Credit Acceptance Corporation Pushed Consumers into Unaffordable Loans
and Cut Secret Financial Deals with Car Dealerships
New York – New York Attorney General Letitia James and the Consumer Financial Protection Bureau (CFPB) on January 4th sued Credit Acceptance Corporation (CAC), one of the nation’s largest subprime auto lenders, for deceiving thousands of low-income New Yorkers into high-interest car loans. The lawsuit alleges that CAC pushed unaffordable loans onto tens of thousands of low-income consumers throughout the state without considering their ability to repay their loans in full. CAC misstated key terms on loan agreements, including the principal and interest amounts, and did not disclose thousands of dollars in credit charges. In addition, CAC packaged these illegal loans into securities that it sold to investors. These deceptive lending practices lowered consumers’ credit scores and cost New Yorkers millions of dollars. The lawsuit seeks to end CAC’s abusive and deceptive practices, reform or eliminate existing CAC loan agreements, and collect restitution for impacted consumers.
“CAC claimed to help low-income New Yorkers purchase cars, but instead, drove them straight into debt,” said Attorney General James. “CAC steered hardworking New Yorkers toward financial ruin by tricking them into unaffordable, high-interest auto loans while cutting backroom deals with dealers to protect their own profits. 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 everyday New Yorkers.”
“Credit Acceptance obscured the true cost of its loans to car buyers, leading to severe financial distress for borrowers and subjecting them to aggressive debt collection tactics on loans its own systems predicted that borrowers can’t afford to repay,” said CFPB Director Rohit Chopra. “The CFPB’s action with the New York Attorney General seeks to end Credit Acceptance’s unlawful practices and makes consumers whole.”
CAC is a subprime auto lender that claims to help low-income borrowers with low or little credit history get loan approval and improve their credit. An investigation by the Office of the Attorney General (OAG) found that CAC’s lending practices were deceptive and left tens of thousands of New Yorkers with massive debt. The OAG’s investigation also found that CAC routinely pushed borrowers into purchasing vehicles that were worth far less than their loans. This predatory practice led many borrowers to lose their vehicles through repossession, while still owing thousands of dollars on the loans. CAC attempted to collect on those loans through lawsuits, default judgments, debt collection, and wage garnishment. Even borrowers who paid off their CAC loans ended up paying thousands of dollars more in hidden credit charges that CAC and car dealerships they were affiliated with built into the loan agreements.
The OAG’s investigation found that while CAC’s loan agreements in New York claimed an annual percentage rate (APR) of 22.99 percent or 23.99 percent, CAC actually charged more than 38 percent APR on average — and on numerous occasions charged more than 100 percent APR. As a result of CAC’s high-interest loans, nearly 90 percent of New York borrowers became delinquent on their loans at some point, often leading to additional fees that added to the cost of their already expensive car loans. More than half of New York borrowers failed to repay their loans by the terms of the loan agreements, with 44 percent of New York borrowers experiencing repossession at some point.
As an example of CAC’s typical business practices, one consumer, who supports two minor children, signed up for a CAC loan requiring her to pay more than $13,000, despite the dealer needing only $5,614 to sell her the car. After she paid more than $7,600 to CAC, they repossessed her vehicle, sold it at auction, and sued her for more than $7,500.
The lawsuit alleges that CAC projected, down to the penny, how much money it could extract from borrowers through loan payments, late fees, repossession and auction, debt collection, and wage garnishment, without considering a consumer’s ability to repay their loan. CAC then offered to split the projected collections with its affiliated dealers. Through this practice, CAC ensured that as long as it collected the projected amount, both CAC and the dealer would profit — even if the borrower ended up in delinquency, default, or had the vehicle repossessed.
In addition, the lawsuit alleges that CAC cut deals with its affiliated dealerships and assisted them in misleading consumers by including costly add-on products in their purchases. Despite receiving repeated complaints that its dealers fraudulently told consumers that these products were required and that dealers even included the products without the consumer’s consent, CAC took no action to stop this. Instead, CAC continued to incentivize its dealers to push these products and actually adopted e-signing practices that made it easier for dealers to include the products with little or no notice to consumers.
The final step in CAC’s deception was to unload a large proportion of the loans onto unsuspecting investors, packaging the consumer loans into securities. In creating, marketing, and selling these securities, CAC represented to initial purchasers, rating agencies, and investors who purchased the securities that the underlying loans complied with applicable law. However, these representations were false, and the lawsuit alleges that CAC’s statements constituted securities fraud under New York’s Martin Act.
Through this lawsuit, Attorney General James seeks to stop CAC’s abusive and deceptive practices, reform or rescind existing CAC loan agreements, provide restitution to impacted New Yorkers, and secure penalties and damages from CAC due to this unacceptable and illegal behavior.
The OAG encourages New Yorkers who have had negative experiences or feel they have been taken advantage of by CAC or its affiliated dealers to submit an online complaint with the Consumer Frauds Bureau.
This litigation is being handled by Assistant Attorney General Christopher L. Filburn of the Consumer Frauds and Protection Bureau, under the supervision of Bureau Chief Jane M. Azia and Deputy Bureau Chief Laura J. Levine, and by Assistant Attorney General John Ruth, Senior Enforcement Counsel Roger Waldman, and Legal Assistant Charmaine Blake of the Investor Protection Bureau, under the supervision of Bureau Chief Shamiso Maswoswe and Acting Deputy Bureau Chief Kenneth Haim, all with assistance from Data Scientist Jasmine McAllister of the Research and Analytics Department, Director of Research and Analytics Jonathan Werberg, and Deputy Assistant Attorney General in Charge of the Rochester Regional Office Bruce Benjamin.
The Consumer Frauds and Protection Bureau and Investor Protection Bureau are part of the Division for Economic Justice, which is led by Chief Deputy Attorney General Chris D’Angelo and overseen by First Deputy Attorney General Jennifer Levy.
