Attorney General Becerra Announces Over $550 Million Settlement Against Nation’s Largest Subprime Auto Financing Company for Deceptive Auto Loan Practices

California consumers will receive more than $99 million in relief as part of the settlement

SACRAMENTO – California Attorney General Xavier Becerra today, along with a coalition of 33 other attorneys general, announced a multistate settlement with Santander Consumer USA Inc. (Santander) that includes over $550 million in nationwide relief for consumers; California consumers will receive over $99 million of that amount. The settlement resolves allegations that Santander violated consumer protection laws by placing borrowers with subprime credit into auto loans it knew carried an unacceptably high probability of default. Santander has also agreed to injunctive terms that make important changes to its underwriting practices, which is especially important as the nation faces the economic fallout from the COVID-19 pandemic.

“Santander profited by approving high-cost loans to disadvantaged auto buyers who were doomed from the start. These predatory loan practices have hurt countless families who are being hit hard by today’s economic climate,” said Attorney General Becerra. “This settlement should be a warning to the industry that we are committed to protecting consumers from abusive business practices.”

California's complaint alleges that Santander violated California law by approving loans that it expected would default at rates of greater than 70 percent. 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. The complaint also alleges 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. It also alleges Santander failed to meaningfully monitor dealer behavior to minimize the risk of receiving falsified information, such as the amounts specified for consumers’ incomes and expenses. These unfair origination practices caused loans to fail at an even higher rate than was expected.

As part of the settlement, Santander will provide over $99 million in relief to thousands of California consumers who Santander approved for its abusive high-cost loans. Consumers with the lowest quality loans who had defaulted as of December 31, 2019, and have not had their cars repossessed, will be allowed to keep their car and have any deficiency balance on the loan (up to a total value of $45 million in deficiency waivers nationwide) waived. Santander will also waive the deficiency balances for certain defaulted consumers across the country, 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.

Additionally, Santander has agreed to groundbreaking injunctive provisions to make important changes to its underwriting practices. These provisions:

• Require Santander to consider a consumer's ability to pay the loan on its specific terms;

• Bar Santander from purchasing loans where consumers would likely have no money left over at the end of the month after accounting for monthly auto payments, housing costs, and other debt obligations;

• Require Santander to compensate consumers who default within a certain number of months following origination, where circumstances indicate the loan was unaffordable at the time of origination;

• Prohibit Santander from requiring dealers to sell add-on "back-end" products to consumers – such as service contracts and GAP insurance – which amplify the risk of auto loans; and

• Mandate that Santander implement other controls, such as updated assumptions for default housing payments, dealer monitoring, and consistent servicing practices.

If you believe that you are eligible for relief under this settlement, you can check for updates about relief administration by visiting santandermultistateagsettlement.com.

In securing the settlement, Attorney General Becerra joins the attorneys general of Illinois, Maryland, New Jersey, Oregon and Washington, who together with Attorney General Becerra comprise the executive committee; as well as the attorneys general of Arizona, Arkansas, Connecticut, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Nebraska, New Hampshire, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, West Virginia, Wyoming, and the District of Columbia.

Copies of the complaint and stipulated judgment are available here and here.