What is Consumer Portfolio Services? An In-Depth Look
A Specialty Auto Lender for Those With Poor Credit
Consumer Portfolio Services (CPS) is a finance company that specializes in providing auto loans to people with poor credit histories, low incomes, or limited credit profiles. Founded in 1991 and based in Irvine, California, CPS primarily works with independent and franchise car dealerships to offer indirect financing for new and used vehicle purchases.The company‘s business model revolves around buying retail installment contracts (basically the loan agreements) from dealerships after they’ve been originated. CPS then services these loans and bundles them into securitized pools that are sold to investors as asset-backed securities.So in essence, CPS acts as a sort of middleman – they provide the financing that allows dealerships to sell cars to subprime borrowers, and then package those loans into securities to raise more capital for lending. It’s a cycle that’s been keeping them going strong for over 30 years now.But why would someone with good credit need a specialty lender like CPS? Well, that‘s kinda the point – their whole thing is catering to the credit-challenged folks that traditional banks and auto captives tend to avoid.
“The dealers write the loans, but effectively, we‘re the bank,” CPS founder and CEO Charles E. Bradley told the LA Times back in 2013. “The customer pays a high interest rate — typically 18% to 21% — on loans but is often able to get a newer, lower-mileage vehicle in return.”
The Pros and Cons of Financing Through CPS
Like most subprime lending products, getting an auto loan through Consumer Portfolio Services comes with some distinct pros and cons that are worth considering:Pros:
-- Access to financing – For people who can’t qualify for more affordable loans from banks or the auto manufacturer’s captive lenders, CPS provides a path to vehicle ownership that may not otherwise be available.
- Newer, more reliable vehicles – Even with poor credit, CPS loans can allow borrowers to purchase late-model used cars in better condition than they could afford paying cash at a buy-here-pay-here lot.
- Opportunity to rebuild credit – Making full, timely payments on an auto loan from CPS is a way for borrowers to improve their credit scores and potentially qualify for better rates in the future.
Cons:
- High interest rates – CPS’s target market of subprime borrowers means they charge risk-based pricing with typical APRs of 18-21%. Those rates make the cars much more expensive over the loan term.
- Strict requirements – To qualify for CPS financing, borrowers generally need to have a minimum income of around $1,500-$2,000 per month from a stable source and put down a downpayment of $1,000 or more. Requirements vary by dealer.
- Risk of negative equity – With the high interest rates, it’s easy for CPS borrowers to become upside down on their loans before they’ve paid them off, owing more than the rapidly depreciating car is worth.
So in a nutshell, CPS loans provide increased opportunity for credit-challenged consumers to get into a vehicle, but at a significantly higher overall cost. Whether that tradeoff is worth it depends on each buyer‘s individual circumstances and priorities.
How the Lending Process Works
For those who decide a CPS contract is their best option for financing a vehicle, the lending process works like this:
- Apply at the dealership – Customers interested in a CPS loan have to go through one of the company’s thousands of participating dealerships, as CPS does not offer direct-to-consumer financing.
- Dealership submits the contract – If the customer qualifies based on CPS’s underwriting criteria, the dealer will prepare the retail installment sale contract and other loan documents, then send them to CPS for review and potential purchase.
- CPS buys the contract – CPS evaluates the contract using their proprietary scoring system that looks at factors like the vehicle value, customer income, credit history, and debt load. If approved, they’ll buy the contract from the dealer.
- Payments are made to CPS – From that point forward, the customer makes their monthly payments directly to CPS, who services the loan until it’s paid off or the vehicle is repossessed for non-payment.
- Loans are securitized – CPS pools together the installment contracts they’ve purchased into securitized bonds, which are rated by credit agencies and then sold to investors on the asset-backed securities market.
- Cycle repeats – The proceeds from securitizing and selling those bonds provides CPS with new capital to purchase and securitize more contracts from dealers in an ongoing cycle.
So in a sense, CPS is kind of like an auto-focused mortgage company – they originate the loans through third-party vendors (car dealers), then sell those loans off to investors while keeping the servicing rights and fees.
