In a Changing CFPB – Debt Collection Continues

The CFPB as we knew it is changing every day – a new director, a new mission statement, and new areas of focus. Although the CFPB is slowing and reevaluating its enforcement actions and rulemaking procedures, generally, the CFPB’s focus on debt collection practices is continuing. The CFPB announced plans to release this year a proposed debt collection rule regarding FDCPA collectors’ communications practices and consumer disclosures. This should not come as a surprise since debt collection remains one of the most prevalent topics for complaints received by the CFPB, with over 84,000 complaints last year. Even though the CFPB’s planned rulemaking is intended to cover only FDCPA collectors, the CFPB continues to use its UDAAP authority to bring enforcement actions against first-party collectors.

Debt collection practices supervision and enforcement is not under the sole purview of the CFPB – on the federal side, the FTC also has jurisdiction. In 2017, the FTC filed or resolved 10 cases against 42 defendants, obtaining over $64 million in judgments, and banning 13 companies and individuals from debt collection again. States remain active as well with changes to existing laws.

In recent weeks, the CFPB published its Semi-Annual Report to Congress, and also published in conjunction with the FTC, an annual report on the two agencies’ supervision and enforcement activities under the FDCPA.

The joint report by the CFPB and FTC detailed four areas of debt collection activities that the CFPB focused on in the past year:

•    Impermissible communications with third parties – Examiners found that entities did not adequately confirm that they had contacted the correct party before discussing the debt. In response to these findings, entities enhanced consumer verification processes to verify first and last names, and confirm the date of birth or last four digits of the Social Security number before disclosing the debt or the nature of the call to the consumer. Further, entities revised processes to discuss the debt with an authorized user only after explicit authorization from the cardholder.

•    Deceptively implying that authorized users are responsible for debt – Examiners found that entities attempted to collect a debt directly from authorized users of a credit card even though the authorized user was not financially responsible for the debt. Examiners concluded that soliciting payment from a non-obligated user that implies that user is personally responsible for the debt constitutes a deceptive act.

•    False representations – Examiners found that entities made false representations to consumers about the effect on their credit scores of paying a debt in full rather than settling for less than the full amount. In response, entities amended training materials to remove references to how a consumer’s credit score may be affected by paying the full amount.

•    Communicating with consumers at an inconvenient time – Examiners found that entities had contacted consumers at a time or place known or which should be known to be inconvenient to the consumer. These improper calls occurred because the debt collectors failed to accurately update account notes and modify the use of auto dialers. In response, entities were directed to enhance compliance monitoring of dialer systems.

CFPB debt collection rulemaking

A CFPB rulemaking addressing debt collection has been in the works for years, including a notice of proposed rulemaking in 2013 and a SBREFA panel in 2016 reviewing an outline of rulemaking proposals. When former Director Richard Cordray stepped down in November of last year, the debt collection rule had not yet been proposed. However, it remained on the CFPB’s Fall 2017 Rulemaking Agenda released in January 2018 after Director Mulvaney took over the CFPB, and has been featured in the CFPB’s Semi-Annual Report.

The CFPB’s Semi-Annual Report noted that an upcoming proposed rule is in development that would address FDCPA collectors’ communications practices and consumer disclosures. The CFPB is continuing to consider the feedback received through the SBREFA panel and from other stakeholders that have connected with the CFPB in response to the outline of proposals. The CFPB is also engaged in research and market outreach to build on its work in 2017 that included CFPB staff speaking at regional and national debt collection industry events and conducting industry site visits.

State law changes

•    State legislatures remain active in the debt collection space. Numerous state legislatures are considering or have enacted new requirements for debt collectors regarding licensure and collection practices. For example, in Maine – two bills were enacted that broaden the scope of licensable debt collection activities (S 613) and clarifies that a debt buyer must possess the total amount due at charge off (H 1165).

•    Oregon – a recent bill (S 1153) awaits the governor’s signature that makes it a deceptive act to collect or attempt to collect a debt if the debt collector is a debt buyer, or is acting on a debt buyer’s behalf, and is collecting or attempting to collect purchased debt without providing the debtor with 30 days after the debtor’s request to provide documents required to substantiate a debt.

