Credit Acceptance Corporation: $694M Multistate Settlement Reaches 40 States

• Credit Acceptance Corporation (CAC) has reached a $694 million multistate settlement with 40 state attorneys general, including Vermont.
• The settlement resolves allegations that CAC originated unaffordable auto loans, particularly to consumers with limited credit histories.
• The agreement includes $694 million in cash and debt relief for consumers, with Vermont receiving over $700,000 for restitution, debt relief, and state funds.
• Injunctive terms mandate improved loan risk disclosures and protections against unwanted vehicle service contracts and GAP products.
• The settlement aims to reform CAC's lending practices and prevent future predatory actions in the auto finance industry.

For legal professionals advising auto finance companies, these injunctive terms are particularly salient.

A significant multistate consumer finance settlement has been reached with Credit Acceptance Corporation (CAC), one of the nation's largest auto finance companies. This bipartisan agreement, involving 40 state attorneys general, including Vermont Attorney General Charity Clark, addresses allegations of originating loans that the company knew, or should have known, were beyond consumers' financial capacity. The Credit Acceptance Corporation multistate settlement mandates a substantial financial commitment from CAC, totaling $694 million in combined cash payments and debt relief for affected consumers nationwide.

Vermont's participation in this broad enforcement action secures a total of $701,251 for the state. This amount is allocated to provide direct restitution of $124,841 to 87 Vermont consumers and $462,871 in debt relief for 60 consumers. Additionally, $113,539 will be paid directly to the State of Vermont. Attorney General Clark underscored the importance of market integrity, stating that companies breaking the law would be held accountable, and this resolution represents a crucial step towards consumer relief and preventing future predatory practices.

The core of the allegations against CAC centers on its lending practices, particularly its provision of car loans to individuals with limited or impaired credit histories. Prosecutors contended that CAC engaged in CAC auto loan predatory lending by extending credit for vehicles even when its internal assessments indicated a high likelihood of default. The company utilizes a proprietary "score" for each loan, which serves as its prediction of the percentage of the loan amount it expects to collect from all available sources.

Investigators alleged that many of these "low score" loans were inherently unaffordable for consumers. In numerous instances, CAC's own scoring system predicted that borrowers would not even repay the principal amount of the loan. This practice, according to the attorneys general, predictably led to widespread consumer defaults, resulting in vehicles being repossessed and subsequently sold at auction, causing significant financial detriment to borrowers.

Beyond the significant financial redress, the Credit Acceptance Corporation multistate settlement includes crucial injunctive terms designed to fundamentally reform CAC’s lending operations. These forward-looking provisions aim to enhance consumer protections and establish new benchmarks for responsible lending within the auto finance sector. Key requirements include mandating CAC to provide clearer auto loan disclosure requirements to consumers regarding loan risks, implementing safeguards to protect borrowers from adverse outcomes associated with certain high-risk loans, and actively preventing dealers from "packing" CAC auto-loan contracts.

Specifically, the settlement addresses the practice of adding unwanted vehicle service contracts (VSC) and guaranteed asset protection (GAP) products to loan agreements without clear consumer consent. For legal professionals advising auto finance companies, these injunctive terms are particularly salient. They establish a precedent for stricter compliance regarding loan affordability assessments, transparent consumer disclosures, and the prevention of extraneous product add-ons. This multistate consumer finance settlement sets new compliance expectations and risk mitigation strategies that companies should adopt to avoid similar enforcement actions, ensuring a fairer marketplace for all consumers. Consumers eligible for debt relief will be directly notified by CAC, while those due restitution will receive notification from a claims administrator. Vermont residents with inquiries about the settlement can contact the Attorney General’s Office’s Consumer Assistance Program at 800-649-2424.

Lawyers advising auto finance companies should review the injunctive terms of this multistate settlement, particularly regarding loan affordability assessments, consumer disclosures, and the prevention of 'packing' contracts with VSC/GAP products. This settlement establishes new compliance benchmarks for lending practices and risk mitigation that clients should adopt to avoid similar enforcement actions.

Source: Original reporting via Vermont Attorney General's Office