Santander to pay $550 million over predatory auto loans

Greedy subprime auto lending giant Santander is settling charges filed by 33 state Attorneys General and the District of Columbia, by paying $550 million.

The law enforcement officials charged Santander with engaging in predatory auto lending practices, including:

  • Approving auto loans Santander knew low-income car buyers could not possibly repay, resulting in an astronomical and devastating default rate of over 70%
  • Turning a blind eye to common scams that auto dealers engage in, such as falsifying loan applications to make it appear the used car buyers had far more income than they really had

“Santander profited by approving high-cost loans to disadvantaged auto buyers who were doomed from the start,” said California Attorney General Xavier Becerra in a statement.

As part of the settlement, Santander will provide over $99 million in relief to thousands of California consumers who Santander approved for its abusive high-cost loans.

Consumers with the lowest quality loans who had defaulted as of December 31, 2019, and have not had their cars repossessed, will be allowed to keep their car and have any deficiency balance on the loan (up to a total value of $45 million in deficiency waivers nationwide) waived.

Santander will also waive the deficiency balances for certain defaulted consumers across the country, with approximately $433 million in immediate forgiveness of loans still owned by Santander, and additional deficiency waivers of loans that Santander no longer owns but is required to attempt to buy back.

When consumers default on auto loans, lenders like Santander swoop in and repossess their vehicles,  often causing them to lose their jobs. When car buyers lose their only way to get to work, some become homeless. In states like California with huge areas that provide little access to public transportation, losing a vehicle can be a death sentence, particularly for people who are elderly or disabled, or live in rural areas or other parts of the state where they are unable to access health care without a car.

Did you have an auto loan with Santander?  Or was your vehicle repossessed by Santander?  We’re very interested in hearing from you. Please contact CARS, so we can listen to your story and help prevent more people from falling prey to scummy subprime auto lenders.

Read more:

Attorney General Becerra Announces Over $550 Million Settlement Against Nation’s Largest Subprime Auto Financing Company for Deceptive Auto Loan Practices

HUGELY popular, hilarious, and biting John Oliver video showing how unscrupulous auto dealers and lenders scam car buyers

Beware: Auto Lending Scams Can Cost You $$ and Harm Your Credit

Times of crisis tend to bring out the best in some people — and the worst in others. At the same time the nation is cheering on the courageous doctors, nurses, emergency medical technicians, firefighters, delivery workers, grocery store workers, and others toiling on the front lines to save lives, unscrupulous auto dealers continue to scam car buyers who fall into their clutches.

Auto sales have plummeted drastically. Some states have ordered auto dealerships to close their doors. But others are allowing them to remain open, deeming them to be an “essential” service, particularly for performing safety recall repairs.

Consumers are wise to be wary about making a major purchase when they are being laid off in record numbers, or their jobs are uncertain, at best.  Plus no one knows for sure how long it will take for the economy to recover.

Auto manufacturers and dealers are responding to consumers’ anxiety and the downturn in car sales by advertising 0% financing and delayed payments, in an attempt to lure car buyers. But beware: many car buyers may not quality for those special rates, and after the “payment holiday” is over, you may be hit with hefty fees or other extra charges hidden in the fine print.

Even more than before, it pays to be cautious and shop around for credit before you buy.  The safest thing to do is to join a credit union and get financing approved before you shop for a car. NEVER trust a dealer to find you the best terms for an auto loan.

Car dealers don’t want you to know this, but they rake in extra profits from lenders in exchange for raising the interest rate on auto loans, above the rate you qualify to get, based on your creditworthiness. The extra kickback is known as the “dealer markup” or “dealer participation.” It’s usually split with the lender, and can add thousands of dollars onto the price of your auto loan. It’s added profit, at your expense, and a huge source of revenue for auto dealers and lenders.

Beware: Auto dealers often claim in advertising and in person that they are shopping around for financing in order to find you “the best rate.” What they really mean is the best rate for THEM, not for YOU. In fact, lenders compete with each other to offer dealers incentives and sweeteners for assigning auto loans to them — costing you more.

