Attorney General Balderas Announces Over $550M Multistate Settlement with Nation’s Largest Subprime Auto Financing Company

For Immediate Release:
May 19, 2020
Contact: Matt Baca — (505) 270-7148

SANTA FE, NM – Attorney General Balderas, along with a coalition of 34 attorneys
general, today announced a settlement with Santander Consumer USA Inc. (Santander)
that includes approximately $550 million in relief for consumers with even more relief in
additional deficiency waivers expected. The settlement resolves allegations that
Santander violated consumer protection laws by exposing subprime consumers to
unnecessarily high levels of risk and knowingly placing these consumers into auto loans
with a high probability of default. Today’s settlement stems from a multistate
investigation of Santander’s subprime lending practices. In March 2015, the coalition
opened the investigation into the largest subprime auto financing company in the
country after receiving an increase in consumer complaints related to subprime auto
“Barriers to transportation and credit are among the most problematic root causes for
the health, safety, and prosperity of underserved New Mexican communities,” said
Attorney General Balderas. “Financial institutions should not prey upon hardworking
New Mexicans who are already struggling to make ends meet for their families; and I
will continue to fight to protect our families and consumers from these harms.”
Based on the multistate investigation, the coalition alleges that Santander, through its
use of sophisticated credit scoring models to forecast default risk, knew that certain
segments of its population were predicted to have a high likelihood of default.
Santander exposed these borrowers to unnecessarily high levels of risk through high
loan-to-value ratios, significant backend fees, and high payment-to-income ratios. The
coalition also alleges that Santander’s aggressive pursuit of market share led it to
underestimate the risk associated with loans by turning a blind eye to dealer abuse and
failing to meaningfully monitor dealer behavior to minimize the risk of receiving falsified
information, including the amounts specified for consumers’ incomes and expenses.
Finally, the coalition alleges that Santander engaged in deceptive servicing practices
and actively misled consumers about their rights, and risks of partial payments and loan
Under the settlement, Santander is required to provide relief to consumers and, moving
forward, is required to factor a consumer’s ability to pay the loan into its underwriting.
Santander will pay $65 million to the 34 participating states for restitution for certain
subprime consumers who defaulted on loans between Jan. 1, 2010 and Dec. 31, 2019.
For consumers with the lowest quality loans who defaulted as of December 31, 2019
and have not had their cars repossessed, Santander is required to allow them to keep
their car and waive any loan balance, up to a total value of $45 million in loan
forgiveness. Santander will also pay up to $2 million for the settlement administrator
who will administer restitution claims, and pay an additional $5 million to the states.
The settlement also includes significant consumer relief by way of loan forgiveness. In
all, Santander has agreed to waive the deficiency balances for certain defaulted
consumers, 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.
Going forward, Santander cannot extend financing if a consumer has a negative
residual income after taking into consideration a list of actual monthly debt obligations.
Additionally, Santander is required to test all loans that default in the future to see if the
consumer, at the time of origination, had a negative income. The test must include an
amount for basic living expenses. If the loan is found to be unaffordable and the
consumer defaulted within a certain amount of time, Santander is required to forgive
that loan.
Santander is barred from requiring dealers to sell ancillary products, such as vehicle
service contracts Santander will also implement steps to monitor dealers who engage in
income inflation, expense inflation, power booking, and Santander will enact additional
documentation requirements for those dealers. Further, whereas 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.
Joining Attorney General Balderas in the settlement are the attorneys general of
Arizona, Arkansas, California, Connecticut, the District of Columbia, Florida, Georgia,
Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland,
Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North
Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah,
Virginia, Washington, West Virginia, and Wyoming.