Consumer bureau chief looking into Buy Here Pay Here auto dealers


The new head of the Consumer Financial Protection Bureau is looking into the practices of Buy Here Pay Here auto dealers and the rapid growth of the industry.

“We are looking at that space,” Richard Cordray said Thursday at his first news conference since being appointed as director last week. “We’re concerned about it.”

Buy Here Pay Here dealers often target poor people and those with bad credit. Unlike conventional auto dealers, who act as middlemen in arranging financing, Buy Here Pay Here dealers lend the money themselves — at interest rates that can top 30%. That direct lending makes them subject to consumer bureau oversight.


The Times recently published a series of stories about the Buy Here Pay Here industry, showing how dealers take advantage of people desperate for transportation by selling high-mileage vehicles for much more than their Kelley Blue Book value.

Many buyers end up defaulting on the dealer-provided loans, and the dealers repossess the vehicles and sell them again.

Cordray had read The Times’ series and also had been made aware of problems with such dealers by Holly Petraeus, who heads the bureau’s Office of Servicemember Affairs, he said.

“She has kind of taught me how it’s affecting some of these young service members,” Cordray said. “They get behind in debt, and that debt — if they can’t manage it — potentially affects security clearances and the trajectory of their entire career.”

Military commanders have complained about predatory auto dealers who operate near bases and try to take advantage of young service members, many of whom are away from home for the first time.

The agency was created in the 2010 financial reform law to protect consumers from predatory lending and other abuses by financial firms. Cordray, a former Ohio attorney general, was installed last week by President Obama in a controversial recess appointment after nearly all Senate Republicans had blocked a confirmation vote in December.

On Thursday, the Justice Department’s office of legal counsel released a 23-page memo saying Obama had the authority to make the appointment. Rep. Jeffrey Landry (R-La.) has promised to introduce legislation to block Cordray’s appointment, and a Citigroup Inc. executive predicted this week that there would be multiple legal challenges.

Thomas J. Donohue, president of the U.S. Chamber of Commerce, said Thursday that Cordray’s appointment was “deeply disappointing.” The chamber had no plans at the moment to sue, Donohue said, but he did not rule it out.

Cordray said honest businesses should embrace the consumer bureau because it would protect them from being undercut by irresponsible companies that don’t adhere to the same standards or that break the law.

“Like every responsible financial provider, they should welcome us, and we will be good for them,” he said.

Ken Shilson, founder of the National Alliance of Buy Here Pay Here Dealers, an industry trade group, did not return a call seeking comment.

The financial reform law exempted conventional auto dealers from oversight by the Consumer Financial Protection Bureau because they do not lend the money to buyers.

But the agency has oversight of Buy Here Pay Here dealers, who directly lend to consumers, and broader powers to prohibit unfair, deceptive or abusive practices in the financial industry.

Buy Here Pay Here dealers said the high interest rates are needed to offset the increased risk of default. They make an average profit of 38% on each sale — double the margin for conventional auto dealers, according to the trade group.