Massachusetts, Delaware settle with Santander over ‘unfair’ car loans

FILE - In this Dec. 14, 2015 file picture people walk past a Santander bank, in New York. Spanish bank Santander has suffered a legal blow in its long-running row with a German rival over the use of the color red. Germany's Federal Court of Justice ruled Thursday July 21, 2016 that the country's publicly-owned Sparkassen are entitled to keep their trademark for a shade of red called HKS 13. Santander — which uses the slightly darker HKS 14 — has been trying for six years to get the German Patent and Trademark Office to delete its rivals' trademark. (AP Photo/Mark Lennihan,file) Mark Lennihan / AP, File

BOSTON (AP) — Santander has agreed to a $26 million settlement with officials in two states over the bank’s role in issuing subprime auto loans to thousands of consumers who could not afford to repay them, officials said Wednesday.

The settlement, announced by Massachusetts Attorney General Maura Healey and Delaware Attorney General Matt Denn, calls for Boston-headquartered Santander Consumer USA to make payments to borrowers and to the states.

Santander said it did not admit wrongdoing in the agreement and had taken several steps in recent months to address the issues raised in the investigation.

The settlement was the first of its kind in the U.S., according to Healey, who compared it to abuses by subprime mortgage lenders that contributed to the financial collapse and subsequent recession nearly a decade ago.


“These predatory practices are almost identical to what we saw in the mortgage industry a few years ago,” she said.

Santander, which Healey called the largest packager of subprime auto loans in the nation, funded “unfair and unaffordable” loans to more than 2,000 consumers in Massachusetts, knowing that many of the borrowers could not meet the terms and would default, Healey said.

Buyers often agree to financing terms through contracts signed at car dealerships, but the loans are backed by financial institutions such as Santander, who often resell the loans to third parties or place them into asset pools.

The bank also was accused by the states of knowingly taking on loans from car dealers that submitted loan applications that inflated the reported incomes of customers, and continued to fund loans from dealers it knew had high rates of delinquency and default among customers.

“We will continue to pursue investigations in this area to ensure that Delaware consumers receive a fair deal when they are extended credit to finance a purchase,” said Denn, in a statement.

The bank said it entered into the agreement voluntarily and was pleased to move past the investigation.

The company “is totally committed to treating customers fairly,” Santander said in a statement. “In the last 18 months, our new management team has taken significant steps to strengthen our business practices and controls.”


Those steps included improving procedures for identifying and preventing misconduct by auto dealers, boosting requirements that consumers must meet before a loan is funded, and establishing an internal Office of Consumer Practices, according to the bank.

The agreement calls for Santander to pay $16 million to consumers in Massachusetts and nearly $3 million to those in Delaware who were harmed by the subprime loans, and make separate payments of $6 million and $1 million to the two states, respectively.

The settlement involved underwriting and origination practices, but absolved the company from any claims involving securitization of the loans, the bank said.