Illinois Attorney General Kwame Raoul announced a $550 million lawsuit settlement with subprime auto lender Santander Consumer USA, Inc. The settlement provides relief for consumers and ensures future protections for consumers with subprime auto loans. The settlement resolves allegations that Santander violated consumer protection laws by exposing consumers with subprime auto loans to unnecessarily high levels of risk and knowingly placing these consumers into auto loans with a high probability of default.
The lawsuit and settlement stems from a multi-state investigation in March 2015 after receiving an increase in consumer complaints related to subprime auto loans. The lawsuit alleged that Santander knowingly placed lenders into loans that they would default on. Santander exposed these borrowers to unnecessarily high levels of risk through high loan-to-value ratios, significant back-end fees, and high payment-to-income ratios. Santander also allegedly turned a blind eye to dealer abuse and failed to monitor auto dealer behavior to minimize the risk of receiving falsified information on borrowers. 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.
Under the terms of the settlement, Santander will pay $65 million each to 34 states for people who defaulted on loans between January 1st, 2010 through December 31st, 2019. For consumers with the lowest quality loans who defaulted as of December 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. 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.
Santander is now under strict restriction on loan servicing and is barred from selling ancillary products to dealerships. They also have significant loan requirement restrictions and internal monitoring of paperwork and dealership practice.