Massachusetts sues auto lender Credit Acceptance Corp., seeking $ 120 million in damages

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Credit Acceptance Corp., one of the nation’s largest auto lenders to people with low credit scores, was criticized in a Massachusetts lawsuit on Monday. The lawsuit, which was brought by Massachusetts Attorney General’s Office Maura Healey, alleges the lender defrauded up to 24,000 borrowers over a six-year period in the state and seeks up to $ 120 million in damages -interests.

“This company has made unaffordable and illegal bad credit loans to borrowers, causing them to fall into thousands of dollars in debt and even lose their vehicles,” Healey said in a statement. “We are taking a close look at this industry and we will not allow companies to profit by breaking our laws and exploiting consumers.”

 

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Shares of the company plunged nearly $ 73, or 16%, to just under $ 387 on news of the lawsuit.

According to the costumeAcceptance of credit reaped rewards on delinquent loans which often left borrowers with damaged credit and an average debt of $ 9,000 even after their car was repossessed. The company’s collectors called borrowers who fell behind on payments as often as eight times a day, according to the lawsuit.

Massachusetts law allows no more than two calls per day, the lawsuit says, alleging that accepting credit violated that law more than 1.5 million times over a six-year period.

“What the lawsuit says is, nut soup, they’re really bad guys,” says Andrew Left, an investor who bet Credit Acceptance shares will drop. Left-wing company Citron Research launched a report earlier this year alleging that the acceptance of credit defrauded borrowers.

“They give loans that people cannot afford, bankrupt them and take them to court because they know their borrowers often cannot afford a lawyer,” said Left. “The worst part is they take the cars and continue to stick the old borrowers with thousands of dollars more in debt.”

Acceptance of Credit did not return a request for comment from CBS MoneyWatch for this article.

 

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Last year, the company made 370,000 loans and generated net income of over $ 650 million. Many of these loans have resulted in investment products that are sold to investors. Acceptance of Credit is the second largest lender in the country –– after Wells Fargo –– to borrowers with credit scores below 530. Credit scores tend to range from 300 to 850. Acceptance of credit hid to investors how risky the loans were, according to the Massachusetts lawsuit.

At the heart of the lawsuit is the claim that Credit Acceptance routinely made auto loans to borrowers whom it knew could never repay those loans. According to the lawsuit, internally, the company would rank each loan it made from 0 to 100 based on the company’s assessment of the loan amount repaid with interest. Some loans got grades in the 1950s. The average ranking of loans made by the company last year was 66, according to the lawsuit.

The lawsuit stems from an investigation by Massachusetts AG Healey that was opened almost three years ago. The company is also under investigation by the New York attorney general, as well as the Consumer Financial Protection Bureau.

“I’m just very happy to see a number of attorneys general take this issue seriously, especially when the company is so well known for targeting African Americans,” said Aaron Greenspan, an investor who also bet against the stocks. of Credit Acceptance, and which is the first writing about problems in the company at the end of 2017. “The complaint presents a wide range of allegations which show how fundamentally fraudulent the company’s business model is.”

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