Massachusetts AG Reopens Investigation Into Credit Acceptance's Originations, Collections | Auto Finance News | Auto Finance News

Massachusetts AG Reopens Investigation Into Credit Acceptance’s Originations, Collections

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The Massachusetts Attorneys General Office is resurfacing a civil investigative demand made against Credit Acceptance Corp. in December 2014, the company revealed in an Securities and Exchange Commission filing last week.

The new civil investigative demand came through in November 2017 and seeks additional information related to the company’s origination and collection of consumer loans, and information regarding securitization activities, according to the filing.  

“We are cooperating with the inquiry and cannot predict the eventual scope, duration, or outcome at this time,” Credit Acceptance said in a statement. The lender did not respond to Auto Finance News for additional comment by press time.

The Massachusetts regulator has a history of going after auto lenders. In 2016, the Massachusetts Attorneys General came to an agreement with the buy-here-pay-here financier American Credit Acceptance and Westlake Financial Services to pay a combined $7.4 million to consumers who were charged “excessive interest rates” on their loans.

Most recently, Credit Acceptance was served a subpoena from the Mississippi Attorneys General in October 2017 regarding the company’s origination and collection of loans, and earlier that year The Federal Trade Commission sought information regarding the lender’s use of kill switches.

The latest investigative demand comes on the heels of a fourth-quarter earnings report in which Credit Acceptance is expecting loans made in 2017 to have the highest collection rate since 2015. The lender is expecting to collect on 65.6% of the loans it made in 2017, up from 64.8% on loans made the prior year, and a tick higher than the 65.5% collection rate forecast in 2015.  

Investors on the earnings call kept coming back to the subprime lender’s loan terms, which rose to an all-time high of 55 months, up from 53 months the year prior.

Now that the company has a bigger pool of long-term loan data to draw from, it feels more comfortable forecasting losses on those loans going forward, Chief Executive Brett Roberts said on the call. But at the same time, the current climate has made longer-term loans less attractive than the short-term deals, Chief Financial Officer Ken Booth said.

“We’re happy to write 72-month loans, we’re happy to write 24-month loans, it’s whatever the dealer and the customer desire,” Booth said on the call.

Credit Acceptance originated or made dealer advances on 77,792 loans in the quarter, up 11% compared with the same quarter the year prior. However, full-year unit volume was down slightly by 0.7%.

The number of active dealers during the quarter rose to 7,885, compared with 7,260 during the same period the year prior. Average loan amounts have also climbed to $20,230 in 2017 compared with $18,218 the year prior.

Correction: A previous version of this story incorrectly named Credit Acceptance as the lender subpoenaed by the Massachusetts Attorney General in 2016 when in fact it was the lender American Credit Acceptance. Auto Finance News appologizes for the mistake. 

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