State reaches $12 million deal with sub-prime auto lender
FRANKFORT, Ky. (WTVQ) – Kentucky and 33 other states have reached a settlement with Santander Consumer USA Inc. resulting in up to $12 million for Kentucky consumers who have defaulted on subprime auto loans.
Attorney General Daniel Cameron announced the settlement Tuesday.
The settlement resolves allegations that Santander violated consumer protection laws by approving subprime auto loans with a high probability of default. Santander misled consumers by neglecting to relay the financial risk associated with subprime loans, violating our consumer protection laws and saddling Kentuckians with loans that were likely to default.
The settlement returns a total of $1.1 million in restitution to Kentucky consumers, waives deficiencies on 532 outstanding Kentucky consumer loans, totaling $5.6 million, and requires Santander to try to buy back 769 Kentucky deficiency waivers, amounting to an additional $5.3 million.
Santander will also provide in-kind relief for Kentucky consumers who have or may default on loans after December 31, 2019, by releasing their titles and waiving any outstanding loan balance, Cameron said.
The multistate coalition alleged that Santander disregarded predicted dangers of default, due to their aggressive pursuit of market share, and exposed borrowers to unnecessarily high levels of risk by approving auto loans with high loan-to-value ratios, significant backend fees, and high payment-to-income ratios.
Based on investigation results, the coalition alleged that Santander failed to appropriately monitor dealers to prevent the distortion of consumer income and expense information and that the subprime lender mislead consumers about their rights and the risks associated with partial payments and loan extensions.
To safeguard consumers from future default, Santander must now consider a consumers monthly debt obligations prior to issuing a loan to ensure the borrower does not have a negative residual income. Santander is also obligated to test all future loan defaults to determine if the consumer could afford the loan. If the loan was unaffordable, Santander is required to forgive the debt.
The settlement also compels Santander to implement steps to monitor dealers who engage in income inflation, expense inflation, and power booking; the subprime lender may not make income and expense documentation exceptions for these dealers. The settlement terms also require Santander to maintain policies and procedures for deferments, forbearances, modifications, and other collection matters.
Attorney General Cameron was joined by attorneys general of Arizona, Arkansas, California, Connecticut, the District of Columbia, Florida, Georgia, Hawaii, Indiana, Illinois, Iowa, Kansas, 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 in the settlement.