Subprime auto lender Consumer Portfolio Services learned some costly but valuable lessons from a $5.5 million consent order with the Federal Trade Commission this year, says CEO Charles Bradley Jr.
The most important lesson learned? "The regulators are not cutting any slack," Bradley told Automotive News.
The FTC accused Consumer Portfolio of Irvine, Calif., of harassing customers in the collections process and in some cases collecting amounts customers did not owe.
"Whatever we did wrong probably didn't affect more than 3 percent of the business," Bradley said. "But it doesn't count if you do everything 97 percent right. That's not the real, new world we live in. ... It needs to be 100 percent."
Consumer Portfolio buys loans from about 12,000 mostly franchised dealerships in 48 states. The consent order was aimed at the lender's collection activities and was not related to dealerships.
At a practical level, Bradley said, Consumer Portfolio's takeaways from the experience include:
Training must be continual. "As much as you teach people to do the right things, over a significant period of time, certain things break down in the execution," he said. Now as part of continual training, for example, the company records and reviews all phone calls with customers instead of checking only a sample.
Centralization is an asset. Bradley said even with just five call centers, the company's compliance on collection rules was inconsistent from center to center. "If you had 100 branch offices or something, it would be really difficult. Being centralized, which we already were, is probably an advantage," he said.
Tougher scrutiny is here to stay. Bradley said the company felt picked on when it became aware in March 2011 that the FTC was looking into its collection practices. But the consent order wasn't published until May 2014. By that time, he said, the company came to realize its initial contact with the FTC was the start of a new and tougher regulatory environment by the FTC, the U.S. Department of Justice and the Consumer Financial Protection Bureau for all lenders.
The FTC consent order requires Consumer Portfolio to pay a $2 million civil penalty, to make refunds or adjustments worth an additional $3.5 million to customer accounts and to forgo additional collection efforts on another 35,000 accounts.
It also must establish and maintain a "data integrity program" to ensure customer data are complete and accurate and to document that its written policies and procedures for collections comply with applicable laws.
The lender has paid its civil penalty and is in the process of making refunds. It expects to finish those payments by Sept. 15, Bradley said.
He sees the experience as a competitive advantage. "We're much better prepared than our competitors," he said. "Ironically, that turns out to be the silver lining for us."