Chasing Risky Subprime Auto Loans Costs Santander $550 million

  • A bipartisan coalition of 34 AGs, led by Illinois AG Kwame Raoul, reached a settlement with subprime auto financing company Santander Consumer USA Inc. (“Santander”) to resolve allegations that it knowingly exposed subprime borrowers to unnecessary risk by offering them loans with a high probability of default in violation of state consumer protection laws.
  • According to AG Raoul’s office, a multistate investigation uncovered multiple allegedly abusive practices by Santander, including offering such borrowers loans with high loan-to-value ratios, high payment-to-income ratios, and high back-end fees. In addition, Santander allegedly engaged in deceptive servicing practices, actively misled consumers about their rights, and willfully ignored dealer abuses and dealers’ use of false information to process loans.
  • Under the terms of the consent judgment, among other things, Santander will forgive approximately $433 million on defaulted loans, pay $65 million to the participating states for restitution to certain subprime borrowers, $5 million to the participating states, and up to $2 million for the settlement administrator. Santander will also be prohibited from extending financing to consumers with negative residual incomes and from requiring dealers to sell ancillary products, including vehicle service contracts.