COMMONWEALTH OF MASSACHUSETTS
COMMISSIONER OF BANKS
MOTOR VEHICLE SALES FINANCE COMPANY LICENSING
Docket No. 2010-228
ORDER TO CEASE AND DESIST,
ORDER TO SHOW CAUSE AND
NOTICE OF INTENT TO REVOKE
MOTOR VEHICLE SALES FINANCE COMPANY LICENSE
In the Matter of
Motor Vehicle Sales Finance Company
License No. MV0147
The Commonwealth of Massachusetts Division of Banks (the "Division"), by and through the Commissioner of Banks of the Commonwealth of Massachusetts (the "Commissioner"), for its Order to Cease and Desist, Order to Show Cause and Notice of Intent to Revoke ("Order and Notice"), alleges as follows:
- The Division brings this action under Massachusetts General Laws chapter 255B, section 7 to revoke Inofin, Inc.'s ("Inofin" or the "Corporation") motor vehicle sales finance company license MV0147 and to obtain other equitable relief as may be necessary due to Inofin's failure to comply with the provisions of Massachusetts General Laws chapter 255B and failure to maintain and exercise the financial responsibility, character, reputation, integrity, and general fitness that would warrant the belief that its business will be operated honestly, fairly, soundly, and efficiently in the public interest in violation of Massachusetts General Laws, chapter 255B, section 2 and the Division's regulation 209 CMR 20.03.
JURISDICTION AND VENUE
- The Division is an agency of the Commonwealth of Massachusetts with jurisdiction over matters relating to the licensing and regulation of those engaged in the business of a motor vehicle sales finance company pursuant to Massachusetts General Laws chapter 255B, section 2.
- At all relevant times, Inofin has been engaged in the business of a motor vehicle sales finance company in Massachusetts.
- Inofin is, and at all relevant times has been, a corporation conducting business in the Commonwealth with its main office located at 55 Accord Park Drive, Unit D, Rockland, Massachusetts.
- Inofin is licensed by the Commissioner as a motor vehicle sales finance company under Massachusetts General Laws chapter 255B section 2. According to records maintained on file with the Division, the Commissioner initially issued a motor vehicle sales finance company license, number MV0147 on or about September 12, 1994.
- According to the Division's records, Inofin's motor vehicle sales finance company license, number MV0147 expired as of October 31, 2010 and has been in a "non renewal" status as of that date.
FINDINGS OF FACT AND REGULATORY ACTION BACKGROUND
A. Uncertainty of Inofin's Ability to Meet the Minimum Financial Requirements for Holding a Motor Vehicle Sales Finance Company License in Massachusetts and Failure to Provide Certain Requested Information
- The Division's regulation at 209 CMR 20.03(2)(a) states
Financial responsibility. An Applicant shall demonstrate and provide the commissioner with evidence of its financial responsibility and submit a sworn statement which states that the Applicant meets the following requirements:
2. An Applicant for a license under M.G.L. c. 255B shall demonstrate that, after all organization and other initial expenses have been paid, it has a net worth equal to at least $20,000. The minimum net worth requirement may be waived by the commissioner when a license is being renewed. If the commissioner approves an Applicant under M.G.L. c. 255B, he may, in his discretion, require the Licensee to furnish a bond in a sum not to exceed $10,000 executed by the Licensee and by a surety company approved by the commissioner conditioned upon the faithful performance by the Licensee of the duties and obligations pertaining to the business so licensed
It is noted the Commissioner has not waived the net worth requirement, as referenced in the above mentioned statute.
- Pursuant to Massachusetts General Laws chapter 255B, section 3, the Division is authorized to inspect the books, accounts, papers, records, and files of motor vehicle sales finance companies transacting business in Massachusetts to determine compliance with the provisions of Massachusetts General Laws chapter 255B and any rule, or regulation issued thereunder, and with any law, rule, or regulation applicable to the conduct of the business of a motor vehicle sales finance company.
- On November 9, 2009, pursuant to the authority granted under Massachusetts General Laws chapter 255B, section 3, the Division commenced an examination/inspection of the books, accounts, papers, records, and files maintained by Inofin to evaluate the Corporation's compliance with the laws and regulations applicable to the conduct of a motor vehicle sales finance company business in Massachusetts (the "examination/inspection").
- During the examination/inspection of Inofin's books and records the Division became concerned with the Corporation's ability to meet the minimum financial requirements for holding a motor vehicle sales finance company license in Massachusetts.
- On or about June 8, 2010 and June 9, 2010, as a result of continuing concerns relative to the financial condition of the Corporation, the Division's supervisory management participated with the Division's examiners and continued an onsite review of Inofin's books and records.