You may also be surprised to learn that even if you never buy a car from a dealership, but just happen to walk onto a car dealer’s lot and browse around or test drive a car, unethical dealers may get your name, then pull your credit report and shop around for financing — without your permission. Their goal: to find out what you can afford to pay, and how much added “markup”  they can get from various lenders for selling you a car, and assigning the sales contract to one of those lenders.

When dealers pull this stunt and shop around among many lenders, it’s known in the automotive trade as “shotgunning” credit. Under some circumstances, it may cause only a small dip in your credit score. But particularly if dealers pull your credit repeatedly, over a period of time, it can cause your credit score to plummet, greatly increasing the cost of credit for future purchases. It’s also an invasion of your privacy and may leave you more vulnerable to identity theft.

In one court case that is now pending in Pennsylvania, a consumer alleges that she popped into a Volkswagen dealership, but made it clear she wasn’t going to buy a car, and was just scoping out various models. She didn’t sign anything. But the dealer made 7 “hard pulls” on her credit, causing her credit score to take a nose dive.

According to the lawsuit, this was a violation of the Fair Credit Reporting Act. The complaint filed by her attorneys says that the Federal Trade Commission warned car dealers in 1998 not to pull consumers’ credit reports unless there is a  “legitimate business need for the information in connection with a business transaction that is initiated by the consumer.

The FTC noted that the Texas Automobile Dealers Association asked for an official opinion whether federal law “allows a dealer to obtain a consumer report on a person who ‘comes to an automobile dealership and requests information’ from a salesman about one or more automobiles.” The FTC replied: “In our view it does not, because a request for general information about products and prices offered does NOT involve a business transaction initiated by the consumer.” (FTC Advisory Letter to Coffey, 2-11-98. Emphasis added.)

Bottom line: Especially now, you’re smart to shop around for credit before you set foot on a car dealer’s lot, and to be wary of enticing deals that sound too good to be true.

Has a car dealer “shotgunned” your credit, without your permission?  If so, we would like to hear from you. Here’s where to contact CARS: http://carconsumers.org/feedback.php

Thank you! Your stories help raise awareness and help prevent predatory auto lending practices that harm even the most savvy consumers and their families.

Read more:

PocketSense: “Is a Credit Score Affected by Car Dealer Searches?”

Credit Karma’s Advice “The Best Place to Get a Car Loan”

New York’s Julie Menin: Tackling Predatory Car Lenders

New York’s Commissioner of Consumer Affairs, Julie Menin, is determined to protect New Yorkers from predatory auto lending practices. Desperate used car buyers have been complaining to the agency, after they were cheated by unscrupulous car dealers who charged exorbitant interest rates for cars that often broke down soon after purchase, leaving them with ruined credit, deeper in debt, and without wheels.

According to the New York Times, auto loan debts sink many New Yorkers financially, averaging more than $12,000 — a burden that can prove impossible on an average annual income of just $36,000. Plus dealers commonly tack on high-priced add-ons that inflate the loans, without adding any value.

In response, the Department of Consumer Affairs is developing a “municipal auto loan initiative,” to allow troubled borrowers to get auto loans directly from a number of lenders on more consumer-friendly terms. This innovative approach promises to provide New Yorkers with lower-cost, less risky access to the cars they need to get to work.

The Department is insisting that interest rates on the loans be fixed, at 16% or less, and that any application fees may not exceed $25.

CARS wishes New York and its courageous pro-consumer Commissioner Julie Menin great success. We hope that this innovative new program thrives and helps lift up thousands of New Yorkers who would otherwise fall prey to dealers itching to exploit them.

Read more:

New York Times: New York City Starts Car Loan Program to Curb Abusive Practices

 

 

 

 

 

 

 

 

Ally Bank ordered to pay $80 million to consumers harmed by discriminatory lending

More than 235,000 African-American, Hispanic, and Asian Pacific Islander borrowers, who were charged higher interest rates on their auto loans from Ally Bank, based on their race, stand to get back $80 million, thanks to courageous action by the Consumer Financial Protection Bureau and U.S. Department of Justice.

