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(Reuters) - Credit Acceptance Corp, one of the largest U.S. subprime auto lenders, has agreed to pay $27.2 million to resolve claims by Massachusetts' attorney general that it misled investors and made high-interest loans to borrowers that it knew they would be unable to repay.
Massachusetts Attorney General Maura Healey, who has been conducting an industry-wide investigation of loan securitization practices in the subprime auto market, on Wednesday called the settlement the largest of its kind with a subprime auto lender.
Credit Acceptance Corp did not admit wrongdoing as part of the settlement. Neither it nor its attorney, James Carroll of Skadden, Arps, Slate, Meagher & Flom, responded to requests for comment.
The deal resolves a lawsuit that Healey filed in Suffolk County Superior Court in August that accused the Southfield, Michigan-based company of violating state consumer protection and debt collection laws and regulations.
"Thousands of Massachusetts consumers, many of them first-time car buyers, put their faith in CAC to help them with an auto loan, but were instead lured into high-cost loans, fell deeper in debt, and even lost their vehicles," Healey said in a statement.
As part of the settlement, the company will pay $27.2 million into a trust overseen by an independent trustee that will be used in large part to provide relief to customers and provide debt relief and credit repair to borrowers.
Over 3,000 borrowers in Massachusetts are expected to be eligible for relief, Healey's office said. The settlement also requires the company to make changes to its loan handling practices.
The lawsuit alleged that Credit Acceptance Corp had since 2013 funded about 4,000 subprime used car loans annually in Massachusetts with a combined value of $458 million.
The company, which derives 92% of its revenues from finance charges, issued those high-interest loans to borrowers who struggled to repay them, causing them to suffer ruined credit, lose their cars and downpayments, and accumulate $9,000 in average debt, Healey alleged.
The lawsuit alleged borrowers were subjected to hidden finance charges, which resulted in the loans exceeding a state law cap of 21% on loan interest rates; and harassment by collection employees who called them up to eight times a day.
Massachusetts law only allows two debt-collection calls a day. The complaint said the company violated that law more than 1.5 million times over six years.
To fund the loans, Credit Acceptance Corp packaged the loans into securities that were sold to investors. But Healey said to do so, the company made false and misleading statements about the quality of the loans included in the securities.
The settlement follows several earlier accords that Healey struck in her subprime auto lending inquiry, including a $5.5 million accord in 2019 with Exeter Finance over alleged unfair loans and a $22 million deal with Santander in 2017.
Other regulators including the Consumer Finance Protection Bureau and New York Department of Financial Services have conducted similar investigations in recent years.
The case is Commonwealth of Massachusetts v. Credit Acceptance Corporation, Suffolk County Superior Court, No. 2084CV01954.
For Massachusetts: Glenn Kaplan of the Massachusetts Attorney General's Office
For Credit Acceptance Corp: James Carroll, Patrick Rideout and Anand Raman of Skadden, Arps, Slate, Meagher & Flom
Read more:
Santander to pay $25.9 million to resolve subprime auto loan probes
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