•    Tennessee – a proposed regulation (Rule 6717, amending Tenn. Admin. Code § 0320-5-.1 et seq.) is pending that would create numerous requirements for a debt collector’s communications with both the debtor and third parties, including requirements governing what a debt collector can say to third parties about the debt, and a list of actions that would count as unfair, deceptive, or abusive practices.

Debt collection litigation

Lawsuits stemming from alleged deceptive debt collection acts and practices continue to flood into courtrooms around the country. Additionally, numerous aspects of debt collection are still finding their way to Courts of Appeals. Recently, the Seventh Circuit joined the Fourth and Ninth Circuits when it held that a debt collector did not violate the FDCPA by only verifying the information in its records instead of contacting the creditor to verify the debt. At issue in the case was what a debt collector must verify after receiving a dispute to verify the accuracy of the underlying debt. The court held that the FDCPA is designed to eliminate abuse practices, so the verification required of the debt collector need only ensure that the letter sent to the debtor accurately state the information it received from the creditor. See Walton v. EOS CCA, 2018 WL 1417495 (7th Cir. Mar. 21, 2018).

CFPB and state attorney general coordination

Finally, as part of the CFPB’s Semi-Annual Report, the CFPB highlighted actions it has taken in conjunction with state attorneys general. The Semi-Annual Report documented one case the CFPB is pursuing in partnership with the New York

Attorney General against a network of companies that allegedly harass, threaten, and deceive consumers into paying inflated debts or amounts not owed. The case is still pending before the Western District of New York. See CFPB v. Northern Resolution Group (W.D.N.Y. No. 1:16-cv-00880).

While the CFPB may be slowing down, companies should continue to focus on debt collection practices with the expectation of continued pressure from the federal government, the states, and private litigants.

Nanci Weissgold is a member of Alston & Bird’s Financial Services & Products Group and a co-leader of the Consumer Finance Regulatory Compliance Team. She advises financial institutions and financial service providers on issues relating to mortgage lending and mortgage servicing, valuation and other consumer lending issues as part of her national regulatory compliance practice.

The Time to Prepare for an FTC Investigation is Before it Happens

My email mailbox lit up recently with the rumor that the Federal Trade Commission had dropped Civil Investigative Demands (essentially subpoenas) on a number of dealers. The CIDs, said the rumors, dealt with the dealers’ spot delivery practices.

Dealers who read Spot Deliveryand who are not doing spot deliveries correctly have no one but themselves to blame if the FTC hammers them for bad acts. We have featured several articles on spot delivery “best practices,” outlining steps dealers can take to avoid trouble.

After its Roundtables on auto finance, the FTC asked interested parties to submit additional comments on the Roundtables’ topics. In May of 2012, the attorneys general of Alaska, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, Washington, and West Virginia got together and submitted comments for the FTC’s further consideration.

The AGs urged the FTC to regulate spot deliveries to prohibit abusive practices. Their recommendations read very much like “best practices” that dealership lawyers have been urging dealers to institute in connection with these transactions. Here are the specific practices that the AGs urged the FTC to regulate by rule:

  • Require dealers to retain consumers’ trade-in vehicles until financing is approved.
  • Preclude dealers from threatening to repossess or repossessing vehicles in a manner that does not comply with state law and from threatening to file or filing a theft or other police report due to the consumers’ refusal to return the vehicle to the dealership if financing is not approved.
  • Bar dealers from charging consumers for mileage, for wear and tear, or for any other reason, pending approval of financing.
  • Require dealers to offer consumers either a complete unwinding of the deal or credit under other terms, with the consumers having the choice to decide which of the two alternatives to accept, and bar dealers from making any representations to the contrary concerning the consumers’ obligations or rights.
  • Bar dealers from retaining portions of down payments or deposits when a deal falls through.
  • Require dealers to disclose to consumers that if the first finance agreement is rejected, the consumer has the right to walk away from the deal and has no obligation to the dealer.
  • Prior to completing a spot delivery, require dealers to clearly disclose to consumers that financing has not been finalized and the responsibilities and potential consequences for consumers.

