N.Y., CFPB sue major subprime lender

Regulators want the company to stop its abusive and deceptive practices, reform or repeal existing CAC loan agreements, and collect compensation from affected consumers.

In 2021, CAC was sued by the Massachusetts Attorney General for “harassing” borrowers and misinforming investors. The following year, the company settled a lawsuit with shareholders stemming from a Massachusetts lawsuit. CAC’s third-quarter 2022 earnings report showed an increase in auto loan volume but a significant decline in net income.

The lawsuit alleges using a loan to borrower “Mr. B” in February 2016.

After applying for a $2,250 trade-in, Mr. B rents a car for $8,292.10 at an interest rate of 23.99%. She will pay her $13,301.31 (the remaining her $5,009.21 representing the cost of the credit) at $260.81 over the term of the 51-month loan.

However, Credit Acceptance gave Mr. B a score of 60.1. This indicates that Mr. B expected her to pay only $13,301.31, or about 60% of him paying $7,994.

“After gathering information about Ms. B and her creditworthiness, CAC paid the dealer approximately $5,614 for this loan. ‘ said the lawsuit. “That dollar figure, not the loan amount, is the amount that CAC has risked for this loan, and if CAC recovers more than that amount, CAC can (broadly) make a profit. Yes, the CAC does not have to recover the full amount loaned for profit.”

Dealers will be offered approximately 72% of the amount Credit Acceptance expects to be able to recover on the loan, the lawsuit says.

The lawsuit alleges that Mr. B paid or promised to pay $10,542,10 (down payment plus loan amount) before interest. However, according to the lawsuit, the dealer’s willingness to accept $7,864 for the vehicle (plus down payment and credit approval payments) means that the amount represents the cash value of the model. The lawsuit alleges that the remaining $2,678.10 is hidden financial costs.

“Total disclosed cost of transactions funded by CAC (minus interest) and dealer fees (a proxy for the actual amounts that dealers would have received for an all-cash purchase of vehicles and add-on products, as applicable. ) constitutes a financing fee that is hidden from the borrower as part of the amount financed in the CAC Loan Agreement — an amount that cash consumers would not have been charged.”

According to the lawsuit, this hidden funding often drove credit acceptance rates above the New York loan shark cap of 25%. This was the case even when dealers subsequently received “earned” bonuses for customers eager to pay.

Credit Acceptance also does not expect its customers to pay off their loans, according to the lawsuit.

“CAC claimed to help low-income New Yorkers buy cars, but instead drove them into debt,” James said in a statement. , and rounded up backroom deals with dealers to increase their own profits.These predatory actions hurt innocent people and left them with mountains of debt. ”

According to the complaint, Credit Acceptance expects to recover only 66% of outstanding loans in New York and only 64% nationally, taking into account factors such as reversals and late fees.

“In fact, approximately 25% (New York) to 39% (national) of CAC’s loans are clearly unaffordable, so CAC’s expected recoveries are less than the amount lent or the expected principal amount. ‘ said the lawsuit.

Still, lenders are teaching dealers to tell their customers that the loan will “change their lives” and is an opportunity to improve their credit. Credit approval during period scrutinized by lawsuit The median borrower had a credit score of 546 and a gross income of $35,000.

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