After being accused of misleading auto loan borrowers, Santander has decided to settle with the CFPB.
Santander Consumer USA Holdings Inc., an affiliate of European lender Banco Santander SA, will settle claims alleged by a U.S. consumer watchdog group that borrowers weren’t fully informed about some of their costs. In particular, the lack of information was about insurance policies and auto loans.
Santander Consumer accepted interest-only payments on loans allegedly without telling borrowers that paying just the interest would increase the overall amount of the loan. That information came from sources in the know about a Consumer Financial Protection Bureau sanction, according to Reuters.
Santander offered a Temporary Reduction in Payment Plan program, which allowed borrowers to decrease their payments by as much as 40 percent. That could be an attractive alternative to someone struggling to make a monthly payment on a tight household budget. But Santander didn’t provide a clear explanation to those borrowers about how that payment plan would extend the loan’s length and overall cost.
On top of that, over 70 percent of Santander’s borrowers are classified in the subprime category. That means they already tend to pay higher interest rates than other borrowers. The Temporary Reduction in Payment Plan program was highly marketed. As a result, over 10 percent of the company’s borrowers signed up for the program in the first year of vehicle ownership.
In addition to that, Santander Consumer didn’t inform drivers about how guaranteed auto protection, a car insurance policy offered by the lender, didn’t always mean their car replacement costs would be covered if they were in an accident and their vehicle was totaled. The borrowers didn’t understand at the time of the coverage being offered that it had a limit.
According to sources who spoke to Reuters for its article, Santander Consumer has agreed to pay a fine and has also agreed to work on bulking up its consumer protection measures to avoid incidents like this in the future.
Santander Consumer didn’t discuss a settlement with Reuters, but its spokeswoman said that recently it has worked on making its consumer protection measures better. The CFPB routinely doesn’t comment about enforcement actions against companies, according to its spokesman.
The CFPB settlement is expected to be announced shortly. The investigation into the matter started over a year ago by Richard Cordray, the CFPB chief under then-president Barack Obama’s administration. Cordray stepped down from the position at the end of November 2017. At the end of his tenure, the CFPB was responsible for collecting $12 billion in relief for almost 30 million consumers.
After Cordray stepped down, the new head of the CFPB under President Donald Trump’s administration, Mick Mulvaney, moved ahead with the investigation and opted for the settlement, according to the sources for the Reuters article.
Having consumer watchdog organizations in place to protect auto borrowers’ rights is important because it’s a big industry. In the last five years, the collective automobile debt in the U.S. has grown by 53 percent to a high of $1.24 trillion. Borrowers are taking out longer loan agreements now, with some auto loans as long as 72 months – or more.