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Boston, MA — The Massachusetts Office of Consumer Affairs and Business Regulation announces actions taken by the Division of Banks against motor vehicle sales finance companies to address unlicensed and illegal auto lending practices.
The Division of Banks, in collaboration with the Division of Professional Licensure and the Registry of Motor Vehicles, canvassed approximately 200 car dealerships statewide to identify unlicensed lending activity and/or unfair or deceptive acts or practices associated with the sales and financing of used automobiles. The effort resulted in five enforcement actions, 135 cease directives, $170,000 in fines and penalties, and more than $200,000 in consumer reimbursements.
Buy Here Pay Here auto dealerships are those that sell vehicles using retail installment contracts. Some of these dealerships have been known to price vehicles far above book value and charge interest rates approaching or at the state’s maximum interest rate limit of 21 percent. In states without an interest rate ceiling, the rates are often even higher. Buy Here Pay Here dealerships or the auto financing companies they use are required to be licensed by the Division of Banks. Companies who purchase or take assignment of retail installment contracts from dealers (indirect lenders) are also required to be licensed. These requirements apply anytime the purchase of a vehicle is financed in two or more installments, regardless of whether interest is charged on the loan.
Consumer Affairs Undersecretary Chapman expressed concern for consumers who enter into retail installment financing contracts. “Very often used vehicles are being sold to consumers with poor or no credit at prices far above book value and at very high interest rates. We understand that this is a financing option of last resort for those consumers, but we want to be sure that what’s happening at dealerships is not predatory and that unfair and deceptive practices are not being employed.”
“The Division works to protect Massachusetts consumers from excessive fees and finance charges, and wrongful repossessions,” said Commissioner of Banks Terence McGinnis. “By ensuring these companies are properly licensed and regulated, they will be subject to regular on-site examinations to determine compliance with various consumer protection laws.
As part of the examination process, motor vehicle lenders are reviewed to ensure rates do not exceed the 21 percent rate cap, payments are processed accurately and in a timely manner, late charges and collection fees do not exceed allowable limits, and in the event of repossession, consumers are afforded proper notice and right to cure protections.
“Unfortunately it’s not uncommon for consumers to underestimate their ability to consistently make payments when they enter into installment contracts. Because repossession is a possible outcome, we want to ensure that dealers are not violating requirements for missed or late installment payments,” added Undersecretary Chapman.
Summary of Enforcement Actions Against Motor Vehicle Finance Companies
Taken by the Division of Banks
The Division entered into a Consent Order with Westlake Services, LLC d/b/a Westlake Financial Services (Westlake), and its wholly owned subsidiary Western Funding Incorporated (WFI) on July 25, 2017 to address unlicensed activity and illegal lending practices. Westlake and WFI are national subprime auto lenders based in Los Angeles. WFI purchased 157 finance contracts from Massachusetts auto dealers without first obtaining a license from the Division. Thirty-three of those contracts had effective Annual Percentage Rates (APR) in excess of the state maximum rate of 21% due to the financing of debt cancellation coverage (GAP) premiums. The Consent Order requires Western Funding to reimburse 33 consumers all finance charges collected and waive any future charges that accrue on their loans. Western Funding was also required to pay a $50,000 administrative penalty and cease lending activity until it obtained a license. The Division anticipates over $200,000 in reimbursements to Massachusetts consumers as a result of its action against Westlake and WFI. Westlake is under a previous Consent Order with the Division to address substantial non-compliance identified through a routine examination, including the purchase of contracts with APRs in excess of 21% due to financing GAP premiums. Westlake also entered into an Assurance of Discontinuance in 2016 with the Massachusetts Attorney General’s office for similar practices.
The Division entered into a Consent Order with Cedar Auto Sales, LLC (Cedar) on July 6, 2017 to address unlicensed activity. Cedar continued to originate and hold retail installment contracts after its license expired in 2015. The Division identified 157 contracts originated by Cedar while unlicensed. Although the company did not charge interest on the contracts, its unlicensed activity posed an unnecessary risk to consumers. The Consent Order required Cedar to pay an administrative penalty of $10,000 and cease lending activity until it obtained a new license with the Division.
The Division entered into a Consent Order with New City Funding Corp. (New City) on March 24, 2017 to address failure to provide adequate right to cure provisions to consumers who fell behind on payments. New City engaged in the use of starter interrupt devices to automatically disable vehicles prior to the expiration of the borrower’s right to cure period. The Consent Order required New City to pay an administrative penalty of $90,000 for the alleged violations.
The Division entered into a Consent Order with State Cap Auto Finance, Inc. on October 10, 2016 for a variety of deficiencies including excessive fee charges and improper repossession practices. The Consent Order required the company to pay a $20,000 administrative penalty plus required consumer reimbursements.
For a complete list of recent Division enforcement actions (beyond the motor vehicle lending sector), please click here .
Please refer to the Division of Banks website at www.mass.gov/dob for additional information including the rules governing motor vehicle financing, instructions on how to file a complaint, and information relative to the license application requirements. Please visit the Division’s Consumer Money Matters webpage for tips to protect consumers from unlawful lending practices when financing the purchase of a motor vehicle through a “Buy Here, Pay Here” dealer or indirect lender.