The consumer protection and law enforcement agencies are coordinating their efforts to curb discriminatory lending in auto loans, which cost car buyers billions of dollars in hidden extra fees, while fattening the profits made by lenders and auto dealers. This is the government’s largest auto loan discrimination settlement ever.

“Discrimination is a serious issue across every consumer credit market,” said CFPB Director Richard Cordray. “We are returning $80 million to hard-working consumers who paid more for their cars or trucks based on their race or national origin. We look forward to working closely with the Justice Department and Ally to make sure this serious issue will be addressed appropriately in the years ahead as well.”

Read more: CFPB and US DOJ order Ally to pay $80 million to car buyers

 

“The financing fell through” — car deals gone bad

It’s a consumer transaction like no other. When you buy any other product or service, once you’ve signed on the dotted line, the seller can’t unilaterally change the deal. But then you set foot on a car dealership lot, and it’s like you’ve entered a parallel universe where suddenly the rules of the road no longer apply.

No other shopping experience in your life prepares you for what auto dealers try to pull. It’s called “yo-yo” financing. It’s a shady practice that has made headlines nationwide, and is becoming notorious, but continues to happen at auto dealerships every day, all across the country.

You negotiate to buy a car. You reach an agreement. You make a deposit and trade in the car you own. You are then sitting across the table from the Finance Manager, who is all smiles and claims to be on your side. He says he’ll get you the “best terms” on a car loan. He shows you the federally required Truth in Lending disclosures. Total amount financed. Monthly payment.  You look it over, it appears to be reasonable, and you sign the Retail Installment Contract. The salesman hands you the car keys, and off you go, in your newly acquired car. Life is good.

But then a week or two later, you get a phone call from the dealership. They say that the financing “fell through.” They want you to go back and sign another contract. On worse terms. The interest rate you agreed to was 4%. Now they want to charge 16%. Or 20%. The monthly payment was a manageable $240.  Now it will shoot up to $480.   They claim that your credit isn’t as good as they thought. Which makes no sense, since they pulled your credit report before financing the car. Given electronic communications, they knew within seconds what rate you qualified to get.

What they’ve done is known as “de-horsing” — a term that harkens back to horse-trading days. Their goal is to get you out of the car you own, and take you out of the market and trap you into a deal with them. Once they have your trade-in and down-payment, chances are good you can’t just go somewhere else and buy a car on better terms.  They have you over a barrel.

If you balk at signing the new contract, they will threaten to report it as stolen.  Or they’ll threaten to repossess the car, and ruin your credit. If you drive back to the dealership in your newly purchased vehicle, they may park cars on both sides and behind it, to block you from being able to leave, until you sign the new contract. Typically, they refuse to return your deposit. They also claim they already sold your traded-in car, even though it’s actually sitting on a back lot.

You feel trapped into signing, even though it will cost you thousands more than you had initially agreed to spend.

This is the twisted world of “yo-yo” financing. The dealers claim that the financing “isn’t final” — even though you reached an agreement and signed a contract.

The ONLY way to make sure you don’t fall into the yo-yo trap: NEVER, EVER get a loan from a car dealer. Always get your own pre-approved loan. And don’t fall for it if the dealer claims it will get you better terms. Because those can change after you drive off the lot.

CARS recently heard from a consumer, Michael L., who was being scammed by a major car dealer in Sacramento. He and his fiancee are expecting their first child in a few months and wanted a bigger car.   Michael had pre-qualified for a loan at around 10%. He had the check, from Capitol One, in hand.  The dealership finance manager promised a lower interest rate. Thinking he could save some money, Michael agreed to go with dealer financing. Then came the phone call — sorry, the loan “wasn’t approved” at the lower rate. The dealer demanded that he pay 18%.  So instead of paying $23,000 for the loan, Michael was going to have to pay over $30,000 to finance the same car.

He contacted CARS and we brought his case to the attention of a major national news organization. When the dealership found out about the potential news coverage, it backed down and Michael got to keep the car on the original terms. He said he’d learned his lesson — never trust a car dealer, especially not on the financing.