With a couple of exceptions, these recommendations echo those that I and other lawyers have been making to dealers for several years. Compare the AGs’ list above with the following list from my “Pitch the Bathwater, Save the Baby” article from two years ago (arguing that spot deliveries, done correctly, are not abusive):

  • Allow for mutual rescission until the contract is assigned.
  • Require a dealer to keep the customer’s trade-in until the customer’s retail installment contract is assigned.
  • Provide a reasonable period (say, 10 business days) for the assignment of the retail installment contract, beyond which the deal could not be unwound.
  • Prohibit a dealer from imposing any fees on the consumer other than charges for excess wear and use or damage to the car.
  • Prohibit a dealer from requiring a customer to re-contract if the retail installment contract could not be assigned.
  • Prohibit any unwinding of a deal unless the customer has agreed in writing to the unwind (this last one, in my view, isn’t necessary, since a dealer generally has no unwind rights absent the customer’s written agreement, but the prohibition might still serve a useful educational purpose for dealers and consumers alike).

I’ll add a couple suggestions to those above.

Your spot delivery practices should be in writing and reviewed by your counsel to assure that they reflect best practices like the ones above and that they comply with state laws and regulations. This written spot delivery manual should be updated periodically to make sure that it reflects any changes in the laws and regulations applicable to spot deliveries. Your personnel responsible for handling spot deliveries should be trained on the procedures, and periodically retrained, to make sure that they know what the dealership’s obligations are.

I haven’t seen one of the rumored CIDs yet, but I’ll bet you Mama’s fried okra recipe that one of the things the FTC demands in those CIDs is a copy of the dealership’s spot delivery procedures. Those dealers who can produce one that reflects the best practices outlined above will do better than dealers whose response to such a request is, “Say what?”

tom-hudsonThomas B. Hudson, Esq. ( is the Publisher of Spot Delivery(r), a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW(r), a monthly report of legal developments in all states for the auto finance and leasing industry.  He is also a partner in the Maryland office of Hudson Cook, LLP. Spot Delivery and CARLAW are produced by LLC.  For information, call 410-865-5411 or visit

Copyright (c) 2014 LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission from

Hey Buddy, Can You Lend Me a Car?

Does your dealership have a “loaner” program for customers who bring their cars in for repair? If so, do you have a written policy regarding your loaner practices and the appropriate forms to be signed by the customer in case the customer is involved in an accident that harms others?
Before you turn over the loaner car keys, do you investigate the customer? Do you ask for a copy of his or her driver’s license? Do you check the motor vehicle administration records to determine whether the license is suspended or valid?

Should you? You can bet your grandmother’s cornbread recipe that if your customer hurts someone else with your car, a lawyer will try to claim that you are responsible – that you “negligently entrusted” the car to the person who actually caused the harm. A recent case discusses the duty of a lessor in a similar setting.

Jude Sone leased a car from Enterprise Leasing Company of Norfolk/Richmond, LLC, in Virginia and drove the car to Maryland where he was involved in an accident that injured his passenger, Bertrand Essem. Essem sued Sone for negligence and sued Enterprise for negligent entrustment. Enterprise moved to dismiss the claim against it, and the Maryland federal trial court granted the motion.

Essem claimed that Enterprise should have known that Sone’s driving privileges had been suspended or revoked in Virginia and that Enterprise was negligent in failing to ensure that Sone was licensed to operate the car it rented to him. The court concluded that the test Essem proposed was not appropriate and instead found that in order to state a claim for negligent entrustment, Essem must allege that Enterprise knew or should have known that Sone was likely to use the car “in a way that put others at risk of physical injury.”

The court found that although suspension or revocation of a driver’s license could indicate that a driver is unfit to drive, a license could also be suspended or revoked for “a benign unpaid traffic ticket.” Therefore, the court found that Sone’s car accident was not “reasonably foreseeable based on the license suspension or revocation.” Moreover, the court found that neither Maryland nor Virginia law required Enterprise to look beyond Sone’s “facially valid” driver’s license to check his driving history.

