SACRAMENTO, Calif. — Thirty-four attorneys general announced a $550 million settlement Tuesday with auto loan financing company Santander over allegations it knowingly targeted consumers who were likely to default on its loans.
Consumers who defaulted on their loans from the company as of last year will be allowed to keep their car if it has not been dispossessed, and they are eligible for waivers for unpaid balances, according to the settlement. The company will pay $65 million directly toward alleged consumer losses and provide hundreds of millions more in the form of loan relief.
In California, Santander will provide $99 million in debt relief to thousands of consumers who have its high-cost car loans, Attorney General Xavier Becerra said. Becerra alleged Santander violated state law for handing out loans that were more than 70% likely to default.
"Santander profited by approving high-cost loans to disadvantaged auto buyers who were doomed from the start," Becerra said in a statement. "This settlement should be a warning to the industry that we are committed to protecting consumers from abusive business practices."
Santander Consumer USA Inc. said in a statement, "We are pleased to put this matter behind us."
As part of the agreement, Santander is required to examine a person's ability to pay back a loan before issuing one. It also bars the company from extending loans when a consumer would be unlikely to have money left over after monthly payments for automobiles, homes and other debts.
Illinois Attorney General Kwame Raoul opened the multi-state investigation in 2015. A joint statement alleges the company targeted consumers it knew were likely to default on its pricey loans, based on credit scores. The lender then left the consumers with "high payment-to-income ratios," it says.
Also part of the coalition were Maryland, New Jersey, Oregon, Washington, Arizona, Arkansas, Connecticut, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Nebraska, New Hampshire, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, West Virginia and Wyoming, and the District of Columbia.
This story has been corrected to show that most of the $550 million settlement will be in the form of loan relief, not direct payments to consumers.