Santander Consumer reaches $550M settlement with state AGs

Santander Consumer USA will pay $65 million to states and forgive hundreds of millions more in consumer debt as part of a settlement with a group of attorneys general over practices in its subprime auto lending business.

The attorneys general, representing 33 states and the District of Columbia, said the Dallas-based lender had exposed borrowers to unnecessarily risky loans with a high chance of default. In addition to paying $65 million in restitution, Santander Consumer has also agreed to forgive nearly $500 million in car loan debt to borrower nationwide.

Bloomberg

“Santander defrauded desperate consumers by placing them into auto loans the company knew these customers could never afford to pay, resulting in defaults and negative ratings on consumers’ credit reports,” New York Attorney General Letitia James said in a press release Tuesday. “This settlement will not only provide much needed relief to struggling New Yorkers, but will ensure Santander’s dishonest behavior is put to an end immediately.”

The agreement announced Tuesday caps an investigation the attorneys general launched early in 2015 into the U.S. consumer lending unit of the Spanish banking giant Banco Santander. The coalition said its investigation revealed Santander Consumer knew that certain groups of consumers had a high risk of default, but still steered them into loans with high loan-to-value ratios, significant backend fees and high payment-to-income ratios.

In a statement, Santander Consumer characterized the agreement as a resolution to long-standing legacy issues the company has been working to put behind it. In 2017, the Federal Reserve issued an enforcement order requiring Santander Consumer to improve its risk management practices. In 2018, it agreed to settle charges by California authorities that it had not properly disclosed certain referral fees, in addition to other issues settled in other states.

“We are pleased to put this matter behind us,” the company said in a press release. “Over the last several years, we have strengthened our risk management across the board — improving our policies and procedures to identify and prevent dealer misconduct, and tightening standards to ensure affordability.”

In this latest issue, the attorneys general said that Santander Consumer’s aggressive pursuit of market share led it to ignore dealer abuses and that it did nothing to ensure dealers were reporting consumer information accurately. They also accused the company of deceptive servicing practices and actively misleading consumers about their rights and risks of partial payments and loan extensions.

As a condition of the settlement, Santander has agreed to waive the balances of about $45 million in car loans for consumers who had defaulted as of Dec. 31 but not had their cars repossessed. It will also waive at least $433 million in deficiency balances, or the debt consumers still owe after their cars had been repossessed. The attorneys general said those deficiency balances could be as high as $663 million nationwide.

The company said that it had been expecting the settlement and was already fully reserved for it. It will not take any additional charges to its earnings, the company said.