Tag Archive | "Auto Finance"

FTC Charges Arizona Group With Falsifying Incomes on Consumer Credit Apps


WASHINGTON, D.C. — Three weeks after announcing the completion of a seven-state sweep regarding compliance with its Used Car Rule, the Federal Trade Commission announced on Wednesday it has charged a group of four dealerships with a range of illegal activities, including falsifying consumers’ income and down payment information on credit applications and misrepresenting financial terms in vehicle advertisements.

According to the regulator, this was the FTC’s first action alleging income falsification by dealerships. Its complaint names Richard Berry as a defendant and Linda Tate as a relief defendant. They operate a group of four dealerships in Arizona and New Mexico, near the border of the Navajo Nation.

“Buying a car is one of the biggest purchases consumers make. When consumers tell an auto dealer how much they make and how much they can pay upfront, the dealer can’t turn those facts into fiction,” said Andrew Smith, the FTC’s recently confirmed director of its Bureau of Consumer Protection. “The FTC expects auto dealers to be honest with consumers from the first advertisement to the final purchase.”

Since at least 2014, according to the complaint, Tate’s Auto allegedly increased its sales by falsifying consumers’ monthly income and down payments on credit applications and finance contracts submitted to finance sources. The four dealerships named in the complaint are Tate’s Auto Center of Winslow, Tate’s Automotive, Tate Ford-Lincoln-Mercury, and Tate’s Auto Center of Gallup.

The regulator charged that, during the sales process, Tate’s Autos asked consumers to provide personal information — including their name, address, and monthly income — and told them the information would be submitted to financing companies. But instead of using consumers’ actual information, the complaint alleges, Tate’s Auto falsely inflated the numbers, making it appear that applicants had higher monthly incomes than they really did. The dealerships also allegedly inflated the amount of a customer’s down payment.

“We’re not talking about nickel-and-dime discrepancies,” wrote Lesley Fair, senior attorney with the FTC’s Bureau of Consumer Protection, in an Aug. 1 blog post on the FTC’s website. “According to just one of the examples in the complaint, a consumer told Tate’s she had a fixed monthly income of about $1,200, but a Tate’s staffer allegedly inflated it to $5,200 in the paperwork.

“Wouldn’t consumers spot the false information? Not necessarily,” Fair continued. “The complaint charges that the defendants often used tactics that prevented people from reviewing the documents. Tate’s personnel allegedly rushed some consumers through the process; had them fill out forms over the phone or in places like grocery store parking lots or restaurants; or altered the documents after consumers signed them.”

The FTC charged that consumers, many of whom are members of the Navajo Nation, were approved for financing based on the false information the group’s dealerships provided. These consumers, the regulator further alleged, defaulted at a higher rate than qualified buyers.

The FTC also charged in its complaint that Tate’s Auto’s advertising deceived consumers about the nature and terms of financing or leasing offers. For example, the group allegedly advertised discounts and incentives without adequately disclosing limitations or restrictions that would prevent many customers from qualifying for the offers.

The regulator also alleges that Tate’s Auto’s social media ads violated the FTC Act, the Truth in Lending Act, and the Consumer Leasing Act by failing to disclose required terms. The FTC is now seeking an injunction barring the defendants from such practices in the future.

“One YouTube ad claimed the featured car ‘can be in your driveway for only $169 per month,’” Fair wrote in her blog. “In fact, consumers can’t buy that car for the advertised monthly payment. That amount applies only to a lease. What’s more, the FTC says the ad didn’t clearly disclose that to get that monthly payment, consumers must shell out $2,899 plus other fees at lease signing.

“Then there’s the online ad where the company touted an ‘incentive’ discount of $5,250,” Fair continued. “But buried behind multiple hyperlinks was the fact that the discount was available only to consumers who trade in a 1995 or newer vehicle or terminate a lease from another car company 30 days before or 90 days after delivery.”

The FTC’s complaint charges that Berry, acting as owner of the four dealerships, formulated, directed, controlled, had the authority to control, or participated in Tate’s Auto’s allegedly illegal conduct. The FTC also charges that Tate received hundreds of thousands of dollars from the other defendants, including funds directly connected to the alleged unlawful conduct.

“The complaint charges that over time, others in the industry got wise to what Tate’s was doing,” Fair wrote in her blog. “In December 2015, a major financing company that regularly worked with Tate’s conducted a review. The company reported inflated income on 17.9% of applications from Tate’s Auto Center of Gallup, 37.5% of applications from Tate’s Auto Center, 38.7% of applications from Tate’s Nissan Buick GMC, and 44.8% of applications from Tate’s Auto Center of Winslow.”

The Commission vote authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the District of Arizona.

