CarHop Must Pay $6.4 Million In Penalties For Jeopardizing Consumers’ Credit With Inaccurate Reports

Screen Shot 2015-12-17 at 12.28.35 PMCarHop, one of the country’s largest “buy-here, pay-here” auto dealers, promotes itself as a company that offers fast approval for “just about anyone, despite bad or no credit.” While the company prides itself on the ability to help consumers, federal regulators say the dealer and its financing arm often did more harm than good when it came to reporting on customers’ credit behavior. To that end, CarHop must pay $6.4 million in penalties for providing damaging, inaccurate consumer information to credit reporting agencies (CRAs). 

The Consumer Financial Protection Bureau announced today that it had taken action against CarHop, and its affiliated financing company, Universal Acceptance Corporation, for jeopardizing consumers’ credit.

According to the CFPB’s consent order [PDF], Minnesota-based CarHop and its financing arm inaccurately reported information for more than 84,000 accounts on a widespread and systemic basis.

The company, also known as Interstate Auto Group, operates 50 retail locations in approximately 15 states, selling vehicles primarily to customers with nonexistent or poor credit histories in need of subprime or deep subprime credit.

CarHop markets itself to these customers as a way for them to rebuild or build up good credit by promising to provide positive payment histories to credit reporting agencies.

“CarHop represented in writing to consumers that it reports ‘good credit’ to the credit reporting companies,” the CFPB claims, noting that the company emphasized to consumers its part in helping them to maintain good credit.

To that end, Universal Acceptance Corp., on behalf of CarHop, furnished consumer account information to all three major CRAs. However, despite the company’s promises of good credit reporting, the CFPB found that the company reported information that it knew or had reasonable cause to believe was inaccurate.

From January 2009 to September 2013, the company inaccurately furnished information for more than 84,000 customers.

Included in the inaccurately reported information was consumers’ rates of repossession. Under CarHop’s policy, customers could voluntarily return their vehicles within 72 hours of purchase for a full refund without any penalties.

While the policy was helpful for some customers, in many cases Universal Acceptance Corporation did not accurately report to the credit reporting companies what really happened. Instead, the company inaccurately reported on numerous occasions that the cars had been repossessed or that the consumer still owed money.

Additionally, Universal Acceptance incorrectly reported that customers still owed money to CarHop, despite having sent the individual documentation that they no longer had a financial obligation.

“For hundreds of customers, in the months or even years that followed after they returned their vehicles, Universal Acceptance Corporation inaccurately furnished, on a monthly basis, information that said that the customer still had an outstanding balance,’ the CFPB states. “Sometimes, the company inaccurately reported the amount past due in continuously increasing amounts.”

In many cases, the CFPB found that CarHop customers were unaware that their credit was being damaged by the erroneous reports.

“Almost all the information the companies inaccurately furnished to the credit reporting companies could potentially harm customers,” the order states. “The negative information could lower a consumer’s credit score, hamper their ability to obtain other credit, and hurt their job prospects.”

Under the CFPB’s consent order, CarHop must pay $6.4 million in penalties to the CFPB’s Civil Penalty Fund.

In addition to the fine, the companies must cease misrepresenting that they will report “good credit,” correct credit reporting information, and provide credit reports to harmed consumers.

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