By Charlene Crowell
An estimated 55,000 consumers will benefit from a $694 million class action settlement against a predatory auto lender reached by attorneys general (AGs) in 40 states and the District of Columbia.
The settlement announced on September 18 with Credit Acceptance Corporation (CAC), one of the nation’s largest subprime auto lenders, will provide the following financial relief for affected consumers:
$630 million in debt relief for consumers – $388 million to consumers whose cars have been repossessed; the remaining $246 million for those whose vehicles have not been repossessed and will now keep their autos.
$60 million in restitution to thousands of additional consumers who were misled and lost their cars within months of taking out their loans; and $15.5 million in reimbursement to each state office that comprised the multistate working group, and the National Association of Attorneys General.
“CAC preyed on consumers in New York and across the nation with false promises of affordable loans, only to exploit them with outrageous interest rates that ruined their credit and cost them their cars,” said New York Attorney General Leticia James who led the multi-state effort. “While their customers struggled to make payments, CAC made millions. By continuing our case to hold CAC accountable, we secured hundreds of millions of dollars in debt relief and restitution for all those who were taken advantage of by their schemes.”
The lawsuit, originally filed in 2023, alleged that CAC projected, down to the penny, how much money it could extract from borrowers through loan payments, late fees, repossession and auction, debt collection, and wage garnishment, without considering a consumer’s ability to repay their loan, according to AG James. CAC then offered to split the projected collections with its affiliated dealers.
Low-income borrowers with either low credit scores or little credit history were routinely pushed into purchasing vehicles that were worth far less than their loans. CAC states on its own website: “Approval decisions are typically available in 30 seconds or less, and nearly 80 percent of deals are approved for funding within 24 hours.”
Further, CAC misstated key terms on loan agreements, including the principal and interest amounts, and did not disclose thousands of dollars in credit charges. Although the average loan carried an annual interest rate of more than 38 percent, other rates reached over 100 percent. These predatory debt trap loans soon defaulted within 12 or 18 months.
“Credit Acceptance Corporation set car buyers up to fail by making loans it knew they would never be able to afford, and by allowing dealers to inflate the cost of financing agreements with hidden add-ons. As a result, the company profited, even while customers lost their cars and continued to struggle with debt,” said District of Columbia Attorney General Brian L. Schwalb.
Other state officials had similar reactions to the settlement.
“Credit Acceptance Corporation closed its eyes to deceptive origination practices and made predatory, high-cost auto loans that were likely to result in repossession and leave consumers trapped in a cycle of debt,” said California Attorney General Rob Bonta.
Consumers eligible for restitution will be notified by a claims administrator. Consumers with questions about the settlement can call CAC’s customer service number: 800-634-1506.
The settlement also provides additional terms that will free affected consumers from many of the other financial harms inflicted, while other stipulations carry long-term, consumer-friendly reforms.
In the short term, CAC must contact and clearly inform consumers of any products they purchased and offer them a process to cancel those products while keeping their vehicles. It must also notify all affected consumers that their car loan accounts have been closed, no further payments are owed; and any lien held has been released and that the certificate of title has been sent. Credit bureaus will also be notified of these actions.
For the next five years, CAC is required to submit written reports that demonstrate how it is complying with all aspects of the consent order. Any failure or shortcomings related to the order will prompt a mandatory remediation plan with details that identify how compliance will be achieved.
Other long-term settlement stipulations that CAC must observe include:
Providing consumers with pre-loan disclosures about the risks of default and the value of the vehicle.
Limiting a price cap for vehicle prices to no more than 109 percent of retail book value for certain consumers.
Implementing procedures that prevent dealers from raising car prices due to credit worthiness or above advertised prices.
Comments in a report released earlier this year by the Center for Responsible Lending (CRL), showed how consumers with subprime credit scores, most of whom are Black, were left reeling from the effects of predatory car loans.
As Nicole, one participating consumer noted, “You pay that and nothing, nothing ever changes.”
As CAC faces court-ordered reforms and restitution, Nicole and similar consumers can finally receive well-earned financial fairness.
