Southfield-based Loan Acceptance Corporation, which offers car loans to people with bad credit and otherwise ineligible for auto loans, has been accused by regulators of making predatory deals that set up financially vulnerable buyers.
According to the complaint filed Wednesday, auto loans for used cars are “charged with exorbitant interest rates, expensive add-ons and saddle borrowers with debt” that even lenders believe borrowers cannot repay in full.
New York Attorney General Letitia James and the Consumer Financial Protection Bureau jointly sued the Credit Union Corporation on Wednesday for defrauding thousands of low-income New Yorkers out of high-interest auto loans.
Additional products that are financed and increase borrowing costs include a vehicle service contract that promises to repair or replace certain parts, and a guaranteed asset protection product, or “GAP,” to pay off borrowers’ debt after insurance payments. when a used car or truck is stolen or lost in an accident.
The complaint alleged that dealers affiliated with Loan Acceptance fraudulently concealed ancillary products in loan documents or failed to disclose to borrowers that ancillary products were included in loan agreements.
The lawsuit alleges that Credit Acceptance Corp. provided unaffordable loans to tens of thousands of low-income consumers throughout New York without considering their ability to repay the loans in full.
The company defended its practices in a brief statement to the Detroit Free Press.
“Credit Acceptance operates in good faith and believes it is in compliance with applicable laws and regulations. We believe the complaint is without merit and intend to vigorously defend ourselves in this matter.”
Credit Acceptance Corp. is one of the nation’s largest publicly traded auto lenders and works with a network of more than 12,000 affiliated used car dealers to offer loans to high-risk borrowers with deep credit histories.
According to a joint complaint by the Federal Consumer Protection Agency and the New York Attorney General, the interest rate charged on these loans is often around 22%.
In addition, the complaint charged that the financial services company’s business model “induces dealers to manipulate the prices of vehicles sold” to Loan Undertaking borrowers, often hiding the added value of the loan to the principal amount of the loan.
Additionally, dealers routinely fail to provide consumers with copies of their contracts with Credit Acceptance, “thus concealing improper and abusive contract terms,” the complaint says.
Consumers are often left financially worse off, the complaint states.
As a result of the company’s lending model, the complaint states, many consumers who received auto loans from Credit Acceptance Corp. defaulted. And they lose their vehicles and lose any purchase value or down payments.
“On average, consumers end up owing nearly $8,500 after the auction,” the complaint states. The company continues to raise money, often by suing borrowers. One concern, according to consumer watchdogs, is that loan amounts can be artificially inflated by financed add-ons. According to the complaint, consumers who try to sell their cars or have their cars repossessed and auctioned “find that the proceeds from the sale do little to help pay off their debts.”
“Resulting in repeated foreclosures, foreclosures and bankruptcies,” the complaint states. “Consumers who lose their vehicles sometimes lose jobs and face family hardships. But despite the significant loss of life to consumers, CAC continues to make a profit.”
The complaint states that the financial company’s “lending model is indifferent to consumers’ ability to repay loans in full.” Instead, the company uses a sophisticated algorithm to predict how much Loan Acceptance will collect on the loan.
The complaint, filed in the U.S. District Court for the Southern District of New York, says the amount is not just monthly payments. According to the complaint, the company is also considering “potential collection efforts, returns, auctions and deficiency judgments if the consumer does not pay.”
The Consumer Financial Protection Bureau reported that for many of these borrowers, “the car buying experience has turned into a nightmare.” Consumers face “unaffordable monthly payments, vehicle repossessions and debt collection lawsuits.”
The joint complaint alleges that, among other things, Credit Acceptance hides costs in loan agreements and misleads consumers.
The complaint states that between January 2017 and August 2020, there were more than 1,000 consumer complaints nationwide about Loan Acceptance add-on products, including complaints about dealers requiring borrowers to purchase add-on products in order to obtain a Loan Acceptance loan agreement. has been . Borrowers also complained that they were unaware that an additional product was included in their contracts and only discovered the product after the transaction was completed.
The New York Attorney General’s Office has alleged that a consumer with two children who owed him more than $13,000 in support was sued by Credit Union Corp. signed the loan. The dealer needed $5,614 to sell the car. After he paid more than $7,600 for the Loan Foreclosure, the New York Attorney General noted that they repossessed his car, sold it at auction, and sued him for more than $7,500.
New York Attorney General James said in a news release that the company “claimed to help low-income New Yorkers buy cars, but instead drove them directly into debt.”
New Yorkers, James said, were led “to financial ruin” when they were duped into unaffordable, high-interest car loans. “These predatory actions hurt innocent people and left them with mountains of debt. I thank the CFPB for its partnership to stop this damage and protect everyday New Yorkers,” James said.
According to the New York Attorney General, the lawsuit seeks to “end the abusive and deceptive practices of Credit Acceptance Corp, reform or terminate existing CAC credit agreements, and collect compensation for affected consumers.”
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Credit Acceptance has been offering financing programs that allow car dealers to sell vehicles to consumers regardless of their credit history since 1972.
“Without our financing programs, consumers are often unable to purchase vehicles or purchase unreliable vehicles,” the company says online.
The company said it is giving consumers who can buy a car while rebuilding their credit a second chance. Their mission statement: “We change lives!”
Credit Acceptance reports payments to three national credit reporting agencies that it says enables consumers to “improve their credit scores and switch to more traditional sources of financing.” Credit Acceptance is publicly traded on the Nasdaq Stock Market under the symbol CACC.
Credit Union shares fell on news of the regulators’ move. The stock closed down $52.99, or 11.61%, at $403.49 on Wednesday.
The finance company had 2,069 employees in the United States, including 1,186 in Michigan as of October 2022.
Contact Susan Tompor: stompor@freepress.com. Follow him on Twitter @tompor. Click the link to subscribe freep.com/specialoffer. Read more Business and sign up for us business newsletter.