Sub-prime lender Westlake fined $4.25 million

Sub-prime indirect auto lender Westlake Services and its auto title lending subsidiary Wilshire Consumer Credit have been hit with a $4.25 million penalty and ordered to pay some $44 million in compensation over illegal debt collection tactics, following an investigation by the Consumer Financial Protection Bureau (CFPB).

The bureau claims the indirect auto finance company pressurized borrowers by calling under false pretenses and, using phony caller ID information, falsely threatened to refer borrowers for investigation or criminal prosecution, as well as illegally disclosing information about debts to borrowers’ employers, friends, and family.

The CFPB has ordered the companies to overhaul their debt collection practices and to provide consumers $44.1 million in cash relief and balance reductions.

“There’s no excuse for lying to your customers, and today’s action will provide millions of dollars in relief for borrowers caught up in Westlake and Wilshire’s deception,” said CFPB director Richard Cordray. “Consumers struggling to pay their bills deserve to be treated with respect, not subjected to illegal threats and deceptive phone calls. We will continue to clean up the debt collection market and root out these illegal and inexcusable practices.”

Westlake Services, based in Los Angeles, specializes in purchasing and servicing auto loans, including many sub-prime and near sub-prime 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. Wilshire also purchases and services auto title loans made by others.

Illegal practices

The CFPB found that Westlake and Wilshire deceived borrowers into thinking they were being called by repossession companies, other third parties, or even the borrowers’ own family and friends. The bureau’s investigation found that the companies’ debt collectors used a web-based service, Skip Tracy, to place outgoing calls and choose the phone number and caller ID text that the call recipient would see. Since January 2010, Westlake and Wilshire debt collectors have used Skip Tracy to place or receive calls associated with over 137,000 loan accounts.

Westlake and Wilshire also altered caller ID information so that it looked like they were calling from unrelated businesses. On these calls the companies’ debt collectors would usually keep up the ruse – for instance, if the caller ID was altered to say “Flower Shop,” the debt collector would pose as an employee of a flower shop in order to trick the consumer into disclosing his location or the location of his vehicle.

Westlake and Wilshire also altered caller ID information so that it looked like borrowers were receiving calls from family members and friends when the calls were actually placed by the companies’ debt collectors. In some instances, the companies altered the calls so they looked like 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. These tactics likely misled consumers into believing they needed to make a payment urgently to avoid an investigation.

On other occasions, it appeared that it appear the calls were coming from a party associated with the word “Storage.” During some of these calls, the companies’ debt collectors implied that the vehicles would be released if the borrowers made a partial payment on the account; however, the companies would actually only release a repossessed vehicle after a borrower paid the full amount due. As a consequence, some borrowers paid the amount agreed upon during the phone call, but their vehicles were not released.

The companies also failed to disclose the annual percentage rate on certain loans as required by law. In some cases, the companies changed the due dates or extended the terms of loans without borrowers’ permission, causing more interest to accrue, while telling consumers that the extensions would have a positive effect. These practices violated the Fair Debt Collection Practices Act, the Truth in Lending Act, and the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act.