-CPS’s History and Reputation
Despite having a somewhat niche business model focused on subprime auto lending, Consumer Portfolio Services has managed to not just survive, but thrive over the past few decades.The company was founded in 1991 by Charles E. Bradley, a former investment banker who saw an opportunity in the lack of auto financing options for people with poor credit histories. By connecting those buyers with dealerships through their lending platform, CPS was able to carve out a lucrative space in the subprime market.Over the years, they’ve purchased over $20 billion worth of auto installment contracts and currently service a $2.5 billion managed portfolio as of mid-2023. CPS has been a public company traded on the NASDAQ since 1992.However, their success hasn‘t come without some scrutiny and legal challenges along the way, particularly around allegations of deceptive practices and compliance violations.In 2014, the Federal Trade Commission filed a complaint and $5.5 million settlement against CPS for alleged violations like:
- Misrepresenting fees and amounts owed by consumers
- Improperly assessing and collecting fees
- Unilaterally modifying contracts to increase principal balances
- Disclosing debts to unauthorized third parties
- Harassing consumers with repeated calls
As part of the settlement, CPS was required to refund over $3.5 million to 128,000 consumers, forebear collections on another 35,000 accounts, pay $2 million in civil penalties, and establish better data integrity practices.More recently in 2023, a consumer filed a class action lawsuit against CPS alleging violations of the Maryland Consumer Debt Collection Act and other state laws related to repossession notices, deficiency judgments, and collections practices.So while CPS has grown to become a major player in the indirect subprime auto lending space, their history shows they’ve also had to deal with significant regulatory actions and legal challenges stemming from how they service and collect on those high-risk loans.
CPS’s Online Reputation and Reviews
A look at Consumer Portfolio Services’ online reviews and ratings shows a somewhat mixed – but overall negative – perception from consumers who have firsthand experience with their loans and customer service.On the Better Business Bureau website, CPS has been an accredited business since 2018, but only has a 1.13/5 star rating based on 37 customer reviews that touch on many of the same issues highlighted in the FTC case, such as:
- Inaccurate credit reporting and payoff issues
- Difficulties obtaining vehicle titles after payoff
- Aggressive collections practices and harassment
However, the BBB file also shows CPS has made efforts to respond professionally to many of those complaints.Over on Reddit, there are numerous threads from CPS borrowers warning others to avoid their loans if possible due to the “insanely high interest rates” of 18-25% that make it very easy to go upside down on the loan.And on consumer review sites like Credit Karma, the prevailing sentiment seems to be that while CPS may provide a last resort for getting an auto loan, the high costs and strict requirements make them an option to avoid if you have other alternatives.So in summary, CPS’s online reputation reflects their position as a subprime lender of last resort – they provide access to vehicle financing for credit-challenged buyers, but at a very high cost that many consumers feel is predatory and should only be used as an absolute last option.
Why Did I Get a Letter from CPS-Consumer Portfolio Services?
Understanding the Role of CPS-Consumer Portfolio Services
CPS-Consumer Portfolio Services, Inc. (CPS) is an independent specialty finance company; that provides indirect automobile financing to individuals with past credit problems, low incomes, or limited credit histories. If you’ve received a letter from CPS, it likely means they are attempting to collect a debt related to an auto loan or lease.CPS operates as a subprime auto lender, meaning they cater to borrowers with less-than-perfect credit scores. They purchase auto loan contracts from dealerships across the United States and become the lender responsible for collecting payments.So, if you financed a vehicle purchase through a dealership and your credit wasn’t stellar, there’s a chance your loan was sold to CPS. In that case, they would send you correspondence regarding your account and payment obligations.
-Common Reasons for Receiving a Letter from CPS
There are several potential reasons why you might receive a letter from CPS-Consumer Portfolio Services. Here are some of the most common scenarios:
1. Loan Transfer Notification
If you recently financed a vehicle purchase, the dealership may have sold your loan to CPS. In this case, you’d receive a letter from CPS notifying you that they are now the servicer of your auto loan.The letter would provide details on where to send your monthly payments, as well as contact information for CPS’s customer service department.
2. Payment Reminder or Delinquency Notice
If you’ve fallen behind on your auto loan payments, CPS will likely send you a reminder or delinquency notice. These letters serve as a warning that your account is past due and that you need to make a payment to avoid further consequences, such as late fees or potential repossession.
-3. Loan Payoff Quote or Payoff Statement
You may receive a letter from CPS containing a payoff quote or payoff statement if you’ve requested information on paying off your auto loan in full. This document will outline the total amount owed, including any outstanding principal, interest, and fees.
4. Account Updates or Changes
CPS may send you a letter to notify you of any changes or updates to your account, such as a change in interest rate, payment due date, or other terms and conditions of your loan agreement.
