Attorney General Mark Brnovich, along with a coalition of 34 attorneys general, announced today a settlement with Santander Consumer USA Inc., an auto lender, that provides $550 million in relief for consumers, with millions more expected in additional deficiency waivers.
More than 12,000 Arizona consumers will receive between $22.7 million and $41.5 million of relief --- through restitution checks, in-kind relief or debt forgiveness, according to a release.
The settlement resolves allegations that Santander violated consumer-protection laws by giving high-interest loans to car buyers it knew could not afford them, the release states.
“Buying a car is one of the most important purchases a person makes in their life and companies involved in any transaction need to be as transparent as possible,” Attorney General Mark Brnovich said in the release. “Santander knowingly put Arizonans into loans they couldn’t afford, setting them up for years of financial hardship. This settlement holds Santander accountable and provides thousands of Arizona consumers with much-needed financial relief.”
Based on the multistate investigation, the coalition alleges that Santander, through its use of proprietary credit scoring models to forecast default risk, knew that certain consumer segments were likely to default, yet issued high-interest loans to them anyway, the release states.
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 attorneys general 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 monitor dealer falsification of income and expenses. Finally, the coalition contends that Santander engaged in deceptive servicing practices and actively misled consumers about the risks of partial payments and loan extensions.
Under the settlement, which is pending court approval, Santander is required to provide relief to consumers and is required to factor a consumer’s ability to pay the loan into its underwriting moving forward.
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 yet had their cars repossessed, Santander is required to allow them to keep their car and waive any deficiency balance on the loan, up to a total value of $45 million in deficiency waivers.
The settlement also includes significant consumer relief by way of loan forgiveness, the release 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 from third parties.
Santander will also pay up to $2 million for a settlement administrator who will administer restitution claims, and pay an additional $5 million directly to the investigating states.
Arizona consumer settlement terms include:
Santander has identified the eligible consumers for each category listed above, and Santander or the claims administrator will attempt to contact those consumers. If you think you may be eligible or would like additional information, go to santandermultistateagsettlement.com. Additional information on restitution checks and expected timelines will be available in the near future.
Moving forward, Santander cannot extend financing if a consumer has a negative residual income after taking into consideration a list of actual monthly debt obligations. Additionally, Santander is now 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 defaults within a certain amount of time, Santander will be required to forgive that loan, the release states.
Santander is barred from requiring dealers to sell ancillary products, such as vehicle-service contracts. Santander will also implement steps to monitor dealers who engage in income inflation, expense inflation, and power booking, and Santander will enact additional documentation requirements for those dealers.
Further, whereas Santander previously allowed these problematic dealers to waive documentation requirements on income and expenses, Santander no longer will allow such exceptions. If Santander has to use a default mortgage or rent payment value, the amount input must reasonably reflect the payment value for the geographic location. Finally, Santander will maintain policies and procedures for deferments, forbearances, modifications and other collection matters that all employees must follow.
Joining Attorney General Brnovich in the settlement are the attorneys general of Illinois, California, Maryland, New Jersey, Oregon and Washington, who comprise the executive committee; as well as the attorneys general of Arkansas, Connecticut, the District of Columbia, 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 and Wyoming.
A copy of the complaint is here.