Yesterday SNAAC (Security National Automotive Acceptance Co.) announced that it will be closing its doors after 30 years in the subprime auto loan industry. The company will lay off 150 employees and liquidate all of its assets. As more Americans than ever purchase and finance used cars, many may wonder what could cause such an established auto loan company to falter. The answer may be connected in part with something that is becoming an increasingly large concern for the BHPH industry as a whole: compliance.
SNAAC president and CEO, Grant Skeens, described the cause as “an unforeseen and unprecedented downturn in business.” The cause of these current troubles, however, could potentially be rooted in compliance issues spanning back to 2015. SNAAC specialized in providing loans to members of the Armed Forces, and the company first found itself facing trouble when the Consumer Finance Protection Bureau (CFPC) sued them for noncompliance with collections regulations.
In 2015, the CFPC accused SNAAC of engaging in “deceptive pressure tactics” to collect debts, many of which took advantage of active military personnel’s particular situation. When a service member defaulted on a loan, the lender began repeatedly contacting them with threats. The company misled service members concerning the seriousness of their situations, claiming to have taken legal actions they had never even filed, and greatly exaggerating the long-term affect this default would have on the customers’ military careers. The lender even claimed that defaulting on a loan was against military law. Moreover, in some cases SNAAC contacted service members’ commanding officers and informed them about the default in an effort to pressure lendees into paying. Others were luckier, and while the auto finance company threatened to contact their officers, they never followed through.
The result of all of this was that in 2015 Richard Cordray, the CFPB director at the time, called SNAAC’s actions “illegal debt collection practices,” and ordered SNAAC to repay or credit $2.28 million to consumers along with paying another $1 million in penalties. Under the Dodd-Frank Act, the CFBP required SNAAC not only to pay these amounts, but also to cease contacting or threatening to contact commanding officers, stop misinforming service members about legal ramifications under military law, and stop falsely claiming they were taking legal action when no such action was underway.
Fast forward to 2017, and SNAAC was once again facing legal trouble. While it appears that the lender ceased all non-compliant collections practices mentioned in the 2015 order, the money had not been repaid. In fact, the father of a service member informed the CFPB that the loan company was issuing valueless “credits” to accounts that were already paid in full or discharged through bankruptcy. The purpose, according to the CFPB, was to make it appear that the lender was crediting the required $2.28 million back to injured consumers. In reality, because the accounts credited were all ready fully paid or discharged, the consumers could not use these credits toward a new or existing loan, thus ensuring that SNAAC did not actually lose money.
In this second action, the CFPB not only reiterated that the remaining damages would still have to be paid, but also levied new penalties on top of them. SNAAC was told it would have to pay $720,00, which would be distributed between over 900 of the consumers involved, credit more than 1,000 consumers with current account balances, pay $75,00 directly to the CFPB to cover the costs of distributing funds, and pay another $1.25 million penalty in addition to the original $1 million it had already paid.
So, did these legal actions play into SNAAC’s decision to close it’s doors? Nearly $5 million would likely prove a heavy cost to most companies, but with car buyers spending more time than ever in online research before purchasing, perhaps the most detrimental affect of these proceedings could have been the damage to SNAAC’s reputation. Is it possible that dealers who were aware of the circumstances might have thought twice about procuring customer loans through that lender? Might consumers themselves have even been advised by friends, family, or fellow military personnel to refuse loans through that particular company?
Only one thing is certain: the closure of SNAAC should serve as a warning to other subprime lenders, and even to BHPH dealerships. Compliance should not be taken lightly, especially as organizations like the CFPB continue to strengthen enforcement. It is possible that, in the end, failing to comply with regulations could cost companies in the BHPH industry a lot more than a fine.