S.C. part of $550M settlement with auto financer Santander

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A settlement reached with auto financing company Santander Consumer USA Inc. will provide $550 million in relief, including more than $3 million to S.C. customers.

A coalition of 34 attorneys general, including S.C. Attorney General Alan Wilson and led by Illinois Attorney General Kwame Raoul, was part of a multistate investigation into Santander’s subprime lending practices. The settlement, announced Tuesday and subject to court approval, resolves allegations that the Dallas-based company exposed consumers to unnecessarily high levels of risk and knowingly placed them into auto loans with a high probability of default, according to a news release from Wilson’s office.

“Santander’s misleading lending practices exposed South Carolina borrowers to unnecessary risk,” Wilson said in the release. “We are pleased that this settlement with Santander both provides substantial relief to consumers and requires a major player in the subprime auto lending industry to factor a consumer’s ability to pay the loan into its underwriting.”

South Carolina is eligible for a total of approximately $20 million in relief, including almost $17 million for deficiency waivers and $30,000 to the state. The restitution amount translates to $224.84 per eligible customer.

The investigation began in March 2015 after the Illinois attorney general’s office received an increase in complaints related to subprime auto loans. The coalition alleges that Santander, through use of credit scoring models, knew that certain consumers 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 investigation found.

The coalition also alleges that Santander failed to sufficiently monitor dealer behavior to minimize the risk of receiving falsified information and that the company misled consumers about their rights, risks of partial payments, and loan extensions.

Santander will pay $65 million to the 34 participating states for restitution for consumers who defaulted on loans between Jan. 1, 2010 and Dec. 31, 2019. The company will also waive deficiency balances for defaulted consumers, with approximately $433 million in immediate forgiveness of loans still owned by Santander as well as deficiency waivers of loans that Santander no longer owns but must attempt to buy back.