Today's Trends in Credit Regulation

Lessons from DriveTime
By Catherine M. Brennan

Congress empowered the Consumer Financial Protection Bureau to supervise "buy-here, pay-here" car dealers when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Since its inception, the CFPB has not specifically targeted a BHPH dealer - until now, that is. In November, the CFPB announced a consent order against DriveTime Automotive Group, Inc., one of the largest BHPH dealerships in the country, for allegedly harassing consumers with debt collection calls and providing inaccurate credit information to credit reporting agencies. As part of the consent order, DriveTime agreed to pay an $8,000,000 civil money penalty, end the debt collection tactics categorized by the CFPB as unfair, fix its credit reporting practices, and arrange for affected consumers to obtain free credit reports.

According to the CFPB, at least 45% of DriveTime's auto installment contracts were delinquent at any given time. When DriveTime consumers fell behind on their installment payments, at least one of DriveTime's 290 collection employees in two domestic call centers and 80 contractors in Barbados would call them. Indeed, these employees and contractors placed tens of thousands of collection calls each weekday. At the end of 2013, DriveTime had approximately 69,000 installment contracts that were past due and that these employees or contractors would have been attempting to collect.

Dodd-Frank establishes that companies' practices can be unfair if consumers cannot reasonably avoid being harmed. The CFPB determined that several of DriveTime's debt collection practices were unfair to consumers. For example, DriveTime often called borrowers at work, a practice DriveTime management encouraged. Several consumers requested that DriveTime not call them at work, but DriveTime called anyway. One consumer was unfairly called 30 times at work after her do-not-call request.

DriveTime also required consumers to provide the names and phone numbers of at least four references when they applied for financing, a common practice in subprime credit. When consumers fell behind on their payments, DriveTime called these references. Many borrowers and references requested that DriveTime no longer make these calls, but DriveTime continued to call. Some references complained that DriveTime called them for months after they asked the company to stop. Finally, DriveTime frequently used third-party databases to find new phone numbers for consumers who fell behind in their payments, a practice known as skip tracing. Unfortunately, these databases were often wrong. Upon receiving DriveTime's calls, many third parties told DriveTime employees or contractors that they had the wrong number and requested that DriveTime stop calling them. Despite such requests, DriveTime continued to call. In some cases, DriveTime called these wrong numbers for more than a year before stopping.

Unfortunately, DriveTime's alleged unfair acts did not stop at collection practices. It also allegedly erred in how it reported delinquent information to consumer reporting agencies. In a number of cases, DriveTime reported inaccurate timing of repossessions and dates of first delinquency. This made it appear on consumers' credit reports that DriveTime repossessed consumers' vehicles more recently than the actual date of repossession. DriveTime also mishandled consumers' complaints about this inaccurate information. In several instances, consumers disputed the same account information several times without correction. In other cases, DriveTime falsely told the consumers in writing that it corrected the information. The CFPB specifically found that DriveTime failed to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information it furnished to credit reporting agencies.

To settle a potential enforcement action with the CFPB, DriveTime agreed to stop communicating with consumers at their workplaces if consumers have requested that DriveTime not call them there or if DriveTime otherwise knows that the consumers' employers prohibit communications to their workplaces. Additionally, DriveTime cannot call a particular phone number related to an account if any person requested that DriveTime stop calling that number.

DriveTime also agreed to provide a clear and conspicuous notice to existing customers as to how they can limit the times of day that DriveTime will call them. For all new customers, DriveTime will provide this notice as part of a written welcome kit. DriveTime will also provide this notice on the welcome call and, if applicable, at the time of the first collection call on the account.

In addition to agreeing to report only accurate information, DriveTime agreed that if it furnished inaccurate information to a credit reporting agency, it will provide corrected information to the agency or request that the agency delete the wrong information from the consumer's file. For consumers about whom DriveTime furnished inaccurate credit information, DriveTime agreed to give them a notice that explains how to obtain a free credit report from each of the nationwide consumer reporting agencies. Finally, DriveTime agreed to implement a process for auditing information it furnishes to the credit reporting agencies on a monthly basis and monitoring the disputes it receives.

So, even if you don't operate a BHPH dealership, what are your lessons from this consent order? First, be very careful in how you collect on accounts. If a consumer tells you to stop calling, then stop calling. If you obtain references and a reference asks you to stop calling, stop immediately. Keep track of these requests in your servicing software and collection call notes. Ensure that your policies and procedures are current. If you don't have a compliance management system in place, budget for one in 2015, in a manner that corresponds to the size of your operations. And finally, if you do report information to the credit bureaus, ensure that the information is accurate.

Catherine M. Brennan is a partner in the Maryland office of Hudson Cook, LLP. Cathy can be reached at 410-865-5405 or by email at

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