After a state investigation, Master Motors of Buffalo, a used car dealership with two area locations known for high-priced "buy-here, pay-here" loans, will stop "unlawfully" making its own loans to consumers and will pay a $25,000 fine.
The auto dealership is not licensed by the state Banking Department as a lender, so the State Attorney General's Office stepped in to block its activities.
"Master Motors acted as its own lending institution, leaving consumers with very little protection or recourse should something go wrong," Attorney General Eric T. Schneiderman said Friday. "Unlicensed sales finance companies cannot operate under the radar with absolutely no oversight. It's harmful to New York's consumers."
Master Motors operates two locations -- 2939 Bailey Ave. in Buffalo and 6575 S. Transit Road in Lockport. Besides offering buy-here, pay-here loans, the dealership also works with traditional lenders, such as credit unions and finance companies.
Master Motors did not admit or deny liability. It simply agreed to pay the fine to avoid further legal expenses, said Joseph Makowski, an attorney who represents the company.
"It was better to put the matter behind us for business reasons," he said. "We thought it was a reasonable conclusion to what we thought would be an expensive and complicated legal proceeding."
Master Motors did sign an agreement barring it from entering, renewing, modifying or extending any contracts, and barring it from seeking judgment against any consumer who defaults on a previous loan.
Makowski also said the dealership voluntarily had stopped making direct loans to consumers in December 2009, after learning from the state that it would need a license to do so.
The state's action followed an alert issued by the Banking Department last April, warning the public that Master Motors is not licensed to make loans. Regulators had received complaints about the dealership's activities, but the company had not responded to inquiries.
That led to an investigation that began last May, under then-Attorney General Andrew M. Cuomo, which discovered that Master Motors was violating state law by holding "retail installment contracts" of $25,000 or more without a license. More than 150 consumers who have such loans with Master Motors are paying them off, and those contracts will now be monitored by the state, Schneiderman said.
But Makowski said most have paid off their loans, and only about 40 remain outstanding.
The state acted nearly five years after The Buffalo News' "High Cost of Being Poor" series documented financial abuses against low-income people and communities.
The examples cited included buy-here, pay-here loans, aimed at borrowers who can't qualify for traditional loans from regular lenders. Those loans, funded by the dealership itself, carried interest rates in the upper teens or higher. Many other used car dealerships around the state also reportedly offer such loans.
"This is a segment of the market [that] is not able to get traditional financing," Makowski said. "Master Motors was effectively acting as lender of last resort."
He said Master Motors has "secured other lending arrangements" for such customers.