accordance with generally accepted accounting principles ("GAAP"), that include a balance sheet and a statement of income and expense; and
    3. Written findings prepared by the Corporation detailing a review of management's and staff persons' adherence to the policies, programs, and procedures adopted pursuant to this Order and to applicable statutes, regulations, and rules, as well as a description of any operational changes implemented during such quarter which are intended to improve Fafama's compliance condition in Massachusetts and the results thereof.
  17. The reporting requirement to the Division referenced in Section 14 of this Order shall remain in effect and shall not be amended or rescinded without the prior written modification, termination, or suspension of the applicable provision of this Order from the Commissioner.
  18. Nothing in this Order shall be construed as permitting Fafama to violate any law, rule, regulation, or regulatory bulletin to which Fafama is subject.
  19. In consideration of the foregoing Order, the Division agrees not to pursue formal measures, relative to this matter, to suspend or revoke Fafama's motor vehicle sales finance company license under General Laws chapter 255B, section 8, while this Order is in effect.
  20. Failure to comply with the terms of this Order shall constitute grounds for license suspension and/or revocation pursuant to applicable provisions of the General Laws of the Commonwealth of Massachusetts.
  21. This Order shall become effective immediately upon the date of its issuance.
  22. The provisions of this Order shall be binding upon Fafama and its officers and/or directors, and their successors or assigns.
  23. The provisions of this Order shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this Order shall have been modified, terminated, suspended, or set aside by the Commissioner or upon an order of a court of competent jurisdiction.
  24. This Order and the Consent Agreement are the complete documents representing the resolution of this matter. There are no other agreements between the Division and Fafama.

BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS.

Dated at Boston, Massachusetts, this 27th day of February, 2009

By: Steven L. Antonakes
Commissioner of Banks
Commonwealth of Massachusetts