Credit Acceptance Corp settles applications for subprime auto loans from Mass. for $ 27.2 million
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(Reuters) – Credit Acceptance Corp, one of the largest U.S. auto lenders at risk, has agreed to pay $ 27.2 million to resolve allegations by the Massachusetts Attorney General that it misled investors and consented high interest loans to borrowers he knew could not repay.
Massachusetts Attorney General Maura Healey, who has conducted an industry-wide investigation into loan securitization practices in the subprime auto market, called the regulation the largest of its kind with a subprime auto lender.
Credit Acceptance Corp did not admit any wrongdoing as part of the settlement. Neither he nor his lawyer, James Carroll of Skadden, Arps, Slate, Meagher & Flom, responded to requests for comment.
The agreement resolves a trial that Healey filed in Suffolk County Superior Court in August, accusing the Southfield, Michigan-based company of violating state laws and regulations on consumer protection and debt collection.
“Thousands of Massachusetts consumers, many of whom are first-time car buyers, have trusted CAC to help them with a car loan, but have instead been drawn into high-cost loans, have gone into deeper debt. and even lost their vehicles, ”Healey said in a statement.
As part of the settlement, the company will pay $ 27.2 million into a trust overseen by an independent trustee that will be used largely to provide relief to customers and provide debt relief and credit repair to borrowers.
More than 3,000 Massachusetts borrowers are expected to be eligible for relief, Healey’s office said. The regulations also require the company to make changes to its loan management practices.
The lawsuit alleged that Credit Acceptance Corp had funded since 2013 about 4,000 subprime used car loans per year in Massachusetts with a combined value of $ 458 million.
The company, which derives 92% of its revenue from finance charges, made these high-interest loans to borrowers who were struggling to repay them, causing them to lose credit, lose their cars and down payments, and accumulate 9 $ 000 in average debt, Healey said. .
In the lawsuit, the alleged borrowers were subjected to hidden finance charges, which resulted in loans exceeding the 21% limit of the state’s law on loan interest rates; and harassment by collection workers who called them up to eight times a day.
Massachusetts law only allows two debt collection calls per day. The complaint says the company has violated this law more than 1.5 million times in six years.
To finance the loans, Credit Acceptance Corp conditioned the loans into securities that were sold to investors. But Healey said in order to do so, the company made false and misleading claims about the quality of the loans included in the securities.
The settlement follows several earlier deals Healey made in its subprime auto loan investigation, including a 2019 $ 5.5 million deal with Exeter Finance over allegedly unfair loans and a $ 22 million deal. dollars with Santander in 2017.
Other regulators, including the Consumer Finance Protection Bureau and the New York Department of Financial Services, have conducted similar investigations in recent years.
The case is Commonwealth of Massachusetts v. Credit Acceptance Corporation, Suffolk County Superior Court, No. 2084CV01954.
For Massachusetts: Glenn Kaplan of the Massachusetts Attorney General’s Office
For Credit Acceptance Corp: James Carroll, Patrick Rideout and Anand Raman of Skadden, Arps, Slate, Meagher & Flom
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