March 2016 FINAl Mag MAR16_MidAtlanticDealerNews 2 23 2016

CFPB ENFORCES AGAINST COLORADO BHPH DEALER
FOR ALLEGED UNLAWFUL LENDING PRACTICES
By Peter Salinas
The Consumer Financial Protection Bureau (CFPB), has
dunned a Greeley, Colorado buy-here, pay-here dealership with
a huge penalty —$700,000 — as a result of an investigation
into the store’s business practices.
Y King S Corp., which does business as Herbies Auto
Sales in Greeley, Colorado, was ordered to pay $700,000
in restitution to harmed consumers, and a civil penalty of
$100,000, which is suspended based on the dealer’s inability
to pay.
The move comes on the heels a November 2015, $6.4
million fine against CarHop, a Minnesota-based buy-here, payhere
operation, and its affiliated financing company, Universal
Acceptance Corp., for allegedly inaccurately reporting credit
information for more than 84,000 consumer accounts.
While CarHop, operates 50 retail locations in 15 states,
Herbies operates one location in northern Colorado. The
move by the CFPB may signal increased attention on the buyhere,
pay-here business model, which predominantly involves
smaller operations as opposed to the large chains, such as
CarHop and DriveTime.
CarHop agreed to pay the
fine, but did not admit any
wrong-doing.
“We have agreed to this
settlement, under which we
have not admitted to the
CFPB’s allegations, to move
beyond the distraction of the
investigation started in May of
2012,” CarHop said in a public
statement in December 2015
“Although the CFPB has
made a number of allegations, it did not find that any
consumer is entitled to any damages.
Arizona-based DriveTime was fined $8 million by the CFPB in
late 2014 for allegedly using unfair debt collection practices.
DriveTime was ordered to pay to fix its credit reporting
practices, and arrange for harmed consumers to obtain free
credit reports. The company operates 117 dealerships in 20
states and, as of the end of 2013, held more than 150,000
outstanding auto installment contracts.
The CFPB imposed the fine on Herbies for:
• failing to accurately disclose the finance charge and
annual percentage rate for financing agreements;
• failing to disclose the cost of the repair warranty as a
finance charge;
• failing to disclose the cost of the GPS payment reminder
device as a finance charge;
• failing to disclose the discount provided to cash
customers as a finance charge; and
• advertising a false annual percentage rate.
According to published reports, Lee Yoder, owner of Herbies
Auto, said in a prepared statement that, “It was certainly
never our intention to deceive our customers. Nevertheless,
the CFPB insisted that we sign a consent order or face a law
enforcement action.”
The CFPB made special mention of Herbies charging less
for vehicles paid for with “cash” transactions than it did for
“credit” transactions — by as much as $1,000. The CFPB
said Herbies “took unreasonable advantage of (consumers)
by exploiting its customers’ misunderstanding of the credit
and sales terms for its own financial benefit.”
Herbies, which now leases vehicles to consumers, offered
auto financing to consumers for used car purchases from
January 2012 through May 2014. Herbies assigned the
vast majority of these contracts to YKS Acceptance, Inc., an
affiliated financing business that has the same corporate
officers as Herbies and only takes assignment of Herbies’
installment contracts.
Yoder, in his statement, explained that any additional charges
were for the consumers’
protection, and consumers
were fully aware of them.
He said in the letter that if
buyers experienced mechanical
problems with their cars, they
could end up defaulting on
their loans, so Herbies created
a warranty program, “for an
additional cost, to cover many
mechanical problems, protect
the customer and reduce
purchaser defaults.
The CFPB stated the company charged $1,650 for the
“required repair warranty.”
The CFPB charged that Herbies advertised a “misleadingly
low 9.99 percent annual percentage rate (APR), without
disclosing a required warranty, a payment reminder device
and other credit costs as finance charges. This ruse helped
Herbies convince consumers that they would get the 9.99
percent APR instead of the much higher rate actually charged.
Also, Herbies engaged in abusive practices.”
As a result of the agreed to “consent order” from the
CFPB the company must: provide $700,000 in restitution for
consumers who financed cars with Herbies after January 1,
2012, except those whose accounts were charged off due
to default. Herbies must submit a timeline to the CFPB for
making restitution to consumers. The company is also subject
to a civil penalty of $100,000, which is suspended as long
as redress is paid.
Yoder said in his statement that Herbies was not given any
warning that the protection agency believed the car dealership
was violating the law, or given “any chance to remedy their
concerns.” 3
14 | MARCH 2016 MIDATLANTIC DEALER NEWS