- Based upon the Division's continued concerns, on June 18, 2010, the Commissioner and Inofin entered into a Stipulation and Consent to the Issuance of a Consent Order, Docket No. 2010-225, (the "Consent Order") to address the matters raised during the examination/inspection of Inofin's books and records. The Consent Order is attached hereto as Exhibit 1.
B. Material Failure to Comply with the Terms of the Consent Order
- Section 6 of the Consent Order states:
Within forty-eight (48) hours of the effective date of this Consent Order, Inofin shall engage an Accounting Firm ("Firm") to prepare and submit to the Division an audit of the financial statements for the year 2009 and issue an Opinion Audit ("Audit") in conformity with accounting principles generally accepted in the United States of America. In addition, the Accounting Firm shall prepare and submit to the Division, an audited 2008 year-end balance sheet and a 2008 income statement review. The accounting firm previously retained by Inofin shall not be eligible to be retained as the Firm for purposes of this Consent Order. It being understood that Inofin shall obtain the prior written approval from the Commissioner of the Firm to be utilized by the Corporation. The Firm's review shall commence immediately upon approval of the Commissioner.
- Sections 1 and 2 of the Consent Order state:
Within forty-eight (48) hours of the effective date of this Consent Order, Inofin shall identify an independent consultant ("Consultant") as an interim manager to oversee, direct and coordinate, the operations of the Corporation. It being understood that Inofin shall obtain the prior written approval from the Commissioner of the Consultant proposed by the Corporation. Inofin shall provide written notification of a proposed Consultant and thereafter submit to the Commissioner a proposed engagement letter that identifies the scope of services to be provided by the Consultant, which at a minimum conforms with the requirements set forth in Section 2 of this Consent Order.
The Consultant appointed by Inofin at a minimum shall render the following services:
a. Manage and oversee the operations of the Corporation including but not limited to the servicing operations;
b. Oversee the financial reporting and reconciliation of all accounts maintained by Inofin; and
c. Ensure the Corporation's compliance in responding to any requests made by the Division.
- Section 3 of the Consent Order states:
The Consultant shall ensure that Inofin continues to pay all obligations due to Investors pursuant to the terms of any Agreements.
- Section 12 of the Consent Order states:
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.
- Section 10 of the Consent Order states:
Nothing in this Order shall be construed as permitting Inofin to violate any law, rule, regulation, or regulatory bulletin to which Inofin is subject.
- As of the date of this Order and Notice, Inofin is in substantial non compliance with certain provisions of the Consent Order. Inofin has failed to provide required documentation concerning the audit and operations within the time-frames set forth in the Consent Order.
- In accordance with the provisions of Section 6 of the Consent Order, Inofin was required to engage an accounting firm to prepare and submit to the Division, an audit of the financial statements for the year 2009 and an audited 2008 year-end balance sheet and a 2008 income statement review.
- On December 14, 2010, during a meeting with representatives of the Division, Inofin notified the Division that while the Corporation entered into an agreement with an accounting firm to prepare the audit, the audit had not been completed in accordance with the provisions of the Consent Order and would not be submitted to the Division. The Corporation stated the audit could not be completed due to several nuances concerning certain valuations. During discussions with the Division, the Corporation notified the Division that representatives of the Corporation had terminated the engaged approved accounting firm and been aware of the matter for approximately one week. The Division was not notified of this development and documentation relative to the termination was requested by the Division. To date, this information has not been received. In addition, the Corporation engaged another accounting firm that was not approved by the Division to complete a limited scope, non-opinion audit as of December 31, 2009, that was not to the terms outlined in the Consent Order, no later than December 17, 2010.
- A copy of the limited scope non-opinion audit from the non-approved accounting firm was received by the Division on December 17, 2010. The limited scope audit showed that the Corporation had a negative net worth of approximately $29 million as of December 31, 2009.
- On or about December 23, 2010, the Division was informed that Inofin had terminated its contractual arrangement with the consultant required to be in place under the terms of the Consent Order. Notification of this termination was not provided to the Division. The consultant was a requirement under the Consent Order and Inofin's actions in terminating these services is a violation of Sections 1 and 2 of the Consent Order.
- On December 14, 2010, the Corporation stated it was no longer able to meet several of its contractual obligations in violation of Section 3 of the Consent Order.
- As a result of Corporation's admission of the not being able to meets its financial obligations and the submission of a limited scope non-opinion audit showing a significant negative net worth position, it does not appear that Inofin has met the financial requirements to hold a motor vehicle sales finance company license.
- Due to inability of Division examiners to determine the financial condition during the onsite examination as well as subsequent review by Division management coupled with the uncertainty regarding if and when the approved audit would be completed, a determination of when the Division would be able to evaluate the financial condition of the Corporation remains unclear.
