CFPB takes action against sub-prime auto lender

The Consumer Financial Protection Bureau (CFPB) has taken action against Herbies Auto Sales, a buy-here pay-here used car dealer, for abusive financing schemes, hiding auto finance charges and misleading consumers.

The federal agency says Herbies unlawfully advertised a misleadingly low 9.99% 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% APR instead of the much higher rate actually charged. Also, Herbies engaged in abusive practices, the CFPB claimed.

Herbies will pay $700,000 in restitution to harmed consumers, with a suspended civil penalty of $100,000. The company is based in Colorado and from 2012 through to May 2014, offered financing to about 1,000 people each year.

“Buying a car is often one of the most important purchases a consumer makes, so the experience needs to be fair and above-board,” said CFPB director Richard Cordray. “But concealing finance charges and the real cost of credit, as Herbies did here, is unlawful and unacceptable.”

The bureau said Herbies had a range of hidden finance charges which included $1,650 for a required repair warranty and $100 for a required GPS payment reminder device. The company refused to negotiate prices with credit customers, but did negotiate with cash customers. The resulting finance charge should have been included in the disclosed cost of credit, but was not.

Under the Consumer Financial Protection Act, the CFPB is authorized to take action against institutions engaged in unfair, deceptive or abusive acts or practices, or that otherwise violate federal consumer financial laws.

The agency has ordered Herbies to 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 bureau for making restitution to those affected. Herbies is also subject to a civil penalty of $100,000, which is suspended as long as redress is paid.

In addition, Herbies must undertake not to misrepresent interest rates, finance charges, or amounts financed, or any other fact material to consumers concerning the financing of any motor vehicle. The company must clearly and prominently post the purchase price on all automobiles for sale when offering auto financing.

Finally, Herbies must give consumers certain information about the financing offer, including the actual APR, price of the car, and all finance charges, and get a signed acknowledgment from consumers that they received the required information before or at the time financing is offered.