Santander just got hit hard for approving thousands of subprime auto loans

The Attorney General of Massachusetts announced a $US22 million settlement with Santander bank Wednesday over the bank’s
subprime auto loan securitization.
According to a statement from the office of Democrat AG Maura Healey, Santander is “the largest packager of subprime auto loan securities in the US,” and has facilitated “unfair, high-rate auto loans for thousands of Massachusetts car buyers.” And it’s said to be the first settlement in the US involving subprime auto loans.

The news comes amid mounting concern on Wall Street that the US is on the precipise of an auto-loan crisis that could have devastating effects on the US economy, with parallels to 2008.

A new report from Fitch Ratings, for instance, revealed that the US auto loan and lease credit loss rates weakened significantly in the second half of 2016. And they showed signs that they will continue to deteriorate.

“Subprime credit losses are accelerating faster than the prime segment, and this trend is likely to continue as a result of looser underwriting standards by lenders in recent years,” said Michael Taiano, a director at Fitch.

As reported by Business Insider’s Matt Turner on March 27, banks have also picked up on this trend. Morgan Stanley, Mizuho and Evercore ISI have all released notes souding the alarm about the growing number of deliquent auto loans. They foresee consequences that could impact automakers, the economy, consumers and one corner of the bond market.

The settlement with Santander will provide $US16 million in “consumer relief” for the 2,000 car owners affected.

A joint investigation by the Attorney General’s offices of Delaware and Massachusetts revealed Santander signed off on a number of loans to people with poor credit without evidence that those customers would have the wherewithal to make payments.

“In fact, Santander predicted that many of the loans would default, and allegedly knew that the reported incomes, which were used to support the loan applications submitted to the company by car dealers were incorrect and often inflated,” said.

In a statement to Business Insider, a Santander spokesperson said, “We are pleased to put this matter behind us so we can move forward and continue to focus on serving our customers. Santander Consumer is totally committed to treating customers fairly. In the last 18 months, our new management team has taken significant steps to strengthen our business practices and controls.”

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