The Consumer Financial Protection Bureau announced Thursday that Herbies Auto Sales must provide $700,000 in refunds to customers and pay a $100,000 fine to resolve allegations it hid finance charges and deceived consumers purchasing vehicles.
The regulatory action against the Greeley, Colo.-based company continues a CFPB crackdown on "buy-here, pay-here” auto dealers.
Herbies Auto Sales, also known as Y King S Corp., operates as a subprime dealer that both sells cars and originates auto loans without selling loans to third parties. From at least 2012 through May 2014, the company allegedly offered financing to about one thousand people each year.
The CFPB states that Herbies allegedly unlawfully advertised a misleadingly low 9.99% annual percentage rate without disclosing a required warranty, a payment reminder device and other credit costs as finance charges. The ruse helped Herbies convince consumers that they would get the 9.99% APR instead of the much higher rate actually charged, according to the CFPB.
The CFPB is accusing Herbies of violating the Truth in Lending Act and the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act. Specifically, the company allegedly:
- Hid finance charges and advertised a far lower APR than consumers received: Herbies lied to consumers about finance charges and APRs in marketing materials, including on showroom window displays, and in Truth-in-Lending Act disclosures. Hidden finance charges included $1,650 for a required repair warranty and $100 for a required GPS payment reminder device.
- Hid finance charges that stemmed from a refusal to negotiate car prices: Herbies 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.
- Used abusive practices: Herbies’ financing scheme lured consumers with misleading advertising and then kept them in the dark about the true cost of financing the cars they were buying. This took advantage of consumers’ inability to protect their interests in selecting or using Herbies’ financing, among other things.
Under the Consumer Financial Protection Act, the CFPB is authorized to take action against companies it believes are engaged in unfair, deceptive or abusive acts or practices, or that otherwise violate federal consumer financial laws. Under the consent order, Herbies is required to provide $700,000 in restitution for consumers who financed cars with the company after Jan. 1, 2012. The company’s $100,000 civil penalty will be suspended as long as redress is paid.
Also, the company must revamp its practices to stop deceiving consumers during the financing process, stop posting deceptive automobile prices and start providing financing information in advance.
- Stop deceiving consumers during financing process: Herbies must not misrepresent interest rates, finance charges, or amounts financed, or any other fact material to consumers concerning the financing of any motor vehicle.
- Post automobile prices: Herbies must clearly and prominently post the purchase price on all automobiles for sale when offering auto financing.
- Provide certain financing information in advance: 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.