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$12 Million in Restitution for Kentucky Auto Finance Consumers
Kentucky Ag Connection - 05/20/2020

Attorney General Daniel Cameron Tuesday announced Kentucky joined a multi-state settlement with Santander Consumer USA Inc. (Santander) resulting in up to $12 million for Kentucky consumers who have defaulted on subprime auto loans. The settlement resolves allegations that Santander violated consumer protection laws by approving subprime auto loans with a high probability of default.

"Santander misled consumers by neglecting to relay the financial risk associated with subprime loans, violating our consumer protection laws and saddling Kentuckians with loans that were likely to default," said Cameron. "I am pleased that we've reached a settlement, on behalf of Kentuckians, that will compensate consumers for their financial loss due to Santander's illegal and deceptive lending practices."

The settlement returns a total of $1.1 million in restitution to Kentucky consumers, waives deficiencies on 532 outstanding Kentucky consumer loans, totaling $5.6 million, and requires Santander to try to buy back 769 Kentucky deficiency waivers, amounting to an additional $5.3 million. Santander will also provide "in-kind" relief for Kentucky consumers who have or may default on loans after December 31, 2019, by releasing their titles and waiving any outstanding loan balance.

To protect consumers, the Kentucky Office of the Attorney General joined a 34-state coalition in opening an investigation into the lending practices of Santander, the largest subprime auto financing company in the country. The multistate coalition alleged that Santander disregarded forecasted dangers of default, due to their aggressive pursuit of market share, and exposed borrowers to unnecessarily high levels of risk by approving auto loans with high loan-to-value ratios, significant backend fees, and high payment-to-income ratios.

Based on investigation results, the coalition alleged that Santander failed to appropriately monitor dealers to prevent the distortion of consumer income and expense information and that the subprime lender mislead consumers about their rights and the risks associated with partial payments and loan extensions.

To safeguard consumers from future default, Santander must now consider a consumer's monthly debt obligations prior to issuing a loan to ensure the borrower does not have a negative residual income. Santander is also obligated to test all future loan defaults to determine if the consumer could afford the loan. If the loan was unaffordable, Santander is required to forgive the debt.

The settlement also compels Santander to implement steps to monitor dealers who engage in income inflation, expense inflation, and power booking; the subprime lender may not make income and expense documentation exceptions for these dealers. The settlement terms also require Santander to maintain policies and procedures for deferments, forbearances, modifications, and other collection matters.

Attorney General Cameron was joined by attorneys general of Arizona, Arkansas, California, Connecticut, the District of Columbia, Florida, Georgia, Hawaii, Indiana, Illinois, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, West Virginia, and Wyoming in the settlement.

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