By the Division of Banks


 

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MOTOR VEHICLE SALES
FINANCE COMPANY
LICENSING
Docket No. 2015-06

CONSENT ORDER

In the Matter of

STATE CAP AUTO FINANCE, INC.
Westport, Massachusetts


Motor Vehicle Sales Finance
Company License No. MV-0576


WHEREAS, STATE CAP AUTO FINANCE, INC., Westport, Massachusetts (State Cap or the Corporation), a licensed motor vehicle sales finance company under Massachusetts General Laws chapter 255B, section 2 and 209 CMR 20.00 et seq. 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 October 10, 2016, 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, State Cap agrees to the issuance of this CONSENT ORDER (Order) by the Commissioner of Banks (Commissioner);

WHEREAS, an examination of State Cap was conducted pursuant to General Laws chapter 255B, section 3 as of January 8, 2010, which identified certain deficiencies in the Corporation’s operations;

WHEREAS, State Cap failed to perform all the corrective action required in response to the 2010 examination; andWHEREAS, an examination of State Cap was conducted pursuant to General Laws chapter 255B, section 3 as of March 11, 2014 to assess the Corporation’s level of compliance with applicable Massachusetts and federal statutes, rules and regulations governing the conduct of those engaged in the business of a motor vehicle sales finance company in the Commonwealth;

WHEREAS, the Report of Examination (the Report) issued pursuant to the Division’s examination of State Cap 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 the Commonwealth, including unfair or deceptive acts or practices; and

WHEREAS, the parties now seek to resolve by mutual agreement, the matters identified in the Report.

