Credit Acceptance settles $710 million predatory auto lending case with most states

• Total settlement value exceeds $710 million, combining $75.5 million in payments with more than $630 million in forgiven consumer debt across 41 states
• Credit Acceptance must now disclose to borrowers that loans carry historically high default risk and waive 95% of debt owed if borrowers default within the first 12 or 18 months
• The company allegedly sold expensive add-on products that consumers did not know they were purchasing and financed loans it knew or should have known were unaffordable

Credit Acceptance Settles $710M Predatory Lending Case with State Coalition

Credit Acceptance Corp (CACC) has reached a settlement worth approximately $710 million with a bipartisan coalition of 41 state attorneys general to resolve allegations of predatory subprime auto lending practices, announced Minnesota Attorney General Keith Ellison on Thursday, September 17.

Settlement Terms:

• $75.5 million cash payment
• Over $630 million in consumer debt forgiveness
• Mandatory reforms to lending practices

Allegations:

The Southfield, Michigan-based subprime auto lender allegedly violated consumer protection laws by financing high-risk auto loans to consumers who could not afford repayment and selling expensive add-on products without proper consumer disclosure or knowledge.

Required Reforms:

Under the settlement, Credit Acceptance must now:

• Disclose to borrowers upfront that their loans carry historically high default risk
• Waive 95% of amounts owed if borrowers default within the first 12 to 18 months of the loan

Market Context:

This settlement represents significant enforcement action against subprime auto lending practices, affecting a major player in the sector that specializes in loans to consumers with poor credit. The debt forgiveness and operational reforms will likely impact Credit Acceptance's loan portfolio and future lending standards.

The company did not immediately respond to requests for comment on the settlement.

Impact:

This case signals increased regulatory scrutiny of subprime auto lenders and could establish precedent for consumer protection standards across the industry, potentially affecting lending practices and profitability for similar financial services companies operating in the subprime auto loan space.