For the second time this week, the Consumer Financial Protection Bureau has flexed its muscles when it comes to reining in unscrupulous indirect auto loan financiers. Just days after taking action against Fifth Third Bank for auto-lending discrimination, the Bureau ordered a Los Angeles-based finance company and its auto title lending subsidiary to pay $48.3 million in fines and relief to affected borrowers stemming from a laundry list of allegedly illegal debt collection practices.
A proposed consent order [PDF] accuses Westlake Services and Wilshire Consumer Credit of using a variety of legally questionable tactics since at least 2010.
These include: using phony caller ID information; falsely threatening to refer borrowers for criminal prosecution; and illegally disclosing information about debts to borrowers’ employers, friends, and family.
Westlake Services, which specializes in purchasing and servicing auto loans, including many subprime and near-subprime loans, purchased loans from auto dealers nationwide. Wilshire Consumer Credit, a wholly owned subsidiary of Westlake, offers auto title loans directly to consumers, largely via the Internet, and services those loans. The company also purchases and services auto title loans made by others.
An investigation by the CFPB found that starting in January 2010, the companies’ debt collectors began using a web-based service called Skip Tracy — which allowed them to change the phone number and caller ID that recipients see — to place calls to more than 137,000 loan borrowers.
The Bureau found that collectors altered the calls to make it appear they were coming from other entities, including repossession companies. The debt collectors would then pretend during the call that they were calling from repossession companies and make threats that the borrowers’ vehicles were in immediate danger of being repossessed.
Collectors also allegedly used Skip Tracy to make it appear as if other businesses were contacting customers, with IDs showing things like “flower shop.” The collectors then kept up the ruse by posing as a flower shop employee in order to trick customers into disclosing their location or the location of their vehicle.
In other instances, the complaint states that the companies used the phone service to make it look as if they were calling from investigation or enforcement divisions.
“The companies explicitly and implicitly threatened to file criminal charges against consumers even when they had not decided to refer the borrowers to criminal authorities,” the CFPB says.”These tactics likely misled consumers into believing they needed to make a payment urgently to avoid an investigation.”
From January 2010 to April 2014, Westlake and Wilshire called consumers whose vehicles had already been repossessed and used Skip Tracy to make it appear the calls were coming from a party associated with the word “storage.”
During these calls, collectors falsely implied that the that the vehicles would be released if the borrowers made a partial payment on the account. In reality, the companies would actually only release a repossessed vehicle after a borrower paid the full amount due.
The companies also illegally contacted borrowers’ employers, friends, and family members about overdue debts.
According to the CFPB complaint, the companies paid a third-party repossession company to make debt collection calls to borrowers, even when the companies had not decided to repossess the consumers’ vehicles or the companies had no reason to believe repossession was imminent.
“This tactic likely misled consumers into believing that they needed to make a payment urgently to avoid repossession,” the CFPB claims.
In addition to deceiving consumers with illegal debt collection practices, the CFPB found Westlake and Wilshire violated consumer financial protection laws with advertising, customer relations and account servicing.
From Jan. 2010 to Sept. 2010 the company deceived borrowers about the effects of due date changes or extensions to loan terms, as well as hid the true cost of credit.
Specifically, the CFPB found that Wilshire used monthly interest rates or other interest rates in advertisements for auto title loans in 2012 and 2013, without disclosing the loans’ annual percentage rate as required by law.
Monthly rates advertised by Wilshire only appeared in small print on its website. Representatives speaking with prospective borrowers on the phone would answer questions about the cost of loans by providing monthly rates or other rates instead of the annual percentage rate.
Under the terms of a proposed CFPB consent order, Wilshire and Westlake must provide $44.1 million in redress to affected borrowers. The funds will be issued in the form of $25.8 million in cash, while the remainder will come from balance reductions to open accounts.
The company must also pay a $4.25 million civil penalty to the CFPB’s Civil Penalty Fund, as well as end deceptive debt collection practices, protect consumers’ private information and end unlawful advertisements.
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