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ARCHIVED  August 13, 1999

Cache Bank sues Greeley auto dealerships

GREELEY — Cache Bank of Greeley has filed lawsuits against two local car dealerships, alleging that they engaged in misleading conduct involving high-risk auto loans made by the bank.The lawsuits were filed in late June in Weld District Court against Chamberlain Auto Group Inc. and Davis-Moore Inc., doing business as Honda of Greeley Inc./Davis-Moore Auto Group Inc. Both dealerships have filed counterclaims.
“The litigation is only in the initial stages,´ said Patrick Carrigan, a Denver-based attorney representing Chamberlain Auto owner John Chamberlain. “Once we get into the discovery process, we’re going to learn what happened to the money and demonstrate that the bank’s allegations are without merit.”
Last October, the Federal Deposit Insurance Corp. issued a cease and desist order against Cache Bank, citing “unsafe or unsound banking practices.” The regulatory agency is now monitoring the bank to ensure that its lending practices will not so heavily rely on subprime — or high-risk — car loans.
In general, however, the FDIC does not condemn subprime lending. Officers at Cache Bank, including President Joel Rothman, had much success in that market during their time with the Bank of Greeley, which was purchased by KeyBank in 1994.
“We had some background and experience in indirect consumer lending before, and it worked out fine,” Rothman told The Northern Colorado Business Report in a May interview. “In this case, we got a little too aggressive, started booking loans too quickly, too fast. The quantity of the paper was just too quick for us, and we got a little bit behind the eight ball.”
In November 1996, Cache signed contracts with both car dealerships, agreeing to buy subprime contracts with the condition that the dealerships would deposit a finance charge (initially $200 for Chamberlain Auto) for each contract sold to the bank. These deposits were held in a reserve account at Cache Bank with the understanding that the bank would use them to alleviate potential losses from delinquent loans.
Around the same time, the bank entered into similar agreements with other car dealerships in the Greeley area.
In early 1997, Cache Bank began steadily increasing the finance charge assessed to Chamberlain for purchased auto loans. Between January and August 1997, the reserve-account deposit for each contract sold to the bank increased from $200 to $1,300.
On March 11, 1998, Chamberlain Auto signed over its reserve account with Cache Bank to cover “any losses resulting from [the Dealer’s] consumer retail contracts,” according to court documents.
On August 9, 1998, Cache Bank terminated its agreements with both dealerships, having purchased approximately 1,289 contracts from Chamberlain Auto and 638 contracts from Greeley Honda.
Cache Bank accuses the dealerships — its filings against both defendants are nearly identical — of making car loans to people who could not supply secure forms of payment, specified in the contractual agreement as “lawful money of the United States.”
The assumption is that by receiving a concrete payment (such as cash or a cashier’s check), the lender has better confidence in the borrower’s commitment to the deal — which is especially important when dealing with poor-credit customers.
Chamberlain Auto denies the allegation that Cache Bank was unaware of the types of down payments being made on its loans, and claims an oral agreement was reached with the bank allowing all forms of payment, including “personal checks, hold checks, promissory notes, manufacturers’ rebates, credit cards, dealer rebates and personal checks guaranteed by third party entities.”
“It was a verbal modification as well as a continuing course of conduct,” Carrigan said. “That’s the crux of this deal, and I presume they will deny this.”
“Everything the dealers did was done with the approval or direction of the bank or loan officers with whom they were dealing, in terms of down payments and transactions,” he said.
He added: “I have interviewed dozens of people involved in various facets of these transactions, and everything was done with the approval of the bank.”
Central to Greeley Honda’s counter-complaints — and also highlighted in those of Chamberlain Auto — is the issue of the reserve account.
Funds in the reserve account were to be held by the bank as a cushion for losses associated with bad loans. Under terms of the agreement, any funds left in the account after the bank had settled its losses (through repossessions and/or administrative actions) would be returned to the dealership.
But the reserve account did not cover the bank’s losses and as a result, no funds remained in either of the reserve accounts to be returned to the dealerships.
In its district-court filing, Greeley Honda states: “Cache Bank has not provided an accounting of monies in the reserve account.”
Such issues, including who’s to blame for the unexpected volume of delinquent loans, likely will be decided in court.

GREELEY — Cache Bank of Greeley has filed lawsuits against two local car dealerships, alleging that they engaged in misleading conduct involving high-risk auto loans made by the bank.The lawsuits were filed in late June in Weld District Court against Chamberlain Auto Group Inc. and Davis-Moore Inc., doing business as Honda of Greeley Inc./Davis-Moore Auto Group Inc. Both dealerships have filed counterclaims.
“The litigation is only in the initial stages,´ said Patrick Carrigan, a Denver-based attorney representing Chamberlain Auto owner John Chamberlain. “Once we get into the discovery process, we’re going to learn what happened to the money and demonstrate…

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