A lawsuit filed in Oklahoma County district court accuses one of the state’s largest car dealership companies and one of the country’s largest auto lending companies of issuing scores of predatory loans to numerous Oklahoma customers by falsifying finance paperwork.
The suit accuses David Stanley Dodge of adding fraudulent features and accessories to vehicles on finance paperwork and of inflating customer income information in order to obtain car loans for customers.
The suit also accuses the lender, Ally Financial, of knowing many of the loans it accepted from the dealership were based on false financial information that inflated the incomes of applicants or over-valued vehicles the loans were based on.
The plaintiff’s attorney in the case, Kathi Rawls, also submitted a complaint to the U.S. Consumer Financial Protection Bureau on Friday alleging that Ally Financial had issued a fraudulent loan.
Messages left for David Stanley Autogroup’s attorney and management, as well as messages left for Ally Financial’s corporate spokesperson and its Oklahoma attorney were not returned last week. David Stanley Autogroup encompasses several dealerships under the David Stanley brand.
The suit, filed last year in Oklahoma County District Court, contains an affidavit from a former manager for David Stanley Chevrolet that states an audit by Ally Financial performed in 2014 found evidence that more than 100 loans assigned to the company in 2012 by the dealership had non-existent features added to financial paperwork for the vehicles sold or inflated customer incomes.
However, according to the affidavit, although Ally Financial advised the dealership to stop the practice, it indicated it would not do anything about the loans unless customers became aware of the issue or filed a complaint.
Many of the loans questioned by the suit are subprime auto loans given to auto buyers with poor credit, Rawls said.
The allegations in the lawsuit echo concerns nationally about the state of subprime automobile loans, which over the last couple of years have seen increasing rates of customer default and have triggered alarm bells by investors and market-watchers.
In January, a separate lawsuit filed by a group of Ally Financial shareholders accused the company of misleading investors as to the protections in place against predatory lending and the value of its subprime auto loans.
The suit against David Stanley Autogroup and Ally Financial, filed in July 2016 in Oklahoma County District Court by Lawton residents Tiffiany Bourque and Frederick Karol, states that in July 2015 Bourque purchased a 2013 BMW from David Stanley Dodge of Midwest City. Bourque and her friend and co-signer, Karol, travelled to the dealership, and the two planned to use Karol’s 2002 Ford Explorer as a trade-in.
The listed price on the vehicle, advertised as “amazing” and “possibly garage kept,” was $22,500, and Bourque said she planned to seek financing for the vehicle through the dealership, the lawsuit states.
Eventually, a salesperson told Bourque that in addition to a cosigner and down payment, it would be necessary to also add $8,000 in bank fees in order for her to get a loan for the vehicle, the suit states. Bourque then said when she got the vehicle home, she noticed that the cash price of the vehicle was listed on the paperwork as $32,530 and had added thousands of dollars in “add-ons” to the vehicle that she did not agree to.
In April 2016, Bourque took the vehicle to a Lawton Dealership, which ran a background check and found that the vehicle had previously been declared a total loss after being wrecked in Florida, the suit alleges.
Court documents show that David Stanley as well as Ally Financial are requesting the court send the matter to arbitration, which it says Bourque agreed to in writing while purchasing the vehicle.
The lawsuit’s request for a class action status stems from a 2014 audit Ally Financial performed on loans it had accepted from David Stanley Chevrolet in 2012 following a separate lawsuit alleging fraud, according to court documents. In that lawsuit, the plaintiff alleged that a David Stanley Chevrolet worker had added a “Black Widow Spider” package to paperwork listing his truck’s features, which added thousands of dollars to the value of the vehicle. That case was later sent to arbitration and settled.
According to an affidavit by former David Stanley Chevrolet Used Car Manager Brian Becker, Ally Financial’s investigation and audit found evidence of at least 110 loans it had been assigned by the dealership had fraudulent collateral features (a practice known as “power booking”), inflated consumer incomes or both. A financial manager at the dealership who signed off on the paperwork was subsequently fired, the affidavit states.
Becker left David Stanley in 2015 and, represented by Rawls, filed a wrongful termination lawsuit that was quickly settled by the company. He has since opened his own dealership in Moore.
Becker stated in the 2015 affidavit that Ally Financial advised the dealership to stop the practice, but it indicated it would not inform customers about the issue and continued to collect on the loans. And if any customers were to discover what happened, Becker’s affidavit states, Ally would require the dealership to repurchase the loans.
