Southfield-based Credit Acceptance Corporation has found success in providing auto loans to people with poor credit ratings who might otherwise not be eligible for auto loans, but financially vulnerable. It has been accused by regulators of engaging in predatory deals that lead unsuspecting buyers to failure.
A lawsuit filed on Wednesday said that even lenders have to pay back the full amount because used car auto loans are “loaded with exorbitant interest rates, expensive add-on items, and borrowers are in debt.” I believe we can’t afford it.
New York State Attorney General Letitia James and the Consumer Financial Protection Bureau jointly sued Credit Acceptance Corporation on Wednesday for tricking thousands of low-income New Yorkers into high-interest auto loans.
Add-on products that are ultimately financed and drive up borrowing costs include vehicle service contracts that promise to repair or replace certain parts, or asset protection products with guarantees that cover the amount owed by the borrower after insurance is paid, or “GAP” is included. If your used car or truck is stolen or wrecked in an accident.
The complaint alleges that dealers affiliated with Credit Acceptance hid add-on products in loan documents or failed to disclose to borrowers that add-on products were included in the loan agreement.
The lawsuit alleges that Credit Acceptance Corporation pushed affordable loans to tens of thousands of low-income people across New York without considering their ability to repay the loans in full.
The company defended its practice in a short statement sent to the Detroit Free Press.
“Credit Acceptance operates with integrity and believes in compliance with applicable laws and regulations. We believe this complaint has no merit and we are actively defending this matter. I intend on doing it.”
Credit Acceptance Corp. is one of the largest publicly traded auto lenders in the United States, serving a network of more than 12,000 affiliated used car dealers, serving high-risk borrowers with subprime and deep subprime credit histories. We offer loans.
Interest rates on these loans are often around 22%, according to a joint complaint between the Federal Consumer Watchdog and the New York Attorney General.
Additionally, the complaint alleges that the financial services company’s business model “encourages dealers to manipulate the prices of vehicles sold,” and that additional credit costs are hidden in the principal financed by the loan. There are often
Furthermore, the complaint alleges that dealers routinely do not provide consumers with copies of credit approval agreements, “thereby concealing inappropriate and abusive contract terms.”
The complaint noted that consumers are often in worse shape financially.
As a result of the company’s financing model, many consumers who received auto loans from Credit Acceptance Corporation eventually defaulted, the complaint notes. And they lose the car, the trade-in value, and the down payment.
“Consumers face an average post-auction liability of about $8,500,” the complaint states. The company continues to collect, often suing borrowers. One issue, consumer watchdogs say, has to do with the amount of loans that can be artificially inflated by loaned add-ons. According to the complaint, consumers who attempt to sell their vehicles, or whose vehicles are repossessed and auctioned, “find that the proceeds from the sale do little to pay off their debts.”
“Time and again, it has resulted in foreclosure, foreclosure and bankruptcy,” the complaint reads. “Consumers who lose their cars sometimes lose their jobs and face family problems. But despite the enormous human suffering inflicted on consumers, CAC continues to turn a profit.”
The financial firms’ “lending model is indifferent to the consumer’s ability to repay the loan in full,” the complaint states. Instead, the company uses a complex algorithm to predict how much Credit Acceptance expects to recover on loans.
That amount goes beyond monthly payments, said a complaint filed in the United States District Court for the Southern District of New York. According to the complaint, the company also takes into account “potential collection efforts, remands, auctions, and defect determinations in the event of consumer default.”
The Consumer Financial Protection Bureau says it “turns the car-buying experience into a nightmare” for many of these borrowers. Consumers face “unpaid monthly payments, vehicle seizures and debt collection lawsuits.”
The co-complaint alleges, among other things, that credit approval hides the cost of loan agreements and leads to consumer failure.
Between January 2017 and August 2020, Credit Acceptance received over 1,000 consumer complaints nationwide related to add-on products. This includes complaints that dealers require borrowers to purchase add-on products in order to obtain credit acceptance loan agreements. Borrowers also complained that they were unaware that add-on products were included in the contract and discovered the products only after the transaction was completed.
The New York Attorney General’s Office claimed that a consumer who is raising two children signed up for a Credit Acceptance Corporation loan that required him to pay more than $13,000. The dealer needed her $5,614 to sell her car. After she paid more than $7,600 for her credit approval, the New York Attorney General said they remanded her car, sold it at her auction, and sued her for more than $7,500.
New York Attorney General James said in a news release that the company “claimed to help low-income New Yorkers buy cars, but drove them into debt.”
James said New Yorkers were steered “toward financial ruin” when they were duped into affordable, high-interest auto loans. “These acts of looting hurt innocent people and left them with a huge debt. I thank the CFPB for their partnership to stop this harm and protect every day New Yorker.
According to the New York Attorney General, the lawsuit seeks to end Credit Acceptance Corp.’s “abusive and deceptive practices, reform or repeal existing CAC loan agreements, and reimburse affected consumers.” The purpose is that.
more:Doing the right thing with Credit Acceptance helps team members and more
Since 1972, Credit Acceptance has offered a financing program that enables auto dealers to sell cars to consumers, regardless of credit history, according to the company.
“Without our financing program, consumers often cannot afford to buy a car or buy a car they don’t trust,” the company said online.
The company says it offers consumers a second chance to buy a vehicle while re-establishing credit. Their purpose statement: “We change lives!”
Credit Acceptance reports payments to three national credit bureaus. This gives consumers an opportunity to “improve their credit score and move to more traditional funding sources.” Credit Acceptance is listed on his Nasdaq Stock Exchange under the symbol CACC.
Shares of Credit Acceptance fell on news of regulatory action. Wednesday’s stock fell $52.99 or he fell 11.61% to close at $403.49 per share.
The financial company had 2,069 employees in the United States as of October 2022, including 1,186 employees in Michigan.
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