ORDER

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

  1. State Cap must perform the following corrective action to address the deficiencies identified.
    1. State Cap must conduct a review of all accounts paid off from the date of licensure, February 21, 2008, up to the date when it began calculating pay off amounts correctly using its new operating system.  The Corporation must identify borrowers whose finance charges were calculated incorrectly and must reimburse borrowers who were overcharged.
    2. State Cap must conduct a review of accounts assessed returned payment fees from the date of licensure, February 21, 2008, up to the date when it ceased assessing and collecting excessive returned payment fees.  The Corporation must identify borrowers who were assessed returned payment fees over the $10.00 limit established by Massachusetts General Laws chapter 255B, section 11.  The Corporation must issue reimbursements to borrowers who were overcharged.
    3. State Cap must conduct a review to identify all borrowers whose accounts were overpaid as the result of a total loss insurance claim since the date of licensure, February 21, 2008.  The Corporation must refund borrowers who have not already been refunded for the overpayment.
    4. State Cap must conduct a review of all repossessions conducted from the date of licensure, February 21, 2008.  The Corporation must make a good faith effort to identify any instances where it repossessed borrower vehicles without providing the proper Right to Cure notice or the full twenty-one (21) day cure period required by Massachusetts General Laws chapter 255B, section 20A.  State Cap must reimburse all repossession fees on any accounts where the required notice and right to cure period were not provided and State Cap may not collect a deficiency balance on these accounts.
    5. State Cap must certify that it has made a good faith effort to ensure that those customers who were overcharged have been sent refund checks, using reasonable means available to identify the current address of each such customer.  Through the date of required escheatment under Massachusetts General Laws chapter 200A, section 5, State Cap must continue to use commercially reasonable efforts to locate such customers.
    6. The Corporation must submit documentation of the reviews and reimbursements required under this provision to the Division.
    7. State Cap agrees to submit a payment in the amount of fourteen thousand dollars ($14,000.00) in satisfaction of an administrative penalty collected in consideration of the fact that the Corporation did not perform the complete and required corrective action necessary to refund overcharges collected from consumers in response to the 2010 examination.
    8. Payment in full of the amount indicated above, payable to the “Commonwealth of Massachusetts,” must be submitted with the executed copy of the Consent Agreement, to the Division of Banks, Attention: Non-Depository Supervision Unit, 1000 Washington Street, 10th Floor, Boston, Massachusetts 02118.
  1. State Cap must develop, implement and maintain procedures to ensure that the Corporation complies with all provisions of Massachusetts General Laws chapter 255B, sections 20A and 20B governing the default, repossession, and disposition of a motor vehicle.  The Corporation must provide proper notice to the borrower of their rights and wait for the expiration of the right to cure period prior to proceeding against a vehicle securing a loan, either by repossession or by use of a starter interrupt device.  The Corporation must also ensure any repossession fees charged to consumers are limited to reasonable fees incurred by an unaffiliated third-party.
    1. State Cap must conduct a review of all repossessions conducted on Massachusetts accounts since the date of the prior examination on January 8, 2010.  The Corporation must make a good faith effort to identify any repossessions that were conducted without providing the borrow notice of their rights under the statute or prior to the expiration of the 21 day right to cure period.  The Corporation must determine the total repossession related fees assessed on these accounts.  State Cap must reimburse all repossession-related fees collected from borrowers who were not properly informed of their rights or afforded the full 21 day right to cure their default.  The Corporation must also determine the total repossession fees assessed on consumer accounts, and refund any amounts charged in excess of the cost for third party repossession services. 
    2. State Cap must submit to the Division documentation of the reviews performed on its accounts and evidence of all reimbursements issued pursuant to this Section of the Consent Order.  Evidence of reimbursements issued must include the borrowers’ names, account numbers, the date the right to cure notice was mailed, the right to cure date identified on the default notice, the date the vehicle was repossessed, the total repossession fees assessed on each account, the total amount of third party repossession costs for each account, the date of any refund issued, and the check number and the dollar amount of each refund made.
    3. State Cap agrees to submit a payment in the amount of six thousand dollars ($6,000.00) in satisfaction of an administrative penalty collected in consideration of the serious nature of the Corporation’s violations of Massachusetts General Laws chapter 255B, section 20A and 20B proceeding against a vehicle securing a defaulted loan, both in its repossession practices and its use of a starter interrupt devices.
    4. Payment in full of the amount indicated above, payable to the “Commonwealth of Massachusetts,” must be submitted with the executed copy of the Consent Agreement, to the Division of Banks, Attention: Non-Depository Supervision Unit, 1000 Washington Street, 10th Floor, Boston, Massachusetts 02118.
  1. State Cap must immediately cease the purchase and/or acquisition of any additional contracts from its affiliated dealership, Prestige Auto Mart, Inc. (Prestige), using the tax refund program from Tax Refund Services, Inc. (TRS), or any similar tax refund program, to fund down payments.  The Corporation may not purchase any new contracts under this program until it has implemented appropriate due diligence procedures to ensure this program is operated in an honest and fair manner with clear and conspicuous disclosure of the fees for tax preparation before a consumer commits to the purchase of a vehicle using the program. 
    1. State Cap must conduct a portfolio review of all retail installment contracts acquired from Prestige since January 8, 2010, which were originated using the TRS Tax Max program to obtain a down payment.  The Corporation must then determine of those contracts how many consumers returned to Prestige to have their tax refund processed using TRS.  State Cap must determine the total amount retained by Prestige from each consumer through the administration of this program and must issue a refund for that amount. 
