Santander Consumer USA Holdings, Inc. has agreed to pay up to $2.875 million to Delaware consumers and another $1 million to a state consumer protection fund.
An investigation by the Fraud Division of Attorney General Matt Denn’s Office in partnership with the Massachusetts Attorney General’s Office revealed that Santander allegedly funded auto loans without having a reasonable basis to believe that the borrowers could afford them, a release stated.
In fact, Santander predicted that a large portion of the loans would default, and allegedly knew that the reported incomes, which were used to support the loan applications submitted to the company by car dealers, were incorrect and often inflated, the release stated.
Subprime car loans are often made through contracts made at the car dealership, with the loans funded by non-dealer financial institutions, like Santander. Auto dealers were not identified in the settlement filing.
The loan activity ran from the financial crisis year of 2009 to 2013 or 2014.
The loans typically carry higher interest rates that put further strain on those making payments.
Banks and other financial entities package auto loans and sell bonds or notes backed by the assets in the pools. Money obtained from this process is then used to fund more subprime loans.
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The investigation by Delaware and Massachusetts also revealed that Santander was allegedly aware that certain dealerships had high default rates due in part, to the regular submission of inaccurate data on loan applications – most often involving inflated income. The states allege Santander continued to purchase loans from those dealers anyway and, in some cases, sold the loans to third parties.
“Protecting consumers from unfair lending practices is extremely important and has been a priority for our office,” said Attorney General Matt Denn. “We are pleased that this settlement results in significant consumer relief and provisions that will prevent similar misconduct in the future.”
Santander will pay $2.875 million into a trust for the benefit of harmed Delaware consumers.
A trustee will be appointed to locate and pay restitution to hundreds of eligible Delawareans who financed vehicle purchases through Santander. Eligible consumers will be contacted by the trustee and the AG’s office regarding the claims process.
Santander will also pay just over $1 million to the Delaware Consumer Protection Fund, which pays for work on consumer fraud and deceptive trade practice matters and other consumer-oriented investigations and legal actions.
The agreement also requires business reforms by Santander.
Santander has also agreed, on a prospective basis, to identify and repurchase subprime loans sold to third parties that it later determines do not comply with Delaware law.
Consumers who have complaints or question regarding auto loans are encouraged to file a complaint with the Consumer Protection Unit of the Attorney General’s Office.
The matter was handled by Deputy Attorneys General Greg Strong, Christian Wright, Jill Lazar, and Laura Najemy and paralegal Debra Szymurski.
Santandar is part of a Spanish-based bank that has an office in Wilmington.
