Have Car Loan? May be Part of $25.9 Million Settlement With the Lender
- Author: Jacob Greene
- Posted: 2023-11-22
Massachusetts Attorney General Maura Healey started investigating Santander after there was speculation that the company used suspicious lending strategies. There were claims that Santander gave car buyers loans while knowing the borrowers wouldn't be able to afford to pay them back. Santander knew that many applicants exaggerated their incomes, so they anticipated a high default rate. They shouldn't have given loans to car buyers who couldn't afford the payments, but they ignored the evidence that suggested the buyers had lower incomes than they reported.
More than 2,000 Massachusetts residents received subprime auto loans from Santander. One car dealer was exaggerating borrowers' incomes by as much as $45,000 per year, according to Attorney General Healey. Many other car dealers also reported inaccurate data on loan applications. The investigation revealed that Santander was aware that these dealerships were inaccurately reporting income on the loan applications, but they provided the loans anyway.
The company then sold some of these loans to third parties as securities. Securities are auto loans or other debts turned into assets with the purpose of selling them to third parties. This way, Santander profited from the loans they knew borrowers would be unable to pay.
During the investigation and settlement with the Attorney General's office, Santander didn't admit to doing anything wrong. However, they did promise to make improvements to their loan screening processes.
The settlement came to $25.9 million, and there are several parts to the agreement. The company will put $2.875 million in a trust fund to the affected customers in Delaware, and they'll give about $1 million to the Delaware Consumer Protection Fund. Massachusetts received an even higher settlement, with $16 million going directly to consumers and $6 million going to the state.
Santander officials expressed their relief that the investigation has been settled. They also explained that the issue was about how auto loans originate, not about securitization. Company officials said, "In the last 18 months, our new management team has taken significant steps to strengthen our business practices and controls."
This investigation may be part of a wider issue with subprime auto lending. The Massachusetts Attorney General's office has conducted several other investigations of questionable lending practices in the auto industry. Healey says, "Our industry-wide investigation is ongoing. I certainly do not think that this practice is limited to Santander or our state." In 2015, there was a $3.5 million agreement against Santander because the company funded loans that included insurance not requested by the consumers. Because of Santander's actions, consumers were stuck paying for expensive insurance policies that they didn't ask for.
Healey has also spoken about the importance of investigating and putting an end to questionable lending, claiming that this type of conduct with mortgages was partially responsible for the financial crisis in 2008. She says, "These predatory practices are almost identical to what we saw in the mortgage industry."
Some people are worried that the U.S. is headed toward an auto loan crisis similar to the 2008 mortgage crisis. According to Fitch Ratings, the average credit performance of auto lenders was worse in 2016 than it was in 2015, and there are signs that the industry will continue to decline. Michael Taiano, one of Fitch's directors, says that this is partly caused by subprime auto loans that result from "looser underwriting standards by lenders."
Consumers who may be eligible for a payment will hear from their state's Attorney General's office. If you're a Massachusetts or Delaware resident and have an auto loan you struggle to pay each month, stay alert for any mail or messages from the Attorney General's office. You may be eligible for a payment that will reduce your auto loan and ease the financial burden.