    2. State Cap must submit to the Division documentation of the review performed on its accounts, including a list of all the accounts reviewed, which includes, at a minimum: the name of the borrower; the account number; the loan origination date; the amount of the deferred down payment; the tax return process date; an itemization of all fees paid by the consumer in connection with this program; the dollar amount refunded to the consumer; the date of any refund issued in response to the findings of this examination; and the check number and the dollar amount of each refund.
  1. State Cap must develop, implement and maintain procedures to ensure that it does not assess or collect any late fees prior to the end of the fifteenth (15th) day following the installment due date pursuant to Massachusetts General Laws chapter 255B, section 11.
    1. State Cap must conduct a review of all late fees assessed in the four years preceding this examination, back to March 11, 2010.  The Corporation must identify any late charges that were assessed prior to the end of the fifteenth day following the installment due date.  State Cap must reimburse any borrower who was charged a late charge, but whose payment was received before the end of the fifteenth day following the installment due date.  The Corporation must determine the total overcharge to each borrower and must issue a refund for the total amount of the overcharge.
    2. State Cap must submit to the Division documentation of the review performed on its late charges, including a list of all the accounts reviewed, which includes at a minimum, the name of the borrower; the account number; the installment due date; the amount of the late charge; the date the late charge was assessed; the date the late charge was collected; the date of any refund issued in response to the findings of this examination; and the check number and the dollar amount of each refund.
  1. State Cap must maintain a minimum net worth of $20,000, as defined in the Division’s regulation 209 CMR 20.02, at all times in compliance with 209 CMR 20.03(2)(a)(2),  State Cap must monitor its adjusted net worth position and notify the Division in writing immediately if at any time the Corporation’s adjusted net worth falls below the regulatory minimum.
  2. State Cap must develop, implement and maintain an effective compliance management system including but not limited to adequate oversight of the Corporation’s compliance program by the owner and senior management with sufficient resources dedicated to the administration of the compliance program.  The compliance program must include adequate policies and procedures, effective internal monitoring on an ongoing basis, sufficient training to ensure management and employees are familiar with statutory and regulatory requirements.  An effective compliance management system must also include periodic independent testing of State Cap’s programs and operations with sufficient scope and depth to determine whether the Corporation is operating in compliance with applicable consumer protection requirements.
  3. Within thirty (30) days of the effective date of this Order, State Cap must engage an independent compliance consultant (Compliance Consultant) to augment the Corporation’s compliance management system.  The scope of the Compliance Consultant’s engagement must include the review and verification of all corrective action required in response to the deficiencies identified in the Report and as required by this Order.  The scope of the Compliance Consultant’s engagement must also include a review of the Corporation’s existing compliance management system, including policies and procedures, internal monitoring, training, and management oversight of the compliance program.  The scope of the Compliance Consultant’s engagement must include periodic independent testing of transactions to verify the effectiveness of the Corporation’s internal controls.  A copy of the engagement letter for the Compliance Consultant must be submitted with the response to this Order.  The Compliance Consultant must submit a copy of any reports issued to State Cap in connection with this engagement directly to the Commissioner.
  4. State Cap must address all matters requiring attention set forth in the Report within 60 days of the effective date of this Order.  State Cap must also adopt and implement any corrective actions discussed in the Report.
  5. By the thirtieth (30th) day after the end of each calendar quarter following the effective date of this Order, State Cap must furnish written progress reports to the Division, which 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; and
    2. Written findings prepared by State Cap 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 State Cap’s compliance condition in Massachusetts, and the results thereof.
  1. The reporting requirement to the Division referenced in Section 9 of this Order will remain in effect and must not be amended or rescinded without the prior written modification, termination, or suspension of the applicable provision of this Order from the Commissioner.
  2. The provisions of this Order shall not limit, estop, or otherwise prevent the Division, or any other state agency or department, from taking any other action affecting State Cap, its successors or assigns, if State Cap fails to fully and promptly comply with the above provisions.
  3. Nothing in this Order will be construed as permitting State Cap to violate any law, rule, regulation, or regulatory bulletin to which the Corporation is subject.
  4. In consideration of the foregoing Order, the Division agrees not to pursue formal measures, relative to this matter, to suspend or revoke State Cap’s motor vehicle sales finance company license under General Laws chapter 255B, section 8, while this Order is in effect.
  5. Failure to comply with the terms of this Order will constitute grounds for license suspension and/or revocation pursuant to applicable provisions of the General Laws of the Commonwealth of Massachusetts.
  6. This Order will become effective immediately upon the date of its issuance. 
  7. The provisions of this Order are binding upon State Cap, its owner, officers and directors, and their successors and assigns.
  8. The provisions of this Order will remain effective and enforceable except to the extent that, and until such time as, any provisions of this Order will have been modified, terminated, suspended, or set aside by the Commissioner or upon an order of a court of competent jurisdiction.
  9. This Order and the Consent Agreement are the complete documents representing the resolution of this matter and shall supersede and replace all previous agreements between the Division and State Cap.  There are no other agreements between the Division and State Cap.

 

BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS.

Dated at Boston, Massachusetts, this 10th day of October, 2016

By: Terence A. McGinnis
Commissioner of Banks
Commonwealth of Massachusetts