November 30, 2023

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NY & CFPB File Lawsuit Against CAC For Calculated Defaults

New York Attorney General Letitia James and the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Credit Acceptance Corporation (CAC), one of the largest subprime auto lenders in the country, on behalf of thousands of low-income New Yorkers who were deceived into taking out high-interest auto loans. The claim charges that CAC pushed exorbitant advances onto a huge number of low-pay shoppers all through the state disregarding their capacity to reimburse their credits in full. CAC did not disclose thousands of dollars in credit charges and misrepresented important terms on loan agreements, such as the amounts of principal and interest. Additionally, CAC sold these fraudulent loans to investors as securities. Customers’ credit scores were lowered as a result of these dishonest lending practices, which cost New Yorkers millions of dollars. The lawsuit aims to end CAC’s dishonest and abusive practices, modify or eliminate existing loan agreements with CAC, and recover compensation for affected customers.

Attorney General James stated, “CAC claimed to help low-income New Yorkers purchase cars, but instead drove them straight into debt.” By luring people into unaffordable, high-interest auto loans and making backroom deals with dealers to safeguard their own profits, CAC led hardworking New Yorkers into financial ruin. People were hurt and left in debt as a result of these predatory acts. I appreciate the CFPB’s collaboration in stopping this harm and protecting everyday New Yorkers.

According to Director of the Consumer Financial Protection Bureau (CFPB), Rohit Chopra, “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.” In collaboration with the New York Attorney General, the CFPB is taking action to end Credit Acceptance’s illegal practices and restore consumer confidence.

CAC is a subprime auto lender that says it can help low-income borrowers with little or no credit improve their credit and get approved for a loan. The Office of the Attorney General (OAG) conducted an investigation and discovered that CAC’s lending practices were dishonest, resulting in massive debt for tens of thousands of New Yorkers. In addition, the OAG’s investigation revealed that CAC routinely persuaded borrowers to acquire vehicles that were significantly less valuable than their loans. Many borrowers still owed thousands of dollars on their loans due to this predatory practice, which resulted in the repossession of their vehicles. Through lawsuits, default judgments, debt collection, and wage garnishment, CAC attempted to collect on those loans. Hidden credit charges that were incorporated into the loan agreements by CAC and the car dealerships they were affiliated with cost even borrowers who paid off their CAC loans thousands of dollars more.

The OAG’s investigation revealed that, despite the fact that CAC’s loan agreements in New York claimed an annual percentage rate (APR) of 22.99% or 23.99%, the company actually charged more than 38% APR on average and more than 100 percent APR on numerous occasions. Nearly 90% of New York borrowers defaulted on their loans at some point as a result of CAC’s high-interest loans. This frequently resulted in additional fees that increased the already high cost of their auto loans. With 44% of New York borrowers experiencing repossession at some point, more than half of borrowers failed to repay their loans in accordance with the terms of the loan agreements.

One customer, who supports two minor children, signed up for a CAC loan that required her to pay more than $13,000, despite the dealer needing only $5,614 to sell her the car. This serves as an illustration of the typical business practices of CAC. CAC repossessed her vehicle, sold it at auction, and sued her for more than $7,500 after she paid them more than $7,600.

According to the lawsuit, CAC accurately predicted how much money it could extract from borrowers through loan payments, late fees, auctions, repossessions, debt collection, and wage garnishments without taking into account a customer’s capacity to repay the loan. Following that, CAC offered to divide the anticipated collections among its affiliated dealers. Even if the borrower fell behind on payments, defaulted, or had the vehicle repossessed, CAC and the dealer would still benefit from this practice as long as it collected the anticipated amount.

The lawsuit also claims that CAC made deals with its affiliated dealerships and helped them deceive customers into buying expensive add-on products. CAC did not take any action to stop its dealers from deceiving customers into believing that these products were required, despite receiving numerous complaints that dealers included the products without the customer’s consent. Instead, CAC adopted e-signing practices that made it easier for dealers to include the products with little or no notice to consumers and continued to encourage dealers to promote these products.

The last move toward CAC’s duplicity was to dump a huge extent of the credits onto clueless financial backers, bundling the buyer credits into protections. CAC represented to investors, rating agencies, and initial purchasers of these securities that the underlying loans complied with applicable law during the creation, marketing, and sale of these securities. However, these assertions were untrue, and the lawsuit asserts that CAC’s statements were securities fraud in accordance with the Martin Act of New York.

Attorney General James seeks to put an end to CAC’s dishonest and abusive practices, reform or rescind existing loan agreements, compensate affected New Yorkers, and demand penalties and damages from CAC for their unacceptable and illegal behavior through this lawsuit.

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