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CFPB Official Who Sued Trump Resigns, Drops Suit


WASHINGTON, D.C. — Leandra English, who former Consumer Financial Protection Bureau Director Richard Cordray’s picked to succeed him as acting director, is ending her court battle to unseat Mick Mulvaney as acting head of the bureau and her employment with the embattled regulator.

On Friday, English’s attorney, Deepak Gupta, posted a statement on Twitter that English is stepping down from her role as deputy director and that she plans to file court papers today to bring her litigation over the leadership of the CFPB to a close following President Trump’s nomination of Kathy Kraniger as permanent director of the agency.

“I will be stepping down from my position at the Consumer Financial Protection Bureau early next week, having made this decision in light of the recent nomination of a new director,” the statement, attributed to English, reads. “I want to thank all of the CFPB’s dedicated career civil servants for your important work on behalf of consumers. It has been an honor to work alongside you.”

On Monday, Mulvaney announced that Brian Johnson, who currently serves as the bureau’s principal policy director, will assume the bureau’s second leadership post as acting director. Prior to his appointment to the CFPB, Johnson served as senior counsel to Rep. Jeb Hensarling (R-Texas) at the House Financial Services Committee.

Mulvaney described Johnson as an “indispensable advisor,” noting that he was the first person he hired at the bureau. “Brian knows the bureau like the back of his hand. He approaches his role as a public servant with humility and unsurpassed dedication,” Mulvaney said in a statement released late Monday. “His steady character, work ethic, and commitment to free markets and consumer choice make him exactly what our country needs at this agency.”

When Cordray resigned on Nov. 24, 2017, he elevated English, his former chief of staff, to deputy director — a move that established her as acting director until the Senate confirms Trump’s permanent appointee.

Hours after Cordray’s announcement, Trump appointed Mulvaney as acting director, citing his authority under the Federal Vacancies Act (FVRA) of 1988. English filed suit two days later (Nov. 26) to block the appointment, arguing that she was the rightful acting director due to a successor statute in the CFPB-creating Dodd-Frank Act.

English’s attorneys also questioned whether allowing Mulvaney, who once characterized the bureau as a “sick joke,” to continue serving as a White House official would compromise the bureau’s independence. The argument was backed by the former lawmakers who championed the CFPB-creating Dodd-Frank Act.

“That was our intent, to strip this away from the politics of the moment, to give consumers the sense of confidence that there was one place here — when it came to their financial services — [where] there would be people watching out for them, regardless of political party or partisanship,” said former Sen. Chris Dodd during media call this past November.

On Nov. 29, three days after filing suit, English’s request for a restraining order to block Mulvaney’s appointment was denied by U.S. District Judge Timothy J. Kelly. English’s attorneys then filed an amended complaint on Dec. 6, 2017, requesting a preliminary injection to remove Mulvaney as acting head of the agency. That request was also denied by Kelly, a ruling set the stage for English’s appeal.

“The Court finds that English is not likely to succeed on the merits of her claims, nor is she likely to suffer irreparable harm absent the injunctive relief sought,” Judge Kelly wrote in his 46-page decision. “Moreover, the balance of the equities and the public interest also weigh against granting the relief. Therefore, English has not met the exacting standard to obtain a preliminary injunction.”

Kelly’s ruling set the stage for English’s appeal, on which a three-judge federal appeal panel in Washington, D.C., has yet to issue a ruling.

On June 19, Trump nominated Kraninger, a White House budget official who works under Mulvaney and served as an aide to several Republican senators, to serve as the next director of the bureau. The announcement came a week before Mulvaney’s interim term was set to end.

“I have never worked with a more qualified individual than Kathy. Her commitment to the law, to protecting consumers and to defending what works in our vibrant financial services sector, all while respecting hard-working taxpayers who pay their bills and play by the rules ensures that the bureau will be in good hands throughout her term,” Mulvaney said in a statement issued the same day Kraninger’s nomination was announced. “Vigorous independence, sharp-as-a-tack intelligence, and simple, old-fashioned, Midwestern humility make her the ultimate public servant. I know that my efforts to rein in the bureaucracy at the Bureau of Consumer Financial Protection to make it more accountable, effective and efficient will be continued under her able stewardship.”

Critics like Democratic Sen. Elizabeth Warren, however, have questioned Kraninger’s qualifications for the job because of her lack of experience in financial regulation or consumer protection.

email hidden; JavaScript is required Warren, who considered the architect of the CFPB, tweeted the day Kraninger’s appointment was announced. “That’s bad news for seniors, servicemembers, students — and anyone else who doesn’t want to get cheated. And it gets even worse.”

As for English’s Friday announcement, Warren said the following in a statement: “From the earliest days of the CFPB, Leandra has directed her passion and formidable skills to building a strong, professional agency that stands up for consumers. I’m grateful for her service and wish her the best in her future endeavors.

