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Santander Consumer to Settle Allegations Over Subprime Lending

Zacks Equity Research
·3 mins read

Santander Consumer USA Holdings Inc. SC has agreed to a settlement of nearly $550 million with a group of attorneys general over malpractices in its subprime auto lending business. The attorneys general represent 33 states and the District of Columbia.

The states accused Santander Consumer of violating consumer protection laws by exposing borrowers with subprime credit into auto loans with a high chance of default.

The New York Attorney General, Letitia James, stated, “Santander defrauded desperate consumers by placing them into auto loans the company knew these customers could never afford to pay, resulting in defaults and negative ratings on consumers’ credit reports. This settlement will not only provide much needed relief to struggling New Yorkers, but will ensure Santander’s dishonest behavior is put to an end immediately.”

The Dallas-based lender has agreed to pay $65 million to the states in restitution and $7 million to manage claims. Additionally, the company has promised to forgive deficiency balances on car loans worth almost $478 million.

For consumers who had defaulted as of December but not had their cars repossessed, the company will likely forgive car loan balances of about $45 million. For consumers who still owe after their cars had been repossessed, $433 million in debt balances will likely be waived off.

Notably, in as early as 2015, the attorneys general launched an investigation into Santander Consumer, revealing that even after knowing that certain groups of consumers had a high risk of default, the company steered them into loans with high loan-to-value ratios, significant backend fees and high payment-to-income ratios.

Thus, with this settlement, Santander Consumer wants to resolve and put behind the long-standing legacy issues.

The company stated, “We are pleased to put this matter behind us. Over the last several years, we have strengthened our risk management across the board — improving our policies and procedures to identify and prevent dealer misconduct, and tightening standards to ensure affordability.”

Notably, in 2017, the Federal Reserve issued an enforcement order against the company, requiring it to improve its risk management practices. Further, in 2018, Santander Consumer agreed to settle charges by California authorities that accused it of not properly disclosing certain referral fees in addition to other issues settled in other states.

Shares of the company have lost 33.6% so far this year compared with a 38.4% decline of the industry.

Currently, Santander Consumer carries a Zacks Rank #3 (Hold).

A few better-ranked stocks are mentioned below.

Tradeweb Markets Inc. TW has witnessed an upward earnings estimate revision of 7.6% for 2020 over the past 60 days. This Zacks Rank #1 (Strong Buy) stock has gained 36.1% over the past six months.

GAIN Capital Holdings, Inc.’s GCAP current-year earnings estimates rose significantly in 60 days’ time. Further, the company’s shares have appreciated 53.4% over the past six months. At present, it sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mackinac Financial Corporation MFNC has witnessed an upward earnings estimate revision of 25% for the ongoing year in the past 60 days. This Zacks #2 Ranked (Buy) stock has depreciated 41.6% over the past six months.

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