A lawsuit has been filed by the U.S. Consumer Financial Protection Bureau (CFPB) and New York Attorney General Letitia James against Credit Acceptance Corporation CACC for engaging in predatory lending. Per the lawsuit, CACC allegedly lured thousands of low-income individuals into unaffordable high-interest car loans.
The complaint claims that the sub-prime auto lender deceived customers by not properly stating the key terms on loan agreements, including the principal and interest amounts. Also, it failed to disclose thousands of dollars in credit charges.
The CFPB director, Rohit Chopra, stated, “Credit Acceptance obscured the true cost of its loans,” subjecting car buyers to severe financial distress and aggressive debt collection “on loans its own systems predicted that borrowers can't afford to repay.”
Per the regulators, Credit Acceptance “sets consumers up to fail” by charging exorbitant interest rates that average around 22%, and entering arrangements with dealers that mask the true cost of borrowing and sometimes violate state usury laws.
CACC has been asked to fix the abusive loans, offer restitution and pay civil penalties of at least $1 million per day for violating federal consumer protection laws.
Notably, the lawsuit covers the period between November 2015 and April 2021, when an estimated 1.9 million consumers borrowed from Credit Acceptance.
CACC said it “operates with integrity and believes it has complied with applicable laws and regulations.”
The company also said that it believes that the complaint does not have any merit and that it intends to defend itself in the matter.
Over the past six months, shares of CACC have lost 18.9% compared with a decline of 8.4% recorded by the industry.
Image Source: Zacks Investment Research
Currently, Credit Acceptance carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Financial Misconduct by Other Firms
Last month, Wells Fargo & Company WFC was ordered by the CFPB to pay more than $2 billion in redress to consumers and a $1.7-billion civil penalty for the widespread mismanagement of auto loans, mortgages and deposit accounts.
Per the enforcement action, Wells Fargo harmed millions of consumers for several years. The bank had systematic failures in its servicing of automobile loans that resulted in $1.3 billion in harm across more than 11 million accounts. WFC incorrectly applied borrowers’ payments, improperly charged fees and interest, and wrongfully repossessed borrowers’ vehicles.
In October, Bank of America BAC agreed to pay $1.84 billion to resolve claims by Ambac Financial, a bond insurer, regarding residential mortgage-backed securities. Ambac claimed that between 2004 and 2006, it insured certain mortgage-backed securities, backed by poorly underwritten Countrywide Financial loans. Countrywide is a lender whom BofA acquired in 2008.
Countrywide’s purchase put BofA at the center of years of litigation over who was to blame for a mortgage-market meltdown.
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