WASHINGTON (Reuters) – Santander Consumer USA Holdings Inc (SC.N) said on Tuesday it had agreed to make changes to its underwriting practices as part of a $550 million (448.7 million pounds) settlement with 33 states and the District of Columbia over subprime auto loans.
The states said Santander violated consumer protection laws by placing borrowers with subprime credit into auto loans it knew carried a high probability of default. Santander has agreed to pay $65 million for restitution for some customers and to waive deficiency balances on loans worth $478 million. It will also pay $7 million to the states to manage restitution claims.
Santander, the nation’s largest subprime auto financing company and an arm of Spanish bank Banco Santander SA (SAN.MC) that went public in 2014, said it was pleased to resolve the investigation and “no additional charges will be taken in connection with the settlement.”
“Santander profited by approving high-cost loans to disadvantaged auto buyers who were doomed from the start,” said California Attorney General Xavier Becerra in a statement.
California said Santander approved loans it expected would default at rates of greater than 70% and alleged “Santander’s aggressive pursuit of market share led it to underestimate the risk associated with loans by turning a blind eye to dealer abuse.”
For some consumers who defaulted but have not had their cars repossessed, Santander is required to allow them to keep them and waive loan balances up to a total of $45 million and to waive deficiency balances on other loans totaling $433 million.
Santander agreed not to purchase loans where consumers would likely have no money left over monthly and not to require auto dealers to sell add-on “back-end” products to consumers.
In 2017, Santander agreed to pay $25.9 million to resolve investigations by the attorneys general in Massachusetts and Delaware over sub-prime auto loans.
Reporting by David Shepardson; Editing by Chizu Nomiyama