The Consumer Financial Protection Bureau and the Attorney General of New York yesterday filed a lawsuit against an auto lender, accusing it of tricking consumers into high-cost loans on used cars that resulted in unaffordable monthly payments, vehicles being repossessed, and customers facing debt collection lawsuits.
A copy of the complaint, filed in the District Court for the Southern District of New York against Credit Acceptance Corp., can be accessed by clicking here.
Rather than determine a borrower’s ability to repay a loan, the lender’s model determines how much it will ultimately collect from an individual, factoring in repossessions and debt collection lawsuits for deficiency balances, according to the complaint. The defendant predicts that it will not be able to collect the full amount being financed on about 40% of the loans it makes, according to the complaint.
Credit Acceptance has been in the legal crosshairs of the Attorney General of Massachusetts for some time related to its collection efforts.
The defendant is also accused of engaging in “aggressive” collection efforts and the complaint notes that the company has twice as many employees in its servicing and collection unit than it does in its origination unit. About 25% of the vehicles financed by the defendant are repossessed within one year of making the loan, and the company has filed more than 138,000 debt collection lawsuits nationwide to collect on deficiency balances still owed after a vehicle is repossessed and sold at auction.
“The human cost is enormous,” the complaint alleges. “Borrowers struggle to meet monthly payments that are beyond their reach, and they expend great effort to pay the late fees CAC imposes. Over and over, repossession, garnishment, and bankruptcy result. Consumers who lose their vehicles then sometimes lose their jobs and face family difficulties as well. But despite the significant human toll borne by consumers, CAC continues to profit.”
