On March 16, 2016, the Massachusetts Attorney General’s Office announced that two financial services companies specializing in auto loans agreed to pay a total of $7.4 million in restitution to Massachusetts consumers over allegations the companies charged excessive interest rates on auto loans. According to the Massachusetts AG, the companies purchased loans from primary creditors that contained allegedly usurious interest rates. The usurious interest rates were related to the primary creditors’ “GAP coverage” requirements. GAP coverage is a form of insurance that covers the difference between the market value of an automobile and the consumers’ outstanding loan balance. If the consumer defaults on the loan and the value of the automobile is less than the outstanding loan balance, GAP coverage will pay the difference. Some of the loans the companies purchased from other lenders allegedly included fees designed to cover GAP insurance. According to the Massachusetts AG, when the GAP charges were added to the primary interest rates on the auto loans, the total “effective interest rate” exceeded the rates permitted under Massachusetts’ usury law. Under the settlement, the companies agreed to pay a total of $7.4 million in restitution to Massachusetts consumers and $225,000 in costs associated with implementing the settlement. The settlement agreement also requires ongoing audits of both companies, which potentially may uncover additional violations. Consumer Finance Enforcement Watch previously reported on the Massachusetts AG’s ongoing investigation into allegedly usurious interest rates for auto loans here.
Blog Enforcement Watch March 18, 2016