5. Legal Notices or Debt Collection Attempts
In more serious cases, you might receive a letter from CPS regarding legal action or debt collection efforts. These letters could include notices of intent to repossess your vehicle, lawsuits for unpaid balances, or attempts to collect on a defaulted loan.
Understanding the Importance of Responding
Regardless of the reason for receiving a letter from CPS-Consumer Portfolio Services, it’s crucial that you respond promptly and appropriately. Ignoring correspondence from your lender can lead to serious consequences, such as:
- Late fees and penalties: Failing to make timely payments can result in late fees and other penalties being added to your account balance.
- Negative credit impact: Delinquent payments and defaulted loans can severely damage your credit score, making it more difficult to obtain financing in the future.
- Repossession: If you fall too far behind on your payments, CPS may initiate the process of repossessing your vehicle.
- Legal action: In extreme cases, CPS may pursue legal action against you to recover the outstanding debt, which could lead to wage garnishment or other financial consequences.
To avoid these potential issues, it’s essential to address any letters or notices from CPS promptly. If you’re having difficulty making your payments, reach out to their customer service department to discuss your options, such as a loan modification or hardship program.
Dealing with Debt Collection Efforts
If the letter you received from CPS-Consumer Portfolio Services is related to debt collection efforts, it’s important to understand your rights and responsibilities under the Fair Debt Collection Practices Act (FDCPA).The FDCPA is a federal law that regulates the behavior of third-party debt collectors, including companies like CPS. It prohibits certain abusive, deceptive, or unfair practices, such as:
- Contacting you at unreasonable times or places
- Using profane or abusive language
- Threatening violence or harm
- Engaging in harassment or oppressive behavior
- Making false or misleading statements
If you believe that CPS or any other debt collector has violated the FDCPA, you have the right to file a complaint with the Federal Trade Commission (FTC) or your state’s attorney general’s office.It’s also important to note that the FDCPA gives you the right to request validation of the debt. This means that the debt collector must provide you with written proof of the debt’s existence and amount owed. If they fail to do so, they may be required to cease collection efforts.
Negotiating with CPS-Consumer Portfolio Services
If you’re struggling to make your auto loan payments to CPS, it’s essential to communicate with them proactively. Many lenders, including CPS, are willing to work with borrowers who are experiencing financial hardship.Here are some potential options you can explore when negotiating with CPS:
1. Loan Modification
A loan modification involves changing the terms of your original loan agreement, such as extending the repayment period or reducing the interest rate. This can make your monthly payments more manageable and help you avoid defaulting on the loan.
2. Deferment or Forbearance
CPS may allow you to temporarily postpone or reduce your monthly payments through a deferment or forbearance program. This can provide short-term relief if you’re facing a temporary financial setback.
3. Settlement or Debt Forgiveness
In some cases, CPS may be willing to accept a lump-sum settlement for less than the total amount owed or even forgive a portion of the debt. This option is typically reserved for borrowers who are facing significant financial hardship and have limited ability to repay the full loan balance.
4. Voluntary Repossession or Surrender
If you’re unable to make your payments and have exhausted all other options, you may need to consider voluntarily surrendering your vehicle to CPS. While this will have a negative impact on your credit, it can help you avoid additional fees and legal action associated with an involuntary repossession.When negotiating with CPS, it’s important to be honest about your financial situation and to provide any supporting documentation they may request. Being transparent and cooperative can increase your chances of reaching a favorable resolution.
Protecting Your Rights and Avoiding Scams
Unfortunately, the debt collection industry is rife with scams and unscrupulous practices. It’s essential to be vigilant and protect your rights when dealing with any debt collector, including CPS-Consumer Portfolio Services.Here are some tips to help you avoid falling victim to debt collection scams:
1. Verify the Legitimacy of the Debt
Before engaging with a debt collector, verify that the debt they are attempting to collect is legitimate and accurate. Request validation of the debt in writing, including documentation of the original creditor, the amount owed, and any applicable fees or interest.
2. Be Wary of Aggressive Tactics
Legitimate debt collectors are prohibited from using abusive, deceptive, or unfair practices under the FDCPA. If a debt collector is threatening you, using profane language, or engaging in other aggressive tactics, it’s a red flag that they may be operating illegally.
3. Never Provide Personal or Financial Information
Debt collectors do not need your personal or financial information, such as your Social Security number or bank account details, to collect a debt. Never provide this information over the phone or through unsecured channels, as it could be used for identity theft or fraud.
