New York AG eyes Credit Acceptance Corp. in fresh probe

Lender may be sued under Dodd-Frank Act

Photographer: Michael Nagle/Bloomberg

The Office of the New York State Attorney General is considering bringing claims against Credit Acceptance Corp. in connection with the subprime lender’s originations, collections and securitization practices.

Southfield, Mich.-based Credit Acceptance disclosed in its quarterly filing with the Securities and Exchange Commission on Monday that it had received a letter from the New York AG on Nov. 19, 2020, stating the regulator is considering suing under the Dodd-Frank Act, which prohibits unfair, deceptive or abusive acts or practices, and the New York Martin Act, a blue-sky anti-fraud law.

Credit Acceptance responded Dec. 9, 2020 “disputing the assertions contained therein,” but received two more subpoenas from the AG on Dec. 21, 2020, requesting data and testimony, according to the filing.

Credit Acceptance did not respond to request for additional comment by press time, but stated in the filing that it was cooperating with the inquiry. The New York Attorney General’s Office told Auto Finance News that it “cannot confirm or deny an investigation at this time.” Credit Acceptance first received subpoenas from the New York AG that it was under investigation in May of 2019, according to the filing.

The language in the SEC filing is similar to an August 2020 lawsuit brought against the lender by the Massachusetts Attorney General, which alleged that the lender made unfair or deceptive loans to consumers who the company knew could not repay them, which led to consumer debt averaging $9,000. Consumers were also allegedly subject to hidden finance charges, which resulted in the loans exceeding the state-mandated usury rates. Massachusetts has a usury rate cap of 21%, according to a state AG release.

In addition, the Massachusetts suit alleges that the lender topped off its pools of securitized loans packaged and securitized on the secondary market with “higher-risk loans, despite claiming otherwise in disclosure to investors.” Credit Acceptance brought $1.58 billion of notes backed by subprime finance receivables to market in 2019, according to filings with the SEC.

The company also engaged in illegal collection practices, “including sending faulty notices to borrowers with repossessed vehicles, harassing consumers with unlawfully repetitious collections calls, and overcharging consumers on their deficiencies,” according to allegations in the ongoing lawsuit.

State regulators are known for banding together to bring collective lawsuits against auto lenders, especially in the subprime space. Last May, Santander Consumer USA settled a predatory lending suit for $550 million brought against the lender by 33 state attorneys general offices. The Biden administration is also expected to place an added focus on consumer protections.

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