Attorney General James Announces Over $550 Million Settlement with Nation’s Largest Subprime Auto Financing Company, Delivering Relief to Hundreds of Thousands of Struggling Consumers
Settlement with Santander Includes More Than $27 Million in Relief for
Thousands of NY Consumers While Many Battle Financial Insecurity Due to COVID-19
NEW YORK – New York Attorney General Letitia James, along with a coalition of 33 additional attorneys general from around the nation, today announced a settlement with Santander Consumer USA Inc. that will provide approximately $550 million (possibly up to $780 million) in relief to consumers nationwide — more than $27 million (possibly up to $38 million) of which would be allocated to New Yorkers. The settlement resolves Santander’s subprime lending practices that violated consumer protection laws by exposing consumers to unnecessarily high levels of risk and knowingly placing these consumers into auto loans that had a high probability of default.
“As New Yorkers continue to struggle from the financial impact of the coronavirus, we have stopped this company from continuing its fraudulent practices and have helped keep more than $27 million in the pockets of New Yorkers,” said Attorney General James. “Santander defrauded desperate consumers by placing them into auto loans the company knew these customers could never afford to pay, resulting in defaults and negative ratings on consumers’ credit reports. This settlement will not only provide much needed relief to struggling New Yorkers, but will ensure Santander’s dishonest behavior is put to an end immediately.”
In March 2015, a coalition of attorneys general opened a multistate investigation into Santander — the largest subprime auto financing company in the country — after receiving an increase in the number of consumer complaints related to subprime auto loans. Following the investigation, the coalition alleged that Santander — through its use of sophisticated credit scoring models that could forecast the risk of borrower default — knew that certain groups of consumers were predicted to have a high likelihood of default. Santander exposed these borrowers to unnecessarily high levels of risk through high loan-to-value ratios, significant backend fees, and high payment-to-income ratios. The coalition also found that Santander’s aggressive pursuit of market share led the company to underestimate the risks associated with loans by turning a blind eye to dealer abuse and failing to meaningfully monitor dealer behavior. Many dealers did nothing to ensure consumers were reporting accurate information — including the amounts specified as incomes and expenses — and Santander did nothing to minimize the risks of these false reports. Finally, the coalition alleged that Santander engaged in deceptive servicing practices and actively misled consumers about their rights and risks of partial payments and loan extensions.
Under today’s settlement, Santander will be required to provide relief in multiple ways to consumers, will be required to help repair consumers' credit reports, and, moving forward, will be required to factor a consumer’s ability to pay a loan into its underwriting. First, Santander will pay $65 million to New York and the 33 other participating states so that restitution can be paid to certain subprime consumers who defaulted on loans between January 1, 2010 and December 31, 2019. New York will specifically receive $2.77 million to reimburse consumers.
Next, Santander will be required to give consumers with the lowest quality loans — those who defaulted as of December 31, 2019 and who have not yet had their cars repossessed — the titles to their cars and will waive any balance on these consumers’ loans, up to a total value of $45 million in such waivers across the nation.
The settlement also includes a significant amount of relief for consumers by way of waiving any debt or balance still owed even after Santander had consumers’ vehicles repossessed, otherwise known as deficiency balances. In total, Santander has agreed to waive such deficiency balances for certain consumers who have defaulted with approximately $433 million in immediate forgiveness of debt still owned by the company, including $23.4 million for New York consumers. Further, Santander will need to attempt to buy back additional deficiency waivers the company no longer owns, which could possibly increase the nationwide total to $663 million and $33.7 million for New York consumers.
Finally, Santander will pay up to $2 million for the settlement administrator who will administer restitution claims, and pay an additional $5 million to the states.
In an effort to repair consumers’ credit reports, Santander will be required to reach out to credit reporting agencies (for example: Equifax, Experian, and TransUnion) and request the deletion of any negative reports for Santander consumers who are receiving waivers on their loans or are receiving deficiency relief.
In addition to monetary relief and the repair of credit reports, going forward, Santander will have to take a number of specific steps to minimize the risks of consumers defaulting on their loans, including refusing to extend financing to consumers that have no income remaining after taking into consideration a list of actual monthly debt obligations. Santander will also be required to test all loans that default in the future to see if the consumer — at the time the loan was initially made — had any income remaining after taking into account such monthly debt obligations and other estimated expenditures. If the loan is found to have been unaffordable and the consumer defaulted within a certain amount of time, Santander will be required to forgive that loan.
Santander is barred from requiring dealers to sell ancillary products, such as vehicle service contracts. Santander will additionally implement steps to monitor dealers who engage in income inflation, expense inflation, and power booking for loan applications, and the company will enact additional documentation requirements for those dealers. Further, whereas Santander previously allowed these problematic dealers to waive documentation requirements on income and expenses, the company will no longer be able to make such exceptions. If Santander must use the value of a default mortgage or rent payment to calculate monthly debt obligations, that amount must reasonably reflect the payment amounts for the geographic location. Finally, Santander will ensure policies and procedures are in place for deferments, forbearances, modifications, and other collection matters that all employees must follow.
Joining Attorney General Letitia James in filing today’s settlement are the attorneys general of Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, West Virginia, Wyoming, and the District of Columbia.
This matter was handled by Assistant Attorney General Noah Popp of the Consumer Frauds and Protection Bureau, under the supervision of Bureau Chief Jane M. Azia and Deputy Bureau Chief Laura J. Levine. The Consumer Frauds and Protection Bureau is overseen by Chief Deputy Attorney General for Economic Justice Christopher D’Angelo and First Deputy Attorney General Jennifer Levy.