Subprime lender Credit Acceptance Corp. has finalized its settlement with Massachusetts Attorney General’s Office for $27.2 million over allegations that the lender engaged in unfair practices in its origination, collection and securitization processes.
The settlement, “one of the largest of its kind,” according to Attorney General Maura Healey, ends a yearlong suit that began in August 2020 and requires the Southfield, Mich.-based CAC to make changes to its loan-handling practices and provide debt relief and credit repair to more than 3,000 Massachusetts borrowers, including “many residents of marginalized communities in Springfield, Boston, Worcester and Brockton,” according to the Attorney General’s Office.
The lender first disclosed its settlement April 27. The estimated $27 million penalty was recognized as a contingent loss in the company’s first-quarter earnings results, according to the lender. The settlement does not constitute an admission of any wrongdoing or noncompliance by CAC, according to court documents.
In addition to providing debt relief and requesting credit reporting agencies scrub tradelines for affected Massachusetts borrowers, CAC will “ensure that it has incorporated appropriate software and that it provides training to staff regarding compliant call practices,” which is no more frequent that twice in a seven-day period, according to the settlement. Calls answered by an answering machine will constitute a collection call, the settlement notes.
Further, CAC will be required to send pre- and post-sale repossession notices to Massachusetts consumers, which include “the requirement that notices indicate that the fair market value of the vehicle will be or has been, as applicable, used to determine the amount owed by the customer,” according to the settlement.
CAC will also be required to provide documents to loans originated to Massachusetts borrowers after Dec. 6, indicating the purchase of a vehicle service contract (VSC) is not required to obtain financing and that the VSC will increase the borrower’s loan. Disclosures must be signed by all borrowers purchasing a VSC and the representative of the dealer; copies of the signed disclosure are to be provided to CAC and the borrower.
The Massachusetts attorney general has been heavily active in regulating subprime auto lenders over the last few years. Last year, it reached a $5.5 million settlement with Exeter Finance, and in 2017, it reached a $22 million settlement with Santander Consumer USA over allegations that the lender facilitated unfair, high-rate auto loans following a 2015 $5.4 million settlement over excessive interest rates. In 2016, the AG settled with American Credit Acceptance and Westlake Financial for $7.4 million over similar allegations.
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