CONCLUSIONS OF LAW
- Based upon the information contained in Paragraphs 1 through 25, Inofin has failed to demonstrate that its financial responsibility, character, reputation, integrity and general fitness are such as to command the confidence of the public and to warrant the belief that the motor vehicle sales finance business will be operated lawfully, honestly and fairly, in violation of Massachusetts General Laws chapter 255B, section 2 and the Division's regulations 209 CMR 20.03.
- Based upon the information contained in Paragraphs 1 through 25, Inofin is in substantial non compliance with the Consent Order and failed to immediately notify the Commissioner of the inability to complete the audit as required, its inability to meet contractual obligations, and its termination of the services of the consultant.
- Based upon the information contained in Paragraphs 1 through 25, the public interest will be harmed by delay in issuing an Order to Cease and Desist because, upon information and belief, Inofin has a portfolio of Massachusetts retail installment loans the Corporation is currently servicing which require immediate action to protect the interests of any affected Massachusetts consumers. As Inofin is currently in violation of the Consent Order which required the Corporation to ensure that an Auditing Firm prepared and submitted an Audit report to the Division and the current uncertainty regarding when the required audit will become available, a determination of when the Division would be able to evaluate the financial condition of the Corporation likewise remains uncertain.
- Based upon the information contained in Paragraphs 1 through 25, the Commissioner has determined that:
(a) Inofin has engaged in, or is about to engage in, acts or practices which warrant the belief that Inofin is not operating honestly, fairly, soundly and efficiently in the public interest in violation of standards governing the licensing and conduct of a motor vehicle sales finance company including, but not limited to, the provisions of M.G.L. chapter 255B and the Division's regulations at 209 CMR 20.00 et seq.;
(b) The volume and severity of problems are beyond management's ability to control or correct;
(c) Regulatory measures are necessary to protect the interests of consumers; and
(d) The public interest will be irreparably harmed by delay in issuing an ORDER TO CEASE AND DESIST to Inofin.
- Based upon the information contained in Paragraphs 1 through 25, had the foregoing been known to the Division at the time of Inofin's motor vehicle sales finance company license application, the Commissioner would have been warranted in refusing to issue such license. Further, the facts and conditions set forth in Paragraphs 1 through 25 present sufficient grounds for the revocation of Inofin's motor vehicle sales finance company license pursuant to Massachusetts General Laws chapter 255B, section 8.
I. ORDER TO CEASE AND DESIST
After taking into consideration the Information stated herein, it is hereby:
- ORDERED that Inofin shall immediately cease engaging in the business of a motor vehicle sales finance company or otherwise operate as a motor vehicle sales finance company, as that term is defined under General Laws chapter 255B.
- IT IS FURTHER ORDERED Inofin shall continue to retain the independent consultant ("Consultant") previously engaged by the Corporation and identified in the Consent Order, as an interim manager to oversee, direct and coordinate, the operations of the Corporation.
- IT IS FURTHER ORDERED that within one (1) day of the effective date of this Order and Notice, Inofin shall submit to the Division a detailed record, prepared as of the date of submission, of all information on file regarding the Corporation's total Massachusetts contract servicing portfolio including but not limited to:
(a) the borrower's addresses and telephone numbers;|
(b) the loan number;
(c) the account balance; and
(d) the location of the funds currently held for each account.
The record should include telephone numbers of appropriate contact persons who are familiar with the Corporation's retail installment contracts.
- Within (30) days of the effective date of this Order and Notice Inofin shall transfer all servicing rights for all Massachusetts retail installment loans that the Corporation currently services to a qualified motor vehicle sales finance company, a registered loan servicer, or financial institution, with Division approval.
(a) Inofin through its appointed Consultant shall work with any new servicers to send notifications to those consumers whose retail installment contracts have been transferred within ten (10) days of the transfer. Inofin or new servicer on its behalf shall notify the consumer of the transfer prior to the date the first payment is due at the new servicers address. Such notices shall include:
i. The name and address of the new servicer
ii. The date Inofin will stop accepting payments;
iii. The date the new servicer will begin accepting payments; and
iv. Telephone numbers for both Inofin and the new servicer that the consumer can use to call toll-free or collect for more information about the transfer
v. The notices shall also include a statement that the transfer will not affect any terms or conditions of the consumer's retail installment loan, except those directly related to the servicing of the loan.
(b) On each business day thereafter, by 5 p.m. Eastern Standard Time, Inofin shall provide to the Commissioner an updated written status report of the list of retail installment loans currently serviced by the Corporation. The status report shall include the categories of information required under subparagraphs 33(a) through (d). The reporting requirement shall continue until each of the retail installment loans serviced by the Corporation are no longer serviced by Inofin. Within 48 hours of the transfer of servicing rights of any retail installment loan included in the list provided by Inofin, the Corporation shall provide a written notice to the Division containing the borrower name, address and loan number and the entity to whom the servicing rights have been transferred.
