OLYMPIA — Washington State Attorney General Bob Ferguson recently announced that Santander Consumer USA Inc., the nation’s largest subprime auto financing company, will pay as much as $6.4 million to Washingtonians in the form of cash relief and loan forgiveness, following a years-long, multistate investigation into its lending and loan servicing practices.
Ferguson alleges Santander engaged in multiple deceptive practices in violation of the Washington Consumer Protection Act, including:
- Issuing loans it knew borrowers would have a very hard time paying back;
- Ignoring dealer abuse of its automated system that increased the risk of falsified information in loan documents; and
- Actively misleading borrowers about the risks of partial loan payments and Santander’s ability to recover cars that had already been repossessed.
A consent decree filed in King County Superior Court requires extensive restitution for consumers who were harmed, implements significant changes to prevent future abuses, and resolves these allegations. More than 2,500 Washingtonians will be eligible for cash restitution totaling $579,642, and 244 will be eligible for immediate loan forgiveness, totaling $3,382,000. Santander is also required to try to buy back loans it had already given up on collecting and sold to other companies. It will then forgive the loans it is able to buy back, providing up to $2,391,000 in relief for up to another 318 Washingtonians.
Individuals who qualify for relief will be notified by the claims administrator, Rust Consulting. People with questions about their eligibility can visit www.santandermultistateagsettlement.com, which will be updated with additional information as it becomes available.
“My office is a watchdog against abusive lending and servicing.” Ferguson said. “Lenders and servicers have an obligation to deal fairly with Washington borrowers, and when they fail to do so, my office will be there to protect Washingtonians.”
The resolution is part of a nationwide, multistate resolution, with Santander paying more than $550 million to consumers nationwide.
Santander is one of the largest subprime auto lenders in the country. Its system is heavily automated, and relies on sophisticated credit scoring models.
According to the Attorney General’s Office (AGO), these automated tools underestimated people’s debt and expenses. For example, people could enter unrealistically low housing expenses, without any proof of mortgage or rent payment.
The AGO also asserts that Santander’s practices encouraged auto dealers to extend loans to people that both Santander and the dealer knew, or should have known, would wind up in default. For example, Santander waived proof of income on most applications, and had no apparent measures in place to catch falsified income or housing expense information. Dealers would routinely use a default amount — $401 — for mortgage or rent payments, which would not be a realistic amount in most places the loans were being issued.
When servicing loans, Santander’s employees allegedly routinely confused borrowers about the benefits and risks of partial payments. Employees obscured the fact that interest continues to accrue, and consequently, future payments would likely go toward paying their interest — not the loan balance.
it is also alleged that employees also did not make it clear to borrowers that their loan term would be extended as a result of partial payments, or that partial payments may not stop a repossession. When people called about vehicles that had been repossessed, employees sometimes misled them about their ability to recover the vehicles, encouraging borrowers to make significant payments even when Santander had no control over whether the vehicle could be recovered.
In addition to more than $550 million in relief to consumers nationwide, today’s resolution requires Santander to make significant changes to its practices to protect consumers from these abusive practices.
Going forward, Santander cannot extend financing if the consumer’s actual monthly debt obligations equal or exceed their income. The company will make changes to its system to prevent loans from being issued to those individuals. To ensure these reforms are working, Santander is required to review all loans that default in the future. If they find the loan was issued to someone whose expenses met or exceeded their income when the loan was issued, and the consumer defaulted within a certain amount of time, Santander is required to forgive that loan.
Santander will also implement steps to monitor dealers who misrepresent income and expenses, and Santander will enact additional documentation requirements for those dealers. While Santander previously allowed these problematic dealers to waive documentation requirements on income and expenses, Santander no longer will allow such exceptions. If Santander has to use a default mortgage or rent payment value, the amount input must reasonably reflect the payment value for the geographic location. Finally, Santander will maintain policies and procedures for deferments, forbearances, modifications and other collection matters that all employees must follow.