WASHINGTON – The Consumer Financial Protection Bureau announced Thursday that it had fined one of the largest dealer-finance companies, CarHop, $6.5 million for inaccurately reporting consumer credit data.
The Minnesota-based Carhop and its financing affiliate, Universal Acceptance Corp., allegedly inaccurately reported consumer credit information on 84,000 accounts "on a widespread and systemic basis." CarHop is one of the nation's largest "buy here, pay here" auto dealers, which offers vehicles as well as loan origination and servicing. CarHop and its affiliate were ordered to stop the named activities and pay a $6.5 million civil penalty.
"Many consumers went to CarHop because they needed transportation and wanted to build up a good record of paying their bills," CFPB Director Richard Cordray said in a press release. "But CarHop and Universal Acceptance Corporation thwarted those expectations by inaccurately furnishing negative credit information. The CFPB will not stand for companies whose sloppy actions jeopardize consumers' credit."
CarHop, also known as Interstate Auto Group, specializes in selling vehicles to subprime borrowers. The CFPB said CarHop promised consumers that it could improve their credit scores by providing "good credit" data to the credit reporting agencies but would instead report inaccurate and potentially damaging consumer data through its furnisher, Universal Acceptance.
The CFPB found that Universal Acceptance furnished wrong data on more than 84,000 accounts from January 2009 through September 2013.
Universal Acceptance "reported information that it knew or had reasonable cause to believe was inaccurate," the CFPB said. "With CarHop, consumers may not have even known about the damage to their credit profiles resulting from the erroneous reporting unless and until they checked their credit reports."
The CFPB also found that Universal Acceptance did not have written policies and procedures in place for accurately reporting credit data until August 2013 and even then, it was "not reasonable or appropriate to the nature, size, complexity and scope of the company's activities," the CFPB said.
CarHop also had a policy that allowed consumers to return a vehicle within 72 hours of purchase for a full refund without facing penalties or other obligations. However, Universal Acceptance "on numerous occasions" would then report to the credit bureaus that the car had been repossessed or the consumer still owed money, even though they returned the vehicle within that 72-hour timeframe. When vehicles were returned, CarHop would also send documentation to consumers telling them they were free of their financial obligations but the CFPB said "hundreds of customers" found the debt was still outstanding on their credit report for months and years afterward.
"Almost all the information the companies inaccurately furnished to the credit reporting companies could potentially harm customers," the CFPB said. "The negative information could lower a consumer's credit score, hamper their ability to obtain other credit and hurt their job prospects."
Both companies must jointly pay a $6.5 million penalty, stop marketing the "good credit promise," fix any credit reports that it knew were inaccurately reported and provide free credit reports to effected consumers. The companies are also required to set up an appropriate auditing process to make sure the credit data being furnished is accurate.
CarHop did not respond to a press inquiry by deadline. CarHop is one of the largest "buy here, pay here" auto dealers in the nation with about 50 retail locations in 15 states, according to the CFPB.