A group of nearly three dozen state attorneys general, led by Kwame Raoul, the attorney general of Illinois, yesterday announced a $550 million settlement with Santander Consumer USA to resolve allegations that the nation’s largest subprime auto lender engaged in deceptive collection practices and misled borrowers about their rights and the risks of partial payments, among other claims.
Santander will pay $65 million to the 34 states for restitution to individuals who defaulted on their loans during the past decade. For those who have defaulted but have not yet had their vehicles repossessed, the individuals can keep the vehicle and the balances on their loans have been forgiven. Santander will also forgive the deficiency balances on an additional $433 million of loans still owed by individuals who defaulted on their loans.
“Santander knowingly exposed borrowers to unnecessary risk and placed them into loans with a high probably of default,” Raoul said, in a statement. “The company’s actions hurt thousands of consumers. Today’s settlement holds Santander accountable and sets an important precedent by requiring a major player in the subprime auto lending industry to factor a consumer’s ability to pay the loan into its underwriting.”
Along with the financial component of the settlement, Santander agreed to make a number of changes to its operational policies and procedures, including those for deferments, forbearances, modifications and other collection matters. The lender must also ensure that customers are able to afford a car loan before it can be originated. If a loan goes into default, Santander will be required to test that loan to see if the consumer, at the time of origination, had a negative income. If it did, then Santander must forgive the balance on the loan.
Joining Illinois in participating in the settlement are the attorneys general of Arizona, Arkansas, California, Connecticut, the District of Columbia, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, West Virginia, and Wyoming.
