AG Rosenblum Announces $550 Million Settlement with the Largest Subprime Auto Financing Company

May 26, 2020
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Oregon Attorney General Ellen Rosenblum today announced a major settlement with 34 other states and Santander Consumer USA Inc. (Santander), one of the United States’ largest subprime auto lenders. The settlement is for $550 million in national relief for consumers, including $585,285 for Oregon, of which more than $481,000 will be distributed to at least 2,000 Oregon consumers as restitution. The Oregon Department of Justice Consumer Protection Section served on the executive committee of the national settlement.

The settlement resolves allegations that Santander violated state consumer protection laws by exposing consumers to high levels of risk and knowingly placing thousands of automobile purchasers into loans with a high probability of default. Under the settlement, Santander is required to provide restitution payments and debt cancellation to affected consumers and in the future must factor a consumer’s ability to pay the loan into its underwriting. Santander will also reform many of its practices, including a requirement to look at a consumer’s residual income to determine the consumer’s ability to pay back the loan.

“Santander exposed Oregon consumers to unnecessary levels of risk,” said Attorney General Rosenblum. “This settlement sends an important message to auto financing companies that behavior like this is predatory and harmful and will not be tolerated in Oregon.”

Based on the multistate investigation, which began in 2015, the Attorneys General allege that Santander, through its use of sophisticated credit scoring models to forecast default risk, knew that certain segments of its population may have a high likelihood of default. Santander exposed borrowers to high levels of risk through high loan-to-value ratios, significant backend fees, and high payment-to-income ratios. They also allege that Santander’s aggressive pursuit of market share led it to underestimate the risk associated with loans by turning a blind eye to dealer abuse and failing to meaningfully monitor dealer behavior to minimize the risk of receiving falsified information, including the amounts specified for consumers’ incomes and expenses. Finally, the coalition alleges that Santander engaged in deceptive servicing practices and actively misled consumers about their rights, and risks of partial payments and loan extensions.

Santander will pay $65 million to the 34 participating states for restitution for certain subprime consumers who defaulted on loans between Jan. 1, 2010 and Dec. 31, 2019. For consumers with the lowest quality loans who defaulted as of Dec. 31, 2019 and have not had their cars repossessed, Santander is required to allow them to keep their car and waive any loan balance, up to a total value of $45 million in loan forgiveness. Santander will also pay up to $2 million for the settlement administrator who will administer restitution claims, and pay an additional $5 million to the states.

The settlement also includes significant consumer relief by way of loan forgiveness. In all, Santander has agreed to waive the deficiency balances for certain defaulted consumers, with approximately $433 million in immediate forgiveness of loans still owned by Santander, and additional deficiency waivers of loans that Santander no longer owns but is required to attempt to buy back.

Going forward, Santander cannot extend financing if a consumer has a negative residual income after taking into consideration actual monthly debt obligations. Additionally, Santander is required to test all loans that default in the future to see if the consumer, at the time of origination, had a negative income. The test must include an amount for basic living expenses. If the loan is found to be unaffordable and the consumer defaulted within a certain amount of time, Santander is required to forgive that loan. Santander is also barred from requiring dealers to sell ancillary products, such as vehicle service contracts.

Joining Oregon in the settlement are Arizona, Arkansas, California, Connecticut, the District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, West Virginia, and Wyoming.

The Oregon Department of Justice (DOJ) is led by Attorney General Ellen Rosenblum, and serves as the state’s law firm. The Oregon DOJ advocates for and protects all Oregonians, especially the most vulnerable, such as children and seniors.