WASHINGTON (Reuters) – Santander Consumer USA Holdings Inc said Tuesday it agreed to change its underwriting practices in a $ 550 million settlement with 33 states and the District of Columbia over subprime auto loans.
States said Santander violated consumer protection laws by placing borrowers with subprime credit in auto loans he knew had a high probability of default. Santander has agreed to pay $ 65 million for the restitution of some customers and to waive insufficient balances on loans worth $ 478 million. It will also pay $ 7 million to states to handle restitution claims.
Santander, the country’s largest subprime auto finance company and a branch of Spanish bank Banco Santander SA which went public in 2014, said it was happy to resolve the investigation and “no additional charges will be made. billed as part of the settlement. “
“Santander has benefited from the approval of high-cost loans to underprivileged auto buyers who were doomed from the start,” California Attorney General Xavier Becerra said in a statement.
California said Santander had approved loans that it expected default rates to exceed 70% and alleged that “Santander’s aggressive pursuit of market share has caused it to underestimate the risk associated with loans by turning a blind eye to dealer abuse. ”
For some consumers who have defaulted but have not had their car repossessed, Santander is required to allow them to hold onto them and forfeit loan balances up to a total of $ 45 million and to forgo insufficient balances on other loans totaling $ 433 million.
Santander has agreed not to buy loans for which consumers are likely to run out of monthly money and not to require car dealers to sell complementary “back-end” products to consumers.
In 2017, Santander agreed to pay $ 25.9 million to resolve the Massachusetts and Delaware attorneys general investigations into subprime auto loans.
Reporting by David Shepardson; Edited by Chizu Nomiyama