WASHINGTON — The Consumer Financial Protection Bureau (CFPB) and the New York State Office of the Attorney General have filed suit against Credit Acceptance Corporation for what they allege is misrepresenting the cost of credit and for tricking its customers into high-cost loans on used cars.
“The car-buying experience turns into a nightmare for many of Credit Acceptance’s borrowers, who face unaffordable monthly payments, vehicle repossessions, and debt collection lawsuits,” the two agencies said in a statement.
The joint complaint alleges that, among other things, Credit Acceptance hides costs in loan agreements and “sets consumers up to fail.”
The complaint further alleges Credit Acceptance violated New York usury limits and other consumer and investor protection laws. The lawsuit seeks to force Credit Acceptance to stop its illegal practices, reimburse harmed consumers, pay back wrongfully earned gains, and pay a penalty.
Significant Auto Lender
According to the two agencies, Credit Acceptance is an indirect auto lender headquartered in Southfield, Mich., that funds and services used-car loans for people with low credit scores, and is one of the country’s largest publicly traded auto lenders, doing business with a network of more than 12,000 affiliated used-car dealers.
From November 2, 2015 to April 30, 2021, approximately 1.9 million people obtained used car loans through Credit Acceptance and its affiliated dealers, the CFPB and the NYAG said. In 2020 alone, consumers obtained more than $4.9 billion in Credit Acceptance-financed loans. The company’s loans typically carry very high interest rates, the agencies added.
The Specific Allegations
According to the CFPB and the NYAG, the company allegedly harmed consumers by:
- Hiding the true cost of credit. “Since 2014, Credit Acceptance’s loan agreements nationwide have said that consumers would pay interest at an average 22% APR. However, the true cost of credit offered is far higher than what borrowers are told. This is because Credit Acceptance’s business model pushes dealers to manipulate the prices of vehicles sold to Credit Acceptance borrowers, based on borrowers’ projected performance. This increases the principal balance of the loans. By hiding the true cost of the credit in inflated principal balances, Credit Acceptance evades state interest rate caps and deprives consumers of the ability to make informed decisions, to compare financing options, or to avoid high interest charges.”
- Setting up borrowers to fail. “Credit Acceptance ensured its own profits by providing loans without regard to whether borrowers could afford them. For almost four out of 10 loans, Credit Acceptance predicted that it would not be able to collect the full amount financed by the loan,” the CFPB and NYAG said. “Credit Acceptance profits even when borrowers are unable to pay their loans in full by using aggressive debt collection methods. As a result of Credit Acceptance’s practices, customers faced late fees, repossessions, auctions, post-repossession collection efforts, lawsuits, and ruined credit profiles.”
- Closing its eyes to practices that harmed consumers. “The company created financial incentives for dealers to add extra products to loans and then shrugged off whether customers were misled into thinking the add-on products were required. Add-on products, such as vehicle service contracts, are a profit center for Credit Acceptance. They represented about $250 million in revenue in 2020 alone.”
The full complaint can be read here.
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