So, what’s a dealer to do? Is it safe, from a liability standpoint, to rely on this case and simply verify that a customer has a license that appears valid on its face? Should the dealer inquire of the customer whether the license is still valid? If it isn’t, should the dealer inquire further about the reason for the invalidity and determine whether that reason indicates that the customer would use the car in a way that would put others at risk of injury?

Remember that this is a Maryland case, and cases in other jurisdictions might well have unfavorable outcomes for dealers. Some states may have laws or regulations addressing the dealership’s duties regarding loaner cars. Dealers, and even Maryland dealers, should work with the dealership’s attorney to determine what the law on negligent entrustment is in the dealer’s state and to fashion a loaner policy and the documents to be used in loaner transactions to be sure that the dealer is as protected as possible. Involving the dealership’s insurance company in the process is also a good idea.

tom-hudsonThomas B. Hudson, Esq. ( is the Publisher of Spot Delivery(r), a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW(r), a monthly report of legal developments in all states for the auto finance and leasing industry.  He is also a partner in the Maryland office of Hudson Cook, LLP. Spot Delivery and CARLAW are produced by LLC.  For information, call 410-865-5411 or visit

Copyright (c) 2014 LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission from

12 Steps To Get You Started

I have spoken at several buy-here, pay-here dealer conferences over the years. Federal enforcement actions are a popular topic.

Afterward, dealers line up to ask me this paraphrased question: “Can you give me a basic playbook to help me set up a compliance program that will keep the Federal Trade Commission and the Consumer Financial Protection Bureau from flogging me in the public square and throwing me in jail?” Evidently, these dealers have taken the compliance message to heart.
That oft-asked question is usually accompanied by a caveat that the compliance program must be one that won’t break the bank. This article outlines some steps you can take toward establishing a serious compliance program, followed by a guesstimate of the ‘hard costs’ involved, not including management time, implementation time, and the time your employees spend studying, training, and researching.

Here goes.

Step 1: Make the decision to become a squeaky-clean operation.

Without this step, none of the rest of the stuff we recommend will work. The decision needs to come from the top of the organization, and, if your organization has had compliance problems, all hands need to understand that it is a real sea change and not just window dressing. Your people need to be told that anyone who does not treat customers honestly and ethically will be fired. Anyone who doesn’t buy into the new compliance culture should be told to hit the road. Cost: $0.

Step 2: Appoint a privacy officer.

While you’re at it, make that same person your compliance officer and the administrator of your Red Flags program. If your organization is large enough, this person may need help in the form of a small committee. The privacy/compliance officer should report to the highest-ranking person in the organization. Have signs made for your dealership showroom that identify that person. Cost: $5 for the signs.

Step 3: Give your privacy/compliance officer a real budget so that he or she can actually get some stuff done.

No budget for privacy and compliance will assure that you will have a privacy/compliance program that’s not worth a hoot. Several of the tools that the privacy/compliance officer will need, such as copies of the federal Truth in Lending Act and Regulation Z, the federal Consumer Leasing Act and Regulation M, the federal Equal Credit Opportunity Act and Regulation B, the federal Gramm-Leach-Bliley Act, the Federal Trade Commission’s privacy regulation, the FTC’s Used Car Rule, the Red Flags Rule, and the Risk-Based Pricing Rule, can be found online, although your privacy/compliance officer might need some training to access them. As part of that privacy/compliance budget, allocate enough money to send as many people as you can possibly afford through a compliance certification course (your mechanics are trained – your F&I people need training, too). One such program is offered by the Association of Finance and Insurance Professionals ( Have your privacy/compliance officer obtain and read all the books on F&I compliance that he or she can find. Likewise, have the privacy/compliance officer subscribe to online legal compliance services. Cost: Start with at least $5,000, but you easily can spend a lot more.

Step 4: Train, train, train.

Dealers tend to have high turnover of sales and finance personnel, and this compliance stuff can be less than riveting. So, you need to train your revolving sales and finance force and periodically re-train the ones who stay with you. There are third-party trainers, some of whom are quite good, but if your privacy/compliance officer turns out to be a crackerjack, he or she might well be able to handle the training. Cost: $0 in-house, $10,000 for outside training twice a year.

