Southfield-based Credit Acceptance Corp., which made its mark by offering car loans to those with bad credit and might not otherwise qualify for a car loan, is accused by regulators of making predatory deals that drive buyers financially vulnerable to bankruptcy.
Used car loans carry “exorbitant interest rates, are loaded with expensive add-ons and burden borrowers with debt” that even the lender believes borrowers cannot repay in full, according to a complaint filed Wednesday. market.
On Wednesday, New York Attorney General Letitia James and the Department of Consumer Financial Protection jointly sued the Credit Acceptance Corporation for swindling thousands of low-income New Yorkers into high-interest car loans.
Complementary products that end up being financed, raising borrowing costs, include a vehicle service contract that promises to repair or replace certain parts and a guaranteed asset protection product or “GAP” that is supposed to cover the amount owed by borrowers after payment. insurance if the used car or truck is stolen or destroyed in an accident.
The complaint accused Credit Acceptance affiliated dealers of misleadingly hiding add-on products in loan paperwork or failing to disclose to borrowers that add-on products were included in loan agreements.
The lawsuit alleges that Credit Acceptance Corp. made unaffordable loans to tens of thousands of low-income consumers in New York, without regard to their ability to pay back the loans in full.
The company defended its practices in a brief statement given to the Detroit Free Press.
“Credit Acceptance operates with integrity and believes it has complied with applicable laws and regulations. We believe the complaint is without merit and intend to defend ourselves vigorously in this matter.”
Credit Acceptance Corp. is one of the nation’s largest publicly traded auto lenders and does business with a network of more than 12,000 affiliated used car dealers to offer loans to high-risk borrowers with subprime and deep subprime credit histories.
The interest rate charged on these loans is typically around 22%, according to the joint complaint by the federal consumer watchdog agency and the New York attorney general.
Furthermore, the complaint charged that the financial services company’s business model “pushes dealers to manipulate the prices of vehicles sold” to borrowers, often hiding an additional cost of credit on the principal amount financed by the loan.
In addition, the complaint said, dealers routinely fail to provide consumers with copies of their Acceptance of Credit agreements, “thus concealing improper and abusive contractual terms.”
The complaint noted that consumers are generally worse off financially.
As a result of the company’s lending model, the complaint noted that many consumers who receive Credit Acceptance Corp. end up defaulting. And they end up losing their vehicles and forfeiting any trade-in value or down payments.
“Consumers face an average post-auction debt of about $8,500,” the complaint noted. The company often continues to charge suing borrowers. One worrying point involves loan amounts that can be artificially inflated by add-ons that have been financed, according to consumer watchdogs. 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 their debts,” according to the complaint.
“Repeatedly, repossession, foreclosure and bankruptcy result,” the complaint noted. “Consumers who lose their vehicles sometimes lose their jobs and also face family hardships. But despite the significant human cost borne by consumers, CAC continues to profit.”
The finance company’s “loan model” is indifferent to the consumer’s ability to repay loans in full, the complaint stated. Instead, the company uses a complex algorithm to predict how much money Credit Acceptance expects to receive from the loan.
That amount is not just monthly payments, the complaint filed in the US District Court for the Southern District of New York asserted. The company also takes into account, according to the complaint, “possible collection efforts, repossessions, auctions and assessments in case the consumer defaults”.
The Consumer Financial Protection Bureau stated that the “car buying experience turns into a nightmare” for many of these borrowers. Consumers face “unaffordable monthly payments, vehicle repossession and debt collection lawsuits”.
The joint complaint alleges that, among other things, Acceptance of Credit hides costs in loan agreements and bankrupts the consumer.
Between January 2017 and August 2020, the complaint noted, Credit Acceptance nationwide received more than 1,000 consumer complaints related to add-on products, including complaints that dealers required borrowers to purchase add-on products to obtain a contract. Credit Acceptance loan. Borrowers also complained that they were unaware that an add-on product was included in their contract and discovered the product only after completing the transaction.
The New York Office of the Attorney General alleged that a consumer, who supports two children, applied for a loan from Credit Acceptance Corp. demanding that she pay over $13,000. The dealer needed $5,614 to sell her the car. After she paid over $7,600 for Acceptance of Credit, the New York attorney general noted, they repossessed her vehicle, sold it at auction and sued her for over $7,500.
New York Attorney General James stated in the press release that the company “claimed to help low-income New Yorkers buy cars, but instead drove them straight into debt.”
New Yorkers, James said, were driven “to financial ruin” when they were duped into unaffordable high interest car loans. “These predatory actions hurt innocent people and left them with mountains of debt. I thank the CFPB for their partnership to stop this harm and protect ordinary New Yorkers,” said James.
The lawsuit seeks to end Credit Acceptance Corp.’s “abusive and deceptive practices, reform or eliminate existing CAC loan agreements, and collect restitution from affected consumers,” according to the New York attorney general.
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Credit Acceptance has offered financing programs since 1972, according to the company, that allow dealerships to sell vehicles to consumers, regardless of their credit history.
“Without our financing programs, consumers are often unable to purchase vehicles or purchase unreliable vehicles,” the company states online.
The company says it offers a second chance to consumers who can buy vehicles while restoring their credit. Your statement of purpose: “We change lives!”
Credit Acceptance reports payments to the three national credit reporting agencies, which it says gives consumers the opportunity to improve “their credit score and move to more traditional sources of financing.” Credit Acceptance is publicly traded on the Nasdaq Stock Market under the symbol CACC.
Credit Acceptance stocks fell following news of regulators’ action. The stock closed at $403.49 a share, down $52.99 or 11.61% on Wednesday.
The finance company had 2,069 employees in the United States, including 1,186 employees in Michigan as of October 2022.
Contact Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, go to freep.com/specialoffer. Read more at the business and register on our business newsletter.
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