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House Approves Resolution to Repeal CFPB’s Dealer Participation Guidance


WASHINGTON, D.C. — The U.S House approved on Tuesday its version of the resolution of disapproval of the Consumer Financial Protection Bureau’s dealer participation guidance. The resolution now heads to President Trump’s desk, where it is expected to be signed.

The 234-175 vote was cast largely along party lines, although 11 Democrats crossed the aisle to approve the resolution. One Republican, Ileana Ros-Lehtinen of Florida, voted against the resolution, which, when signed by President Trump, will bring an end to the automotive retail and finance industry’s five-year effort to get the bureau’s controversial March 2013 guidance rescinded.

“This vote indicates that American consumers have spoken to their elected representatives to say they want competitive pricing on vehicle loans,” said Chris Stinebert, president and CEO of the American Financial Services Association, in a statement issued by the lender trade group. “We are an industry that competes for consumers’ trust as well as their business while helping them acquire vehicles that support their transportation needs.”

The vote comes less than a month after the U.S. Senate voted 51-47 to approve its version of the resolution and five months after the Government Accountability Office (GAO) said Congress has the power under the Congressional Review Act (CRA) to repeal the bureau’s dealer participation guidance.

Under the CRA, both houses must approve resolutions of disapproval by a simple majority and receive the president’s signature to kill a regulation. When the latter happens to S.J. Res. 57, which was introduced in March by Sen. Jerry Moran (R-Kansas), it’ll mark the first time the CRA has been used on a rule that has been in effect for several years. And once repealed, the CRA prohibits the reissuance of a rule in substantially the same form unless authorized by Congress.

The CFPB alleged in its five-page fair lending guidance that bank policies which allow auto dealers to mark up interest rates on retail installment sale transactions as compensation for services rendered create a significant risk of unintentional, disparate impact discrimination. It also warned lenders active in the indirect auto finance channel that they would be held liable for unlawful, discriminatory markups.

The bulletin goes on to state that lenders operating in the indirect auto finance channel “should take steps to ensure that they are operating in compliance with the [Equal Credit Opportunity Act] and Regulation B as applied to dealer markup and compensation policies.” It then listed a variety of steps and tools they could employ to address the bureau’s stated fair lending risks, including “eliminating dealer discretion to markup buy rates and fairly compensate dealers using another mechanism, such as a flat fee per transaction, that does not result in discrimination.”

Auto industry trade groups have argued that the bureau used its guidance to indirectly regulate the activities of dealers, which are mostly exempt from the bureau’s oversight under the Dodd-Frank Act. They also claimed the bureau was aware its methodology for determining disparate impact and potential harm to protected classes was flawed and prone to overestimation, yet pushed forward with claims of discrimination that resulted in enforcement actions that imposed millions of dollars in fines on auto finance sources, including Ally Financial.

The guidance also caused several finance sources, including BB&T and BMO Harris, to switch to a flat-fee compensation model. BB&T switched back to a dealer spread compensation plan earlier this year, while BMO switched to a three-tiered flat-rate model last summer.

The guidance was also behind consent orders the CFPB entered into with Fifth Third Bank, Toyota Motor Credit Corp., and American Honda Finance Corp regarding their dealer markup policies. As a result of those orders, the bank and two captives agreed to lower their markup caps to 1.25% and 1%. Fifth Third’s consent order, however, is set to expire this September, while Toyota Motor Credit’s and Honda Finance’s consent orders are set to expire in February 2019 and July 2020, respectively. The three finance sources yet to say whether they’ll return to a dealer participation model when they do.

“There’s no question that this is a rule masquerading as guidance. The CFPB never submitted the guidance to the GAO. They could have done so. Had they done so the 60-day clock would have run, we wouldn’t be here,” David Regan, executive vice president of legislative affairs for the National Automobile Dealers Association (NADA), said last week during a press briefing. “They chose not to submit that to Congress because they did not want the additional exposure to public notice and comment. Within just a few weeks of the guidance being issued in March of 2013, the congressional inquiries started pouring in asking very specific questions about the methodology that we now know was flawed. And yet, the agency repeatedly refused to respond to these questions.”

Congress has attempted to kill the bureau’s guidance through the legislative route. In November 2015, the House of Representatives approved the Reforming CFPB Indirect Auto Finance Guidance Act by a 332-96 vote. The bill, however, was not acted upon by the Senate before the end of the 114th Congress.

Last March, Sen. Toomey asked the GAO whether the CFPB’s guidance on dealer participation falls under the CRA. The agency delivered its answer this past December, writing in a letter to Toomey that it did.

When it initially issued its guidance, the bureau argued that because it had no legal effect on regulated entities, the CRA does not apply. The GAO, however, stated in its response to Toomey’s request that the bulletin “fits squarely within the Supreme Court’s definition of a statement of policy,” because it provides information on the manner in which the bureau planned to exercise its discretionary enforcement power.

