Santander Consumer USA Holdings pay $2.875 million to Delaware consumers
The investigation, conducted by the Fraud Division of Attorney General Matt Denn’s Office in partnership with the Massachusetts Attorney General’s Office, revealed that Santander allegedly funded auto loans without having a reasonable basis to believe that the borrowers could afford them.
In fact, Santander predicted that a large portion of the loans would default, and allegedly knew that the reported incomes, which were used to support the loan applications submitted to the company by car dealers, were incorrect and often inflated.
Car loans to consumers with poor credit, known as subprime auto loans, are often made through contracts made at the car dealership, but the loans are funded by non-dealer financial institutions, like Santander.
As part of the funding process, many investment banks and other financial entities package auto loans, dropping them into large asset pools and selling bonds or notes backed by the assets in the pools. Money obtained from this process is then used to fund more subprime loans.
The investigation by Delaware and Massachusetts also revealed that Santander was allegedly aware that certain dealerships had high default rates due in part, to the regular submission of inaccurate data on loan applications – most often involving inflated income – but Santander continued to purchase loans from those dealers anyway and, in some cases, sell them to third parties. ■