$550M Santander Car Loan Settlement Reached

UPDATE:

• The administrator distributed electronic payments June 4, 2021, and checks on June 8, 2021.
• Payments may take 10 to 14 days to be received.
• More than 900 District of Columbia residents have begun receiving their payments, according to WUSA9.
• Consumers had until March 22, 2021, to select what type of payment to receive. If you did not receive a physical postcard regarding the settlement, you will not receive a check or e-payment.
• Consumers who did not receive an email regarding the settlement or received the email but did not follow the instructions for updating their address were not eligible to receive a payment.

Santander Bank has reached a $550 million dollar settlement with 33 states to settle predatory loan charges to low-income and subprime customers.

The settlement with Santander will resolve allegations that the bank violated consumer protection laws by putting subprime borrowers into loans that carried a high probability of default.

According to an article in The Wall Street Journal, the settlement will include $65 million that will go directly to consumers and $433 million which will go towards loan forgiveness, including funds for customers who have had their cars repossessed but still owe money to Santander.

According to the article, Santander has agreed to waive balances for customers who have low credit scores and who have stopped paying their loans at the end of last year.

In addition to paying $550 million, the bank has also agreed to factor the borrowers ability to repay loans into their underwriting.

A website has been opened up to let consumers know about the process for filing a claim in this matter.

“Santander profited by approving high-cost loans to disadvantaged auto buyers who were doomed from the start. These predatory loan practices have hurt countless families who are being hit hard by today’s economic climate,” California Attorney General Xavier Becerra said in a press release.

“This settlement should be a warning to the industry that we are committed to protecting consumers from abusive business practices.”

The Santander car loan website notes that the company knew that certain segments of the population were predicted to have a high likelihood of default.

The coalition of Attorneys General also claims that Santander’s aggressive pursuit of market share led it to underestimate risks associated with auto loans by “turning a blind eye” to dealer abuse.

In addition, the coalition alleges that Santander engaged in deceptive service practices and misled consumers about their rights and risks of partial payments as well as loan extensions.

According to the Santander car loan website, the $65 million settlement will be used for subprime consumers who have defaulted on loans between Jan. 1, 2010 and Dec. 31, 2019.

Santander is required to allow customers to keep their car and waive any loan balance for those who have the lowest quality loans and have defaulted as of Dec. 31, 2019.

Moving forward, Santander is not allowed to extend financing if a consumer has a negative residual income after taking into consideration monthly debt obligations.

Also, the company has agreed to test all loans that default in the future to see if the customer had negative income, according to the Santander car loan site.

“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,” according to the Santander car loan website.

Under the terms of the settlement, the company will attempt to buy back the loans that it sold and if they do so successfully, they will provide additional deficiency wavers, the Santander auto website adds.

According to an article in the Baltimore Business Journal, more than 9,000 Maryland citizens will be eligible to receive restitution payments, adding up to a total of up to $2.2 million dollars. In addition, more than 1,000 Maryland citizens will be receiving deficiency waivers, which totals $13.7 million.

According to the settlement website, the Attorney General of Illinois led the coalition in opening the investigation into Santander’s practices starting in March 2015 after receiving numerous complaints from consumers related to their subprime loans.

The states that are involved in the Santander auto settlement include: Maryland, New Jersey, Pennsylvania, Illinois, California, 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, Rhode Island, South Carolina, Tennessee, Utah, Virginia, West Virginia and Wyoming, along with the District of Columbia.

This is not the first time that Santander has been the subject of probes into their lending practices. BankingDive notes that the Federal Reserve issued an order in 2017 which required Santander to improve its risk management services. In addition, in 2017 Santander agreed to pay $25.9 million to resolve claims in Massachusetts and Delaware related to subprime auto loans.

Also, according to the article, Santander also tracked dealers that submitted risky loans or falsified applications but did not cut ties with them if the loans were profitable.

Providing context for the Santander loan issue, Investopedia explains that subprime auto loans are a type of loan that is used to finance the purchase of a car. They are reportedly offered to people who do not have much credit history, or people who have low credit scores. Subprime loans have risks involved, but can be the only option for many people.

Those who must take out a subprime loans may have to contend with high interest rates, and repayment penalties if they try to pay off the loan early to avoid interest payments. This kind of loan gained in popularity as a result of the monetary expansion of 2001 and 2004. Subprime loans came along with similar forms of lending like subprime mortgages.

According to Investopedia, subprime lenders began to be more common because lenders felt more comfortable taking on higher-risk loans when they had more money due to monetary expansion.

Philadelphia Business Journal explains that Santander is considered one of the largest subprime auto lenders in the United States. Reportedly, around 82 percent of auto loans provided by the company are characterized as subprime. This information came from the office of New Jersey Attorney General Gurbir S. Grewal, who noted that about half of the borrowers of Santander car loans defaulted between 2013 and 2015.

Did you receive a subprime auto loan from Santander? Leave a message in the comments section below.

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