Santander Consumer USA announced Wednesday it has agreed to pay $26 million to two states to settle allegations the auto-loan firm violated consumer protection laws.
According to the state complaints, between 2009 and 2014, borrowers and dealers were able to use inflated income information, that Santander allegedly knew was false, to obtain car loans.
As a result of the inaccurate information, borrowers obtained loans they could not afford, making default much more likely. In an echo of the financial crisis, Santander packaged the loans into subprime auto loan securities even though it predicted internally that many of the loans would default.
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“After years of combatting abuses from subprime mortgage lenders, these practices are unfortunately familiar,” said Maura Healey, attorney general of Massachusetts, in a statement. The company also settled with Delaware.
In agreeing to the settlement, Santander
neither admitted nor denied the states’ allegations. The auto-loan company stressed in a statement that a new management team was put in place 18 months ago.
Santander Consumer shares were little changed on Wednesday but have dropped about 15% from their highs earlier in March.
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“Our new management team has taken significant steps to strengthen our business practices and controls,” Santander said.
, the Boston-based unit of Banco Santander, is the majority owner of Santander Consumer. Last week, the Federal Reserve ordered Santander Holdings to improve the oversight of its troubled auto-lending company.