Step 5: Download and print copies of “Understanding Vehicle Financing.”

This consumer education pamphlet is free on the National Automobile Dealers Association website and is available in English and Spanish. It provides an overview of how car financing at dealerships works and bears the seal of approval of the FTC. Everyone in your organization will benefit from reading it. Make copies to display around your dealership, and put a copy into each customer’s packet of papers as you close each deal. Cost: The download is free, plan on $1,000 for printing.

Step 6. Download and print copies of “Keys to Vehicle Leasing.”

This is another consumer education pamphlet. It’s from the FRB and is a good overview of closed-end auto leasing. It also is available in English and Spanish, and you should use it just like you use “Understanding Vehicle Financing.” Cost: The download is free, plan on $1,000 for printing.

Step 7: Require everyone in the sales and financing process to read carefully your buyers order, retail installment sales agreement and lease forms, privacy policy, arbitration agreement, and all other documents that you ask the customer to sign or give to the customer.

This should include credit life and accident policies and certificates, GAP addenda, service contracts, “etch” agreements, and anything else the customer sees. Make up a test to determine how much of what each employee has read he or she actually understands. Cost: $0.

Step 8: Adopt a true, transparent “menu” process for the sale of additional products through the F&I office.

Work with your lawyer to prepare the menu and the script. Dealers who use a menu say that the transparent sales process costs them some sales that they might otherwise make, but that offering every product to every customer every time through a menu results in more sales. Follow up with your employees to make sure that they’re actually using the menus you’ve adopted in the way they are supposed to be used. Cost: $0.

Step 9: Appoint a person to help customers if they have a complaint.

Sometimes referred to (using a $10 word) as an “ombudsman,” such a person helps the customer work through a complaint with the dealership. You don’t want customers resolving complaints with the dealer representatives that they originally dealt with – and who often caused the complaint and get defensive as a result. You want someone who did not take part in the sales and financing process who can look at the customer’s complaint dispassionately. Having a formalized complaint-resolution process might deter some customers from taking their gripes to a lawyer or to the CFPB. Cost: $0.

Step 10: Have your privacy/compliance officer periodically search the web.

He or she should check the site of your state’s attorney general so that you’ll know what the AG’s current hot buttons are. Another site to check is that of your state’s motor vehicle dealer regulatory body. Also, on a regular basis, check the CFPB’s and the FTC’s websites, the NADA website, your state and local ADA’s or IADA’s website, and any other sites you’ve discovered that are useful. Use your Microsoft Outlook program to set up a weekly or monthly reminder to do these searches. (Confession-I stole the Outlook tip from Gil Van Over). Cost: $0.

Step 11: If your dealership isn’t using a mandatory arbitration agreement in its sales, leasing, and financing transactions, consider doing so.

The CFPB has announced that it is studying the use of arbitration agreements in consumer transactions, and the Bureau may eventually ban their use. Until that happens, using an arbitration agreement can be an effective defense against those predatory class action lawyers. Some state association-produced buyers orders contain arbitration language, or you can buy free-standing arbitration agreements off the shelf from vendors like Reynolds and Reynolds (but make sure your state permits the use of additional documents and doesn’t have a so-called “single document rule”). Regardless of which way you go, have a lawyer who is really knowledgeable about consumer arbitration agreements look over the agreement you intend to use. Cost: $2,000, plus any ongoing printing costs.

Step 12: Have a forms and procedures review and a written compliance program.
All of your sales and F&I forms and procedures, underwriting procedures, and servicing and collections procedures should be reviewed by a lawyer who is knowledgeable about compliance law. All of these procedures should be documented and maintained in a compliance manual. You and your lawyer should periodically review your manual because laws and regulations change. Use your Microsoft Outlook program to schedule a review at least every six months. Cost: $10,000 to $20,000.

So, there you are. If you implement those 12 steps, you’ll spend about $30,000 to $40,000. You still won’t have a first-class compliance program, but you’ll be miles ahead of where most dealers are. Once you get these measures in place, we can start talking about how to bring the program to the next level.

