Subprime Auto Lender CAC Sued by NY Over ‘Predatory’ Loans

(Bloomberg) — Credit Acceptance Corp., one of the biggest subprime US auto lenders, was sued by New York and a federal regulator for allegedly luring thousands of low-income individuals into unaffordable high-interest car loans.

(Bloomberg) — Credit Acceptance Corp., one of the biggest subprime US auto lenders, was sued by New York and a federal regulator for allegedly luring thousands of low-income individuals into unaffordable high-interest car loans.

The company allegedly deceived customers by misstating key terms on loan agreements, including the principal and interest amounts, while also failing to disclose thousands of dollars in credit charges, according to a complaint filed Wednesday by New York Attorney General Letitia James and the US Consumer Financial Protection Bureau.

Credit Acceptance projected “down to the penny” how much additional money it could extract from struggling borrowers through late fees, repossession, debt collection and wage garnishment, and then offered to split projected collections with its affiliated car dealers, according to the state of New York.

Shares of Credit Acceptance closed 12% lower, their biggest one-day drop since June 2021. That decline erased about $685 million in its market value. 

The company, in a statement Wednesday, said it “operates with integrity and believes it has complied with applicable laws and regulations. We believe the complaint is without merit and intend to vigorously defend ourselves in this matter.”

‘Predatory Actions’

Credit Acceptance “steered hardworking New Yorkers onto a path of financial ruin by tricking them into unaffordable, high-interest auto loans while cutting backroom deals with dealers,” James said in a statement. “These predatory actions hurt innocent people and left them with mountains of debt.”

In 2021, Credit Acceptance agreed to pay $27 million to resolve a similar lawsuit by Massachusetts claiming it made deceptive loans, misled investors and engaged in unfair collection practices. That settlement was the largest of its kind at the time, the state said.

According to James, Credit Acceptance allegedly packaged the “illegal loans” into securities that it sold to investors in violation of the state’s executive law.

Credit Acceptance “represented to initial purchasers, rating agencies, and investors who purchased the securities that the underlying loans complied with applicable law,” the state said in its statement. “However, these representations were false.”

According to the complaint, nearly 90% of Credit Acceptance’s New York borrowers became delinquent on their loans, sometimes resulting in additional fees. 

–With assistance from Divya Balji and Paige Smith.

(Updates with closing share decline.)

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