Press Release  AG Healey Secures $22 Million From Santander in First-in-the-nation Settlement Involving Subprime Auto Loans

BOSTON —  A major subprime auto loan funder in Massachusetts, Santander Consumer USA Holdings Inc. (Santander), will pay $22 million for its role in facilitating unfair, high-rate auto loans for thousands of Massachusetts car buyers, Attorney General Healey announced today.

“After years of combatting abuses from subprime mortgage lenders, these practices are unfortunately familiar,” said AG Healey. “We found that Santander, a leading player in the business of packaging and reselling subprime auto loans, funded unfair and unaffordable auto loans for more than 2,000 Massachusetts residents. This first-in-the-nation settlement relating to subprime auto loan funding will provide relief to thousands of car buyers in Massachusetts and prevent these practices from being used against our residents.”

The AG’s investigation, handled jointly with the Delaware Attorney General’s Office, revealed that Santander allegedly funded auto loans without having a reasonable basis to believe that the borrowers could afford them. In fact, Santander predicted that many of the loans would default, and allegedly knew that the reported incomes, which were used to support the loan applications submitted to the company by car dealers, were incorrect and often inflated.

Car loans to consumers with poor credit, known as subprime auto loans, are often made through contracts signed at the car dealership, but the loans are funded by non-dealer financial institutions, like Santander. As part of the funding process, many financial entities resell or repackage the loans, passing them along to third parties. Money obtained from this process is then used to fund more subprime loans. 

Today’s settlement, filed in Suffolk Superior Court, includes $16 million in relief to more than 2,000 affected consumers and a $6 million payment to Massachusetts. Santander has also agreed to implement new oversight policies.

The AG’s Office found that Santander’s own internal audit concluded that the company’s oversight of auto dealer conduct when making subprime loans was inadequate. Despite identifying a group of dealers that had extremely high default and delinquency rates and other problems, the company continued to fund loans through these dealers. Santander also allegedly identified a group of dealers it called the “fraud dealers,” but continued to fund loans through them.

This settlement is part of AG Healey’s ongoing review of securitization practices in the subprime auto market—an industry-wide investigation that remains ongoing.

Subprime auto loan funding mechanisms have many similarities to the residential mortgage loan funding which played an important role in the 2008 financial crisis. The AG’s Office began its review of subprime auto loans after bringing successful mortgage cases against numerous investment banks including Goldman Sachs, Morgan Stanley, Royal Bank of Scotland, Countrywide Securities, Barclays, JPMorgan, and Citigroup.  Those cases recovered hundreds of millions of dollars for Massachusetts homeowners who had been placed in unaffordable and unlawful loans.

This is the second settlement between the AG’s Office and Santander relating to its role in subprime auto lending in Massachusetts. In Nov. 2015, the AG’s Office brought an action relating to Santander’s funding of loans that allegedly included expensive insurance coverages, which caused the cost of the loans to exceed the state usury limit. In that case, Santander provided approximately $5.5 million in loan relief and payments to Massachusetts to resolve the allegations. 

Consumers eligible for payments from today’s settlement will be contacted by an independent trustee and the AG’s Office. Consumers with questions about settlement eligibility should contact AG Healey’s Insurance and Financial Services hotline at 1-888-830-6277. 

Consumers who have complaints or disputes relating to auto loans are encouraged to file a complaint with the Attorney General’s Office. 

This matter has been handled by the staff of AG Healey’s Insurance and Financial Services Division, including Assistant Attorneys General Aaron Lamb and Glenn Kaplan, Mathematician Burt Feinberg, Legal Analyst John Michael Partesotti, Paralegal Helen Anderson, and Investigations Supervisor Arwen Thoman.

The AG’s Office dedicates the resolution of this case to Assistant Attorney General Aaron Lamb, who passed away on December 11, 2016 at age 38. Aaron was an exceptional attorney, who was dedicated to the public interest. After graduating Harvard Law School and clerking for Massachusetts Appellate Courts, Aaron joined the AG’s Office and began a career as a securities and financial services enforcement attorney. During his ten-year tenure, Aaron played a lead role in first-in-the-nation investigations of auction rate securities, collateralized debt obligations, subprime mortgage securitizations, exchange traded funds, and the securitization of subprime auto loans. These cases resulted in the recovery of more than half a billion dollars for residents of Massachusetts and the Commonwealth. Aaron was a beloved colleague and friend for many at the Attorney General’s Office, as well as a caring protector of the people of this state. He is irreplaceable, and will always be missed.

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