Not willing to invest serious money in compliance? Maybe it’s time to think about closing the dealership and opening a bait shop.

tom-hudsonThomas B. Hudson, Esq. ( is the Publisher of Spot Delivery(r), a monthly legal newsletter for auto dealers, and the Editor in Chief of CARLAW(r), a monthly report of legal developments in all states for the auto finance and leasing industry.  He is also a partner in the Maryland office of Hudson Cook, LLP. Spot Delivery and CARLAW are produced by LLC.  For information, call 410-865-5411 or visit

Copyright (c) 2014 LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission from

Does Anybody Really Know What “As Is” Means?

Dealers frequently sell used cars without any warranties. When they do, they are required to check a box next to this statement on the Buyers Guide:


YOU WILL PAY ALL COSTS FOR ANY REPAIRS. The dealer assumes no responsibility for any repairs regardless of any oral statements about the vehicle.

The existing “as is” statement above has been in place since the Used Motor Vehicle Trade Regulation Rule was adopted in 1984. In December 2012, the Federal Trade Commission announced that, as part of its systematic review of all of the agency’s rules and guides, it was seeking public comments on proposed changes to the Buyers Guide. One of the proposed changes involved the “as is” statement. The FTC proposed changing the statement to read:


THE DEALER WON’T PAY FOR ANY REPAIRS. The dealer is not responsible for any repairs, regardless of what anybody tells you.

The FTC received nearly 150 comments on its proposed changes. In response, it recently issued a supplemental notice of proposed rulemaking. In the supplemental notice, the FTC recognized that commenters “uniformly” objected to the original proposed changes to the “as is” statement. Among other reasons, the commenters found that the proposed statement “obscure[d] the meaning of ‘As Is,’ ” “potentially changed its meaning,” or “misstate[d] the law and consumers’ rights.” With regard to this last objection, the supplemental notice indicated that one commenter asserted that the proposed language runs contrary to case law, which provides that an “as is” sale does not prevent a buyer from claiming that the dealership engaged in fraud.
As a result of the objections, the FTC proposed to modify the explanation to state:


THE DEALER WILL NOT PAY FOR ANY REPAIRS. The dealer does not accept responsibility to make or to pay for any repairs to this vehicle after you buy it regardless of any oral statements about the vehicle. But you may have other legal rights and remedies for dealer misconduct.
The supplemental notice states that the revision is “intended to make the statement easier to read and to improve consumer understanding, but is not intended to change the statement’s meaning,” which is “to indicate that a dealer disclaims responsibility for implied warranties that might otherwise arise by operation of state law.”

The supplemental notice also listed four other formulations of the “as is” statement, suggested by Consumers for Auto Reliability and Safety, the Iowa attorney general, the North Carolina attorney general, and the East Bay Community Law Center. Among those formulations are statements advising the buyer that he or she may have legal rights if the dealer “concealed problems with the vehicle or its history” or “misrepresents the vehicle’s condition or engages in other misconduct.” The FTC invited comments on the modification that it suggested in the supplemental notice and on the alternative formulations proposed by the four commenters noted above.

So, if my math is correct, we’ve seen at least seven different “as is” statements – the one currently in effect, two different ones proposed by the FTC, and four more proposed by commenters. If the purpose of the “as is” statement is to make sure that the consumer understands the ramifications of buying a car “as is,” it would help if there was collective agreement as to what the “as is” language means.

Nevertheless, since the FTC has made clear that it intends to revise the “as is” statement merely to clarify the existing language but not to change its meaning, it is likely that courts will not abandon existing case law that was based on the old language. Therefore, dealers who sell used cars “as is” should understand that fraudulent oral representations made by a dealer’s representative to the buyer about the condition or history of a car in order to induce a sale will still be actionable.
And that’s likely true regardless of what wording the FTC adopts.