- IT IS FURTHER ORDERED that Inofin shall immediately place all payments collected from Massachusetts consumers relative to any motor vehicle loans serviced by the Corporation in a separate escrow account maintained at a federally insured bank.
- IT IS FURTHER ORDERED that Inofin shall not authorize or execute any financial transaction, in excess of one hundred thousand dollars ($100,000.00) except for wages and salaries paid to employees, contractors, officers, or other members of Inofin's management in the ordinary course of their business, without the prior written approval of the Commissioner. Upon the effective date of this Order and Notice, Inofin shall implement or revise its practices and procedures, as necessary, to ensure that their financial books and records are accurately maintained, in a manner illustrating compliance with the provisions of this paragraph, and available for review by the Division upon request.
- IT IS FURTHER ORDERED that this Order and Notice shall not be construed as approving any act, practice, or conduct not specifically set forth herein which was, is, or may be in violation of relevant state or federal laws and regulations.
II. ORDER TO SHOW CAUSE, NOTICE OF INTENT TO REVOKE AND NOTICE OF RIGHT TO A HEARING VIOLATIONS
NOW, THEREFORE, based upon the Findings of Fact and Regulatory Action Background set forth above, the Division hereby sets forth the following Charges against Inofin:
- The Division hereby re-alleges and incorporates by reference the Findings of Fact and Regulatory Action Background presented in Paragraphs 1 through 25 of the Order and Notice as though fully set forth.
- The Division hereby re-alleges and incorporates by reference the Conclusions of Law presented in Paragraphs 26 through 30 of the Order and Notice as though individually set forth as separate Charges providing the basis of this Order and Notice.
ORDER TO SHOW CAUSE
- WHEREAS, finding it necessary and appropriate and in the public interest, and consistent with the purposes of the laws governing licensed motor vehicle sales finance companies in the Commonwealth;
- WHEREAS, pursuant to General Laws chapter 255B, section 7, the Commissioner may suspend or revoke a motor vehicle sales finance company license on a failure to comply with the provisions of General Laws chapter 255B; and
- WHEREAS, finding that the Charges set forth above, if found to be true and correct, form the legal basis for the action sought to be taken under General Laws General Laws chapter 255B, section 7.
- IT IS HEREBY ORDERED that Inofin shall show cause why its motor vehicle sales finance company license, MV0147 should not be revoked pursuant to General Laws chapter 255B, section 7.
PRAYER FOR RELIEF
- WHEREFORE, the Division, by and through the Commissioner, prays for a final decision as follows:
i. For a final Agency decision awarding temporary and preliminary injunctive relief, and any other ancillary relief, as may be necessary to protect the public interest during the pendency of this matter.
ii. For a final Agency decision in favor of the Division and against Inofin for each Charge set forth in this Order and Notice.
iii. For a final Agency decision revoking Inofin's motor vehicle sales finance company license MV0147, to conduct business as a motor vehicle finance company in Massachusetts.
iv. For costs and fees of the Division's investigation of this matter.
v. For such additional equitable relief as the Administrative Hearing Officer may deem just and proper.
NOTICE OF HEARING
- You or an authorized representative are required to file an Answer or otherwise respond to the Charges contained in this Order and Notice within twenty-one (21) days of the effective date of this Order and Notice, pursuant to the Standard Adjudicatory Rules of Practice and Procedure, 801 CMR 1.01(6)(d). Failure to file an answer may result in a default judgment against you. The Answer, and any subsequent filings that are made in conjunction with this proceeding, shall be directed to the Administrative Hearings Officer, Division of Banks, with a copy to Prosecuting Counsel.
- You are hereby notified that a hearing on this Order and Notice will be scheduled at a time and date to be determined. You will be provided with at least 10 days' prior written notice of the time and location of such hearing, in compliance with M.G.L. chapter 255B, section 8. The hearing will be conducted in accordance with M.G.L. chapter 30A and the Standard Adjudicatory Rules of Practice and Procedure, 801 CMR 1.00 et seq. Failure to appear at the hearing will result in the entry of an order of default, summary decision and/or decision on the pleadings against you for the relief requested in the Order and Notice.
All papers filed with the Division shall be addressed to the attention of:
Administrative Hearings Officer
Division of Banks
1000 Washington Street, 10th Floor
Boston, Massachusetts 02118
Prosecuting Counsel for this matter is:
Aimee Desai, Esq.
Division of Banks
1000 Washington Street, 10th Floor
Boston, Massachusetts 02118
Dated at Boston, Massachusetts, this 30 day of December, 2010.
Cynthia A. Begin
Senior Deputy Commissioner
Non-Depository Institution Supervision