A Greeley, Colo., used car dealer has agreed to settle Consumer Financial Protection Bureau charges relating to its financing activities by paying $700,000 in consumer redress to its customers. Y King S Corp., which does business as Herbies Auto Sales, also agreed to a $100,000 civil penalty, but the penalty will be suspended if the agreed-on redress payments are made.
Herbies Auto Sales is described by the CFPB as a “subprime, buy-here, pay-here dealer,” meaning that the company both sells and finances cars without selling the loans to a third party. The bureau charges that the dealer misrepresented the annual percentage rate that borrowers would pay by not disclosing some finance charges. Herbies has agreed to the entry of a consent order in an administrative proceeding but has not admitted any wrongdoing.
Violations charged. According to the consent order, Herbies advertised a 9.9-percent APR. However, customers who financed their car purchases actually paid a higher APR because the company did not disclose:
- the cost of a required repair warranty as a finance charge;
- the cost of a required GPS payment reminder device as a finance charge; and
- the fact that customers who paid cash could negotiate lower purchase prices.
These practices not only violated Truth in Lending Act disclosure requirements, they also were abusive practices under the Dodd-Frank Act, the CFPB says.
In addition to paying redress, Herbies will have to modify its sales and financing practices. The purchase price of all cars must be clearly posted when financing is offered, and future misrepresentations are barred. Herbies also must give consumers complete information on the car price, APR, finance charges, and loan terms when a loan is offered, and the company must have consumers acknowledge in writing that they received the information no later than when credit is offered.
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