Shelley B. Fowler is a Managing Editor of CARLAW, HouseLaw, PrivacyLaw, and Spot Delivery. Shelley can be reached at 410-865-5406 or by e-mail

Copyright (c) 2014 LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission

Lessons from DriveTime

Congress empowered the Consumer Financial Protection Bureau to supervise “buy-here, pay-here” car dealers when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Since its inception, the CFPB has not specifically targeted a BHPH dealer – until now, that is. In November, the CFPB announced a consent order against DriveTime Automotive Group, Inc., one of the largest BHPH dealerships in the country, for allegedly harassing consumers with debt collection calls and providing inaccurate credit information to credit reporting agencies. As part of the consent order, DriveTime agreed to pay an $8,000,000 civil money penalty, end the debt collection tactics categorized by the CFPB as unfair, fix its credit reporting practices, and arrange for affected consumers to obtain free credit reports.

According to the CFPB, at least 45% of DriveTime’s auto installment contracts were delinquent at any given time. When DriveTime consumers fell behind on their installment payments, at least one of DriveTime’s 290 collection employees in two domestic call centers and 80 contractors in Barbados would call them. Indeed, these employees and contractors placed tens of thousands of collection calls each weekday. At the end of 2013, DriveTime had approximately 69,000 installment contracts that were past due and that these employees or contractors would have been attempting to collect.

Dodd-Frank establishes that companies’ practices can be unfair if consumers cannot reasonably avoid being harmed. The CFPB determined that several of DriveTime’s debt collection practices were unfair to consumers. For example, DriveTime often called borrowers at work, a practice DriveTime management encouraged. Several consumers requested that DriveTime not call them at work, but DriveTime called anyway. One consumer was unfairly called 30 times at work after her do-not-call request.

DriveTime also required consumers to provide the names and phone numbers of at least four references when they applied for financing, a common practice in subprime credit. When consumers fell behind on their payments, DriveTime called these references. Many borrowers and references requested that DriveTime no longer make these calls, but DriveTime continued to call. Some references complained that DriveTime called them for months after they asked the company to stop. Finally, DriveTime frequently used third-party databases to find new phone numbers for consumers who fell behind in their payments, a practice known as skip tracing. Unfortunately, these databases were often wrong. Upon receiving DriveTime’s calls, many third parties told DriveTime employees or contractors that they had the wrong number and requested that DriveTime stop calling them. Despite such requests, DriveTime continued to call. In some cases, DriveTime called these wrong numbers for more than a year before stopping.

Unfortunately, DriveTime’s alleged unfair acts did not stop at collection practices. It also allegedly erred in how it reported delinquent information to consumer reporting agencies. In a number of cases, DriveTime reported inaccurate timing of repossessions and dates of first delinquency. This made it appear on consumers’ credit reports that DriveTime repossessed consumers’ vehicles more recently than the actual date of repossession. DriveTime also mishandled consumers’ complaints about this inaccurate information. In several instances, consumers disputed the same account information several times without correction. In other cases, DriveTime falsely told the consumers in writing that it corrected the information. The CFPB specifically found that DriveTime failed to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information it furnished to credit reporting agencies.

To settle a potential enforcement action with the CFPB, DriveTime agreed to stop communicating with consumers at their workplaces if consumers have requested that DriveTime not call them there or if DriveTime otherwise knows that the consumers’ employers prohibit communications to their workplaces. Additionally, DriveTime cannot call a particular phone number related to an account if any person requested that DriveTime stop calling that number.

DriveTime also agreed to provide a clear and conspicuous notice to existing customers as to how they can limit the times of day that DriveTime will call them. For all new customers, DriveTime will provide this notice as part of a written welcome kit. DriveTime will also provide this notice on the welcome call and, if applicable, at the time of the first collection call on the account.

In addition to agreeing to report only accurate information, DriveTime agreed that if it furnished inaccurate information to a credit reporting agency, it will provide corrected information to the agency or request that the agency delete the wrong information from the consumer’s file. For consumers about whom DriveTime furnished inaccurate credit information, DriveTime agreed to give them a notice that explains how to obtain a free credit report from each of the nationwide consumer reporting agencies. Finally, DriveTime agreed to implement a process for auditing information it furnishes to the credit reporting agencies on a monthly basis and monitoring the disputes it receives.

