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Attorney General Josh Stein Announces More than $550 Million Settlement with Largest U.S. Subprime Auto Financer

For Immediate Release:
Tuesday, May 19, 2020

Contact:
Laura Brewer (919) 716-6484

North Carolinians will receive more than $27 million in consumer relief

(RALEIGH) Attorney General Josh Stein today will file a settlement with the nation’s largest subprime auto financing company, Santander Consumer USA Inc. (Santander), that includes approximately $550 million in relief for consumers and additional relief expected through deficiency waivers. The settlement resolves allegations that Santander violated consumer protection laws by exposing subprime consumers to unnecessarily high levels of risk and knowingly placing these consumers into auto loans with a high probability of default. North Carolina consumers will receive at least $27,669,279 in relief.

“Santander trapped vulnerable North Carolinians in harmful cycles of debt,” said Attorney General Josh Stein. “My office will not tolerate lenders that unlawfully profit off our people. I’m pleased that many of the people these practices harmed will get relief from today’s settlement.”

Today’s settlement stems from a multistate investigation of Santander’s subprime lending practices that began in March 2015. Based on the investigation, the coalition alleges that Santander knew that certain segments of its population were predicted to have a high likelihood of defaulting based on sophisticated credit scoring models. Santander exposed these borrowers to unnecessarily high levels of risk through high loan-to-value ratios, significant backend fees, and high payment-to-income ratios. The coalition also alleges that Santander’s aggressive pursuit of market share led it to underestimate the risk associated with loans by turning a blind eye to dealer abuse and failing to meaningfully monitor dealer behavior to minimize the risk of receiving falsified information, including the amounts specified for consumers’ incomes and expenses. Finally, the coalition alleges that Santander engaged in deceptive servicing practices and actively misled consumers about their rights and risks of partial payments and loan extensions.

Under the settlement, Santander is required to provide relief to consumers and, moving forward, is required to factor a consumer’s ability to pay the loan into its underwriting. Santander will pay $65 million to the 34 participating states for restitution for certain subprime consumers who defaulted on loans between Jan. 1, 2010, and Dec. 31, 2019. Santander has agreed to waive the deficiency balances for certain defaulted consumers, with approximately $433 million in immediate forgiveness of loans still owned by Santander, and additional deficiency waivers of loans that Santander no longer owns but is required to attempt to buy back. Santander is also required to allow some consumers who have defaulted to keep their cars and waive any loan balances, and will pay for a settlement administrator to administer restitution claims.

Moving forward, Santander will:

  • Not extend financing if a consumer has a negative residual income after considering their actual monthly debt obligations.
  • Test all loans that default in the future to see if the consumer had a negative income and if so, forgive that loan.
  • Not require dealers to sell ancillary products.
  • Monitor dealers who engage in income inflation, expense inflation, and power booking, and enact additional documentation requirements for those dealers.
  • No longer allow exceptions to documentations requirements from dealers on incomes and expenses.
  • Use the payment value for a geographic location to determine a default mortgage or rent payment value.
  • Maintain policies and procedures for deferments, forbearances, modifications, and other collection matters that all employees must follow.

Attorney General Stein is joined in today’s settlement by the Attorneys General of California, Maryland, New Jersey, Oregon, Washington, Arizona, Arkansas, Connecticut, the District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Nebraska, New Hampshire, New Mexico, New York, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, West Virginia, and Wyoming.

A copy of the settlement is available here.

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