And according to the GAO, the CRA “establishes special expedited procedures under which Congress may pass a joint resolution of disapproval that, if enacted into law, overturns the rule.” In a statement posted on its website just after the GAO delivered its answer, Sen. Toomey said he intended “to do everything in my power” to repeal the bureau’s guidance under the CRA.

“The joint resolution is a measured response to the CFPB’s attempt to avoid congressional scrutiny by issuing ‘guidance’ that imposed a new policy without necessary procedural safeguards,” said Peter Welch, president and CEO of the NADA, in a statement issued following the House vote. “Enactment of S.J.Res. 57 will help ensure every consumer’s right to get a discounted loan in the showroom.

“Every customer deserves to be treated honestly and fairly when purchasing or financing a car or truck, and there is no room for discrimination of any kind, period,” he continued. “We continue to encourage all local dealerships to take up NADA’s voluntary fair credit compliance program, which is based on a U.S. Department of Justice model. It helps eliminate fair credit risk in auto lending while ensuring a competitive marketplace.”

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RouteOne, MaximTrak Streamline F&I Process With New Functionality


FARMINGTON HILLS, Mich. — Product documents from the 110-plus F&I product providers connected to MaximTrak’s sales and F&I solution can now be included in RouteOne’s econtracting package for a single, electronic consumer signing ceremony, RouteOne announced today.

Designed to deliver a streamlined process to enhance the customer experience, the new functionality enables a fast, easy, and secure consumer signing experience and the distribution of all F&I products from a single portal.

“This is just one of many exciting ways RouteOne and MaximTrak are aligning our combined technologies to benefit our dealer customers by bringing the “F” and the “I” together for one cohesive user experience,” said Imran Mussani, MaximTrak’s vice president of product development and operations.

RouteOne acquired MaximTrak in December 2016. Since then, according to officials, the two companies have been working to unify their technologies to innovate the sales process and deliver on the vision of a complete sales and F&I solution that meets OEM, dealer, and consumer needs — “anytime, any place, and on any device.”

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TD Auto Finance Commercial Services Announces National Expansion


CHERRY HILL, N.J. — TD Auto Finance today announced the national expansion of TDAF Commercial Services, which leverages TD Bank N.A. to provide floorplan financing and commercial lines of credit to automotive dealerships.

“We are incredibly excited to continue growing our commercial business,” said TDAF President and CEO Andrew Stuart. “This decision signifies TD’s strong commitment to the auto space and our desire to offer a full suite of products and commercial lending to our dealer network across the U.S.”

TDAF first began offering commercial loan products in June 2011, primarily in the East Coast, and has since expanded into the Midwest. This move extends TDAF’s commercial services footprint throughout the continental United States to more closely align with TDAF’s current indirect retail model.

“Dealer principals are looking for lenders who understand the full range of their business needs. The commercial loan products are an integral piece of a dealership’s operations,” said Anne Kline, Head of TDAF Commercial Services. “Our Dealer Relationship Managers have a deep knowledge of all facets of automotive finance and we are eager to bring this expertise to our expanded footprint.”

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TD Auto Finance Joins AutoGravity Network


CHERRY HILL, N.J. — TD Auto Finance (TDAF), a subsidiary of TD Bank, is the latest auto finance source to join AutoGravity’s car-shopping and financing platform, the two companies announced this week.

Through the newly forged partnership, indirect financing offers through TDAF will be made available to qualified auto buyers using AutoGravity’s digital platform, which allows consumers to search for and finance their next vehicle from their desktop or mobile device.

“We realize the impact that cutting-edge technology will have for our current and prospective dealer partners,” said Andrew Stuart, president and CEO of TD Auto Finance U.S. “Given consumers’ desire for digital options, our partnership with AutoGravity positions us to reach car buyers right on their smartphones and will help to drive the next wave of innovation in our industry.”

According to AutoGravity, more than one million users, a majority of whom as millennials, have downloaded AutoGravity’s native iOS and Android apps and collectively requested more than $2 billion in vehicle financing in 2017. Recognizing the popularity of comprehensive digital options in auto financing today, TDAF will utilize AutoGravity technology to further its reach to this set of consumers.

The AutoGravity app connects ready-to-buy car shoppers with lenders and dealerships through a seamless digital platform. Consumers can choose any new or used car, browse local inventory, apply for financing and select from up to four personalized indirect auto finance offers. Consumers can then take their chosen offer to the dealership to purchase the vehicle they selected.

“AutoGravity is reinventing the car-buying and financing journey with game-changing technology that effortlessly connects consumers, dealers and lenders,” said AutoGravity founder and CEO Andy Hinrichs. “Our partnership with TDAF reinforces our commitment to empower car buyers with finance options from the most trusted lenders in the industry — lenders that embrace technology to offer a new level of service to digitally savvy car buyers and dealerships alike.”

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