So, if you operate a BHPH dealership, what are your lessons from this consent order? First, be very careful in how you collect on accounts. If a consumer tells you to stop calling, then stop calling. If you obtain references and a reference asks you to stop calling, stop immediately. Keep track of these requests in your servicing software and collection call notes. Ensure that your policies and procedures are current. If you don’t have a compliance management system in place, budget for one in 2015, in a manner that corresponds to the size of your operations. And finally, if you do report information to the credit bureaus, ensure that the information is accurate.

Catherine M. Brennan is a partner in the Maryland office of Hudson Cook, LLP. Cathy can be reached at 410.865.5405 or by email at

Copyright (c) 2014 LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission 

Dealer Advertisements – Low-Hanging Fruit for Enforcers?

I admit that I’m a bit quirky. Quirky Exhibit One is what I do when I travel. Whenever possible, at breakfast, I try to find a local paper. When I do, I sip my coffee and go immediately to the car dealership ads to see how many disclosure and “unfair and deceptive acts and practices” violations I can find and if dealers have found new ways to violate the advertising laws. Dealership ads are a source of entertainment that beats the comics, hands down.

Federal and state enforcers, however, are threatening to end my fun. The Federal Trade Commission’s Operation Steer Clear has announced a number of advertising enforcement actions against dealers, and now state attorneys general are joining the posse. The latest AG to get a dealership in the crosshairs is New Jersey’s.

On August 5, Acting Attorney General John J. Hoffman and the New Jersey Division of Consumer Affairs announced the filing of a complaint against Bergen Auto Enterprises, LLC, d/b/a Wayne Mazda and Wayne Auto Mall Hyundai, for repeated deceptive advertising practices. The complaint alleges that the dealerships advertised vehicles for sale without disclosing to consumers that used vehicles had previously been used as rental vehicles and/or had sustained significant prior damage and without publishing statements to consumers about applicable purchase costs, as required by New Jersey law.

The five-count complaint alleges that the dealerships committed multiple violations of both the New Jersey Consumer Fraud Act and the state’s motor vehicle advertising regulations. The state of New Jersey wants restitution for consumers and the imposition of civil penalties, among other remedies.

Additionally, the complaint alleges that certain new vehicles offered for sale or lease had been sold months before but remained featured in the dealerships’ advertisements. The AG claims that a 2013 Mazda advertised for lease had actually been sold almost 11 months before the advertisement was published. In another instance, the Hyundai dealership allegedly advertised for at least 175 days a 2013 Hyundai Genesis for lease that it did not possess and that was, in fact, located and titled in Pennsylvania.

” ‘The alleged actions of Bergen Auto Enterprises demonstrate contempt for consumers and their rights under the law. The Wayne Mazda and Wayne Auto Mall Hyundai dealerships allegedly offered vehicles and terms that were not attainable, and concealed important details about other vehicles for sale and lease, all in a calculated effort to profit at consumers’ expense,’ ” said Division of Consumer Affairs Acting Director Steve Lee.

Newspaper advertisements for Wayne Mazda and Wayne Auto Mall Hyundai also allegedly failed to include legally required statements that explain to consumers what costs the advertised price included and what additional costs consumers would need to pay. The complaint also alleges that the dealerships advertised prices of new vehicles that reflected dealership discounts but failed to properly explain the qualifications necessary to obtain those discounts. For instance, Wayne Mazda advertised prices and included a footnote – “Available to qualified buyers on select vehicles” – but did not specify the vehicles to which the discount applied or the conditions necessary for the consumer to qualify for the discount.

Keep in mind that, so far, all we have here are allegations – the AG still has to convince a court that the dealerships did what they are charged with doing. If the AG’s allegations are true, though, I really have to wonder who at the dealerships is responsible for the legal compliance of these ads and what the advertising compliance review process looks like.

My bet is on “nobody” and “nothing.” If that describes your dealership, you need to know that the federal and state enforcers are in an absolute lather about dealers’ ads. If your ad process isn’t up to snuff, it’s time to get to work.

Catherine M. Brennan is a partner in the Maryland office of Hudson Cook, LLP. Cathy can be reached at 410.865.5405 or by email at

Copyright (c) 2014 LLC. All rights reserved.  This article appeared in Spot Delivery(r). Reprinted with express permission