Credit acceptance company (CACC – Free Report) finally announces the settlement of the trial with the Attorney General of Massachusetts. In August 2020, AG Maura Healey filed a lawsuit in Suffolk County Superior Court, claiming that accepting credit violated state laws and regulations on consumer protection and debt collection.
It was alleged that Credit Acceptance provided unfair and deceptive auto loans to thousands of consumers in Massachusetts, provided investors with false or misleading information regarding the auto titles they were offering, and engaged in unfair debt collection practices. receivables.
Healey said in a statement: “Thousands of Massachusetts consumers, many of whom are first-time car buyers, have trusted CAC to help them with a car loan, but have instead been drawn to low cost loans. high, got deeper in debt and even lost their vehicles.
By this lawsuit, since 2013, Credit Acceptance has not informed investors that the loan pools that have been consolidated and securitized have been supplemented with higher risk loans despite claiming the opposite to investors.
Additionally, in violation of state law, the company granted high-interest subprime auto loans to borrowers in Massachusetts whom it knew they would not be able to repay.
For this reason, borrowers have had to experience crumbling credit. They lost vehicles and down payments and ended up with an average debt of $ 9,000. In addition, borrowers were subject to hidden finance charges as a result of which the company’s loans exceeded the usury rate cap of 21%.
Notably, the material terms of the lawsuit were disclosed in April 2021, according to which Credit Acceptance agreed to pay $ 27.2 million to resolve the claims. However, the auto lender did not admit any wrongdoing.
The $ 27.2 million will go to a trust overseen by an independent trustee, which will then be used in part to provide relief to customers, as well as to alleviate debt and repair borrowers’ credit.
According to Healey’s office, more than 3,000 Massachusetts borrowers will likely be eligible for relief.
In particular, Healey has a long history of conducting an industry-wide investigation of loan securitization practices in the auto subprime market. In 2017, Santander Consumer USA Holdings Inc. (SC – Free Report) agreed to pay $ 25.9 million to resolve a subprime auto loan investigation by the Attorney General.
While credit acceptance has witnessed a steady increase in expenses as well as a deterioration in credit quality, which is expected to hamper finances, the income of the company is expected to continue to be positively impacted by an increase. finance costs, driven by an increase in demand for consumer ready products. In addition, an improvement in dealer registrations and active dealers (despite fierce competition) is a positive for the company.
Shares of the company have gained 70.6% so far this year, compared to industry growth of 48.1%.
Image source: Zacks Investment Research
Currently, Credit Acceptance sports a Rank 1 of Zacks (Strong Buy).
A few other top-ranked stocks in the financial space are mentioned below.
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