The Consumer Financial Protection Bureau and New York's attorney general sued subprime auto lender Credit Acceptance Corp. Wednesday for deceiving borrowers about the true cost of car loans, violating state usury laws and failing to disclose charges and terms to consumers.
Regulators allege that Credit Acceptance, an indirect auto lender in Southfield, Michigan, deceived thousands of borrowers by failing to disclose and include finance charges in calculating the cost of a car loan. Consumers typically are not provided the full cost and interest rate on a loan at a dealership and many only find out about the true cost when a loan contract is sent to them in the mail, regulators alleged in a 59-page lawsuit filed in the U.S. District Court for the Southern District of New York.
New York Attorney General Letitia James said Credit Acceptance pushed unaffordable loans onto tens of thousands of low-income consumers without considering their ability to repay their loans in full.
"CAC claimed to help low-income New Yorkers purchase cars, but instead, drove them straight into debt," James said in a press release. "CAC steered hardworking New Yorkers toward financial ruin by tricking them into unaffordable, high-interest auto loans while cutting backroom deals with dealers to protect their own profits. These predatory actions hurt innocent people and left them with mountains of debt."
James also alleges that the company falsely represented to investors, rating agencies and bookrunners that the underlying subprime auto loans that it packages into securities are in compliance with all applicable state and federal disclosure and consumer protection laws. Credit Acceptance's stock plunged 13% in intraday trading to $397.13 a share.
Credit Acceptance is one of the country's largest publicly traded auto lenders and does business, with a network of more than 12,000 affiliated used-car dealers. The
Though the company's loan agreements state that consumers pay an average interest rate of 22% on a car loan, the lawsuit claims that the hidden charges and add-on products push up the cost of a loan. In New York, 84% of Credit Acceptance's loans exceeded that state's 25% usury cap.
From Nov. 2, 2015, to April 30, 2021, roughly 1.9 million people obtained used car loans through Credit Acceptance and its affiliated dealers. In 2020 alone, consumers obtained more than $4.9 billion in Credit Acceptance-financed loans.
"Credit Acceptance obscured the true cost of its loans to car buyers, leading to severe financial distress for borrowers and subjecting them to aggressive debt collection tactics on loans its own systems predicted that borrowers can't afford to repay," CFPB Director Rohit Chopra said in a press release. "The CFPB and the New York Attorney General seek to halt Credit Acceptance's illegal practices and make consumers whole."
The lawsuit seeks to force Credit Acceptance to stop its illegal practices, reimburse harmed consumers, pay back wrongfully earned gains and pay a penalty.
Credit Acceptance said it plans to fight the lawsuit.
"Credit Acceptance operates with integrity and believes it has complied with applicable laws and regulations," a company spokesman said. "We believe the complaint filed is without merit and we intend to vigorously defend ourselves in this matter."
