Santander settles on subprime auto loans

used car lot


Justin Sullivan/Getty Images


The Massachusetts attorney general on Wednesday announced a $22 million settlement with Santander Bank over the securitization of the bank’s subprime auto loans.

A statement from the office of Attorney General Maura Healey, a Democrat, called Santander “the largest subprime auto loan title-packer in the United States” and said the bank had facilitated “unfair, high-rate auto loans for thousands of Massachusetts car buyers.” The statement said the settlement was the first in the United States involving the securitization of high-risk auto loans, or the practice of holding high-risk auto loans.

The statement also said Santander identified a group of dealers as the “fraudulent dealers” but continued to fund loans through them.

The settlement was part of a larger investigation into securitization practices in the subprime auto market by Healey.

“Our industry-wide investigation is ongoing,” Healey told Business Insider. “I certainly don’t think this practice is limited to Santander or our state.”

Wall Street fears the US is on the brink of an auto loan crisis that could have devastating effects on the US economy, with parallels to 2008.

A recent report by Fitch Ratings, for example, indicated that the credit performance of US auto lenders deteriorated in the second half of 2016 compared to the same period in 2015. And they showed signs that they would continue to deteriorate.

“Subprime credit losses are accelerating faster than the primary segment, and this trend is expected to continue due to lenders’ looser underwriting standards in recent years,” said Michael Taiano, director of Fitch.

As Business Insider’s Matt Turner reported on Monday, other companies have picked up on this trend as well. Morgan Stanley, Mizuho and Evercore ISI have all issued notes sounding the alarm about the growing number of delinquent auto loans. They predict consequences that could affect automakers, the economy, consumers and a corner of the bond market.

Healey’s statement said the settlement with Santander would provide $16 million in “consumer relief” for the 2,000 affected car owners.

A joint investigation by the Delaware and Massachusetts attorney general’s offices found that Santander had signed many loans to people with poor credit without proof that those customers could afford to make payments.

“In fact, Santander predicted that many loans would default and would have known that reported earnings, which were used to support loan applications submitted to the company by car dealerships, were incorrect and often inflated,” said Healy. mentioned.

“Santander is the largest securitizer of subprime auto loans in the United States,” the statement added. “Global ratings reported that the company, together with its related entities, has over 30% market share in this multi-billion dollar industry.”

In a statement to Business Insider, a Santander representative said, “We are pleased to put this matter behind us so that we can move forward and continue to focus on serving our customers. Santander Consumer is fully committed to treating customers fairly. months, our new management team has taken significant steps to strengthen our business practices and controls.”