Consumer Finance Insights
January 21, 2016

CFPB Continues Stated Intention to Target Large Non-Bank Auto Lenders

In December 2015, the CFPB took action against non-bank auto lender CarHop.  In so doing, the CFPB continued to carry out its stated intention of expanding its regulatory oversight to large non-bank auto lenders.

The CFPB ordered CarHop and its affiliated financing company, Universal Acceptance Corporation (Universal), to cease their allegedly illegal activities and pay a civil penalty of nearly $6.5 million.  In addition to selling cars, CarHop and Universal originate and service auto loans at many retail locations across more than a dozen states.  As part of its business model, CarHop encouraged customers with poor credit to apply for loans, and promised that it would help consumers build up their credit by reporting “good credit” when consumers made their payments on time.  The CFPB alleges that CarHop and Universal failed to consistently report good credit as promised, inaccurately reported that customers had past-due balance, and erroneously reported that customers who returned vehicles for a full refund still owed a balance.  The CFPB found that these actions were unfair and deceptive under Dodd-Frank, and ordered CarHop and Universal to cease misrepresenting that they will report borrowers’ “good credit,” correct erroneous credit reporting information, provide credit reports to harmed consumers, and implement a compliance program.

As LenderLaw Watch previously reported, the CFPB issued a final rule on June 10, 2015, expanding its regulatory authority to larger nonbank auto lenders.  The CFPB’s action against CarHop and Universal is the latest such enforcement action, and demonstrates that nonbank auto financiers will continue to be an area of focus for the CFPB.  This enforcement action comes on the heels of a House of Representatives report criticizing the CFPB’s efforts to regulate discriminatory lending by nonbank indirect auto lenders.  However, as the enforcement action shows, the CFPB will continue to exercise its expanded authority and continue to actively regulate nonbank auto lenders.