4. Research the Company
Before engaging with a debt collector, research the company thoroughly. Check for complaints or legal actions filed against them with the Better Business Bureau (BBB), the Consumer Financial Protection Bureau (CFPB), or your state’s attorney general’s office.
5. Seek Legal Assistance
If you’re unsure about your rights or the legitimacy of a debt collector’s actions, consider seeking legal assistance from a qualified consumer protection attorney. They can help you navigate the complexities of debt collection laws and ensure that your rights are protected.By being vigilant and proactive, you can protect yourself from debt collection scams and ensure that you’re treated fairly and in accordance with the law.
Understanding Your Options for Disputing Errors
If you believe that the debt CPS-Consumer Portfolio Services is attempting to collect is inaccurate or contains errors, you have the right to dispute it. The Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA) provide specific procedures for disputing debts and addressing errors.Here are the steps you can take to dispute a debt with CPS:
1. Request Debt Validation
Under the FDCPA, you have the right to request validation of the debt within 30 days of receiving the initial communication from the debt collector. This means that CPS must provide you with written proof of the debt’s existence and amount owed, as well as the name of the original creditor.To request debt validation, send a written letter to CPS via certified mail, return receipt requested. In your letter, clearly state that you are disputing the debt and requesting validation.
2. Dispute Inaccurate Information with Credit Bureaus
If the debt is being reported to the major credit bureaus (Experian, Equifax, and TransUnion) and you believe the information is inaccurate, you can file a dispute directly with the credit bureaus.Under the FCRA, credit bureaus are required to investigate any disputes and correct or remove inaccurate information from your credit report. You can submit your dispute online, by mail, or over the phone, depending on the credit bureau’s procedures.
3. Provide Supporting Documentation
When disputing a debt, it’s important to provide any supporting documentation or evidence that supports your claim. This could include canceled checks, payment receipts, or correspondence with the original creditor or CPS.
4. Follow Up and Escalate if Necessary
If CPS or the credit bureaus fail to respond to your dispute or do not adequately address your concerns, you may need to escalate the matter. This could involve filing a complaint with the Consumer Financial Protection Bureau (CFPB) or seeking legal assistance from a consumer protection attorney.It’s important to note that disputing a debt does not absolve you of the obligation to make payments while the dispute is being investigated. However, if the debt is found to be inaccurate or invalid, you may be entitled to have it removed from your credit report and any associated fees or charges refunded.
Seeking Legal Assistance
In some cases, you may need to seek legal assistance when dealing with CPS-Consumer Portfolio Services or other debt collectors. Here are some situations where consulting with a consumer protection attorney may be beneficial:
1. Harassment or Abusive Behavior
If CPS or any other debt collector is engaging in harassment, abusive behavior, or violating the FDCPA, an attorney can help you file a complaint and potentially seek damages.
2. Disputing Invalid or Inaccurate Debts
If you’ve attempted to dispute an invalid or inaccurate debt with CPS and they have failed to address your concerns, an attorney can help you navigate the legal process and potentially file a lawsuit.
3. Defending Against Lawsuits
If CPS has filed a lawsuit against you for an unpaid debt, it’s crucial to seek legal representation. An attorney can help you understand your rights, defend against the lawsuit, and potentially negotiate a settlement or payment plan.
4. Bankruptcy or Debt Settlement Negotiations
If you’re considering bankruptcy or want to negotiate a debt settlement with CPS, an attorney can provide valuable guidance and representation to ensure that your rights are protected and that you achieve the best possible outcome.When seeking legal assistance, it’s important to work with an attorney who specializes in consumer protection law and has experience dealing with debt collectors and auto finance companies like CPS-Consumer Portfolio Services.Many consumer protection attorneys offer free initial consultations, which can help you understand your options and determine the best course of action.
Conclusion: Taking Proactive Steps
Receiving a letter from CPS-Consumer Portfolio Services can be a stressful and overwhelming experience, especially if you’re facing financial difficulties. However, it’s important to remember that you have rights and options available to you.By understanding the reasons behind the letter, responding promptly, and exploring potential solutions such as loan modifications or debt settlement, you can take proactive steps to address the situation and protect your financial well-being.If you’re unsure about your rights or the legitimacy of CPS’s actions, don’t hesitate to seek legal assistance from a qualified consumer protection attorney. They can help you navigate the complexities of debt collection laws and ensure that you’re treated fairly and in accordance with the law.