Blog Enforcement Watch May 19, 2022

35 State AGs Reach $550 Million Settlement with Subprime Auto Lender

On May 19, 2022, the Arizona Attorney General, along with the attorneys general of 34 other states, announced a settlement with a large subprime auto lender.

If approved, the settlement would resolve a multistate investigation in which the attorneys general alleged that the lender issued high-interest loans knowing consumers were likely to default based on their credit scoring models. The attorneys general also alleged that the lender turned a “blind eye to dealer abuse,” failed to monitor dealer falsification of certain financials, and misled consumers about risks of partial payments and loan extensions.

Under the settlement, the lender agreed to pay $65 million to participating states as restitution for consumers who defaulted on loans between January 1, 2010 and December 31, 2019, along with $45 million worth of deficiency waivers for certain consumers. Additionally, the settlement requires the lender to waive deficiency balances for certain defaulted customers, totaling approximately $433 million in immediate loan forgiveness. In addition to consumer relief, the lender would be required to pay $5 million to investigating states and would pay the costs of settlement administration.

The settlement also prohibits the lender from extending financing to consumers with a negative residual income after accounting for various considerations and requires it to test all loans in default to determine if, at the time of loan origination, the consumer had a negative income. If testing determines the loan was unaffordable and the consumer defaults within a certain amount of time, the lender​​​ will be required to forgive that loan.

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