Subprime auto lender Credit Acceptance Corp. is being accused of “setting borrowers up to fail.”
The Consumer Financial Protection Bureau (CFPB) and the New York State Office of the Attorney General said in a Wednesday (Jan. 4) press release that they are suing the firm for misrepresenting the cost of credit and tricking customers into high-cost loans.
“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 the borrowers can’t afford to repay,” CFPB Director Rohit Chopra said in the release. “The CFPB and the New York Attorney General seek to halt Credit Acceptance’s illegal practices and make consumers whole.”
Reached for comment, Credit Acceptance told PYMNTS: “Credit Acceptance operates with integrity and believes it has complied with applicable laws and regulations. We believe the complaint is without merit and intend to vigorously defend ourselves in this matter.”
The joint complaint alleges that the firm hides costs in loan agreements, “sets consumers up to fail” and violates New York usury limits and other laws.
Specifically, the press release said, CAC hides the true cost of credit by manipulating the price of the vehicle, sets borrowers up to fail by providing loans even to the 40% of borrowers that it predicts will not be able to repay the whole amount and creates financial incentives for dealers to add extra products to loans even if consumers are misled.
The lawsuit aims to halt illegal practices, reimburse harmed consumers and impose a penalty, according to the press release.
“CAC steered hardworking New Yorkers onto a path of financial ruin by tricking them into unaffordable, high-interest auto loans while cutting backroom deals with dealers to increase their own profits,” New York Attorney General Letitia James said in the release. “These predatory actions hurt innocent people and left them with mountains of debt.”
Credit Acceptance sounded a warning in August about near-term prospects of seeing timely payments on recently extended loans.
As PYMNTS reported at the time, Credit Acceptance Chief Treasury Officer Doug Busk said during an Aug. 1 earnings call, “the end of stimulus and supplemental unemployment benefits” helped impact loan performance. He also noted that inflation had been taking its toll.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More