“They (Ally) discovered this one case was just the tip of the iceberg,” Rawls said. “They did nothing about it. Ally said nothing to any of these consumers.”
On Friday, a Consumer Financial Protection Bureau complaint against David Stanley Auto Group and Ally Financial was filed by Rawls, asking that both companies pay a penalty to customers who received the loans and be required to put verification practices in place that would require any vehicle features put on financial paperwork by the dealership be verified by the lender.
Bourque’s case shows that even after the practice was discovered by Ally at David Stanley Chevrolet, it continued at other David Stanley dealerships, Rawls said.
“This particular sale has been power booked and it has been sold to Ally,” Rawls said. “Ally knows it, and Ally is their floor planner so they have a vested interest in keeping a lid on it because they finance the inventory for David Stanley’s dealerships.
“This is something that goes on on a regular basis, because obviously it has happened in this case too,” she said.
And the damage of those alleged practices, Rawls said, is not limited to car buyers.
“The reason that’s a bad thing for all of us is because that’s exactly what happened in the mortgage meltdown,” Rawls said. “Loans were created for people they knew couldn’t pay them back. The collateral had been overvalued fraudulently, falsely, and knowingly by both the indirect lender and the dealership conspiring together.”
Ally Financial (formerly known as General Motors Acceptance Corp., or GMAC,) was started as the in-house financing arm of General Motors before the automobile manufacturer sold off a majority stake in the company in 2006.
After the 2008 financial collapse, GMAC received a $17.2 billion bailout as part of the U.S. Treasury’s Troubled Asset Relief Program, and the federal government took a majority stakeholder role in the company. GMAC rebranded itself Ally Financial in 2010, and was one of the last companies to emerge from the TARP program when the U.S. Treasury sold the last of its stake in Ally in 2015.
However, financial collapse caused Ally and other lending institutions to pull back on the subprime mortgages that were issued, many continued to issue subprime auto loans and increasingly issued bonds backed by those loans.
According to financial experts, these subprime auto loans and the practices associated with them are eerily similar to the issues created by subprime mortgage lending that were the cause of a major crash in the world economy in 2008, though experts say subprime auto loans are nowhere big enough to cause similar economic catastrophe.
But although these types of loans would likely not leave the scale of devastation wrought by their subprime mortgage counterparts, experts have been warning about instability in the subprime auto loan pool caused by rising rates of customers default and the lax lending standards on those loans.
In recent months, Ally Financial and other lenders have begun to pull back from subprime auto loans as losses in the market have accelerated, according to media reports and filings with the U.S. Security Exchange Commission.
Federal and state regulators have also taken some recent actions against subprime auto lenders for alleged predatory and discriminatory practices. In March, the Delaware Attorney General announced that Santander, one of the country’s top issuers of subprime auto loans, had agreed to pay a $2.9 million penalty for allegedly issuing predatory loans to Delaware customers. Last week, a Bloomberg News report found that Santander checked the income of loan applicants only 8 percent of the time.
According to the Delaware Attorney General’s Office, the $2.9 million settlement came after the state’s investigation found that the company was allegedly aware “that certain dealerships had high default rates due in part, to the regular submission of inaccurate data on loan applications – most often involving inflated income – but Santander continued to purchase loans from those dealers anyway and, in some cases, sell them to third parties.”
In March 2015, the Federal Trade Commission announced the results of a multiagency partnership between itself and other federal, state and local authorities targeting deceptive advertising, automobile loan application fraud, deceptive add on fees and other issues by dealerships.
One of the enforcement actions that was part of “Operation Ruse Control” was a 2014 consent agreement order and a $350,000 fine by Oklahoma Motor Vehicle Commission against David Stanley Chrysler Jeep Dodge for allegations of violating advertising regulations.
The action against David Stanley Chrysler Jeep Dodge, along with several other Operation Ruse Control enforcement actions against other dealerships around the country associated with Ally Financial, were cited in a lawsuit filed in January by a group of shareholders as as evidence that Ally Financial was engaging in predatory lending.
The suit, filed by the National Shopmen Pension Fund and currently in federal court, seeks class action status and alleges that Ally made false statements in its initial public offering that misled investors as to the severity of increasing subprime loan defaults, deficiencies in its underwriting practices for subprime auto loans, excessive risks in securitization practices for subprime loans, and predatory lending to people who could not afford to pay the loan back.
That lawsuit has also yet to be resolved.