A $710 million settlement involving one of the nation's largest subprime auto lenders is putting new attention on how high-risk vehicle loans are structured, presented and serviced.
Credit Acceptance Corp. reached a settlement Sept. 17 with the attorneys general of 40 states and Washington, D.C., resolving litigation and a multistate investigation into its lending practices. The company did not admit wrongdoing.
The agreement includes $634 million in debt relief for certain customers, $60 million for a consumer relief fund and $15.5 million in payments to participating attorneys general. More than 55,000 borrowers are expected to receive debt forgiveness.
The allegations centered on loans made to consumers with limited or damaged credit. State officials alleged that Credit Acceptance originated some loans it knew or should have known borrowers could not afford and failed to adequately prevent dealers from adding unwanted products to loan contracts. Credit Acceptance said the settlement was reached without an admission of wrongdoing and that the requirements do not fundamentally change its business model.
For independent dealers, the more important part of the agreement may be what happens going forward.
Under the settlement, Credit Acceptance will maintain or add controls involving vehicle-pricing disclosures, ancillary products, affordability protections, dealer oversight and consumer disclosures. Some debt-collection practices also will change for certain loans.
The agreement does not impose these requirements on every independent dealer. But it does provide another clear look at the issues regulators are examining in subprime auto finance: whether the payment is affordable, how the vehicle and financing are presented, whether optional products are clearly disclosed and what happens when a customer cannot keep up with the loan.
Credit Acceptance currently works with nearly 11,000 active dealers, including independent dealers, giving the settlement significance beyond the lender itself.
Bottom line
The Credit Acceptance settlement highlights where scrutiny of subprime transactions is concentrated: affordability, transparency, pricing, add-on products and dealer oversight. For independent dealers serving credit-challenged buyers, those issues are becoming an increasingly important part of the financing conversation.
