Credit Acceptance Agrees to $710 Million Auto-Lending Settlement
Credit Acceptance Agrees to $710 Million Auto-Lending Settlement
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Key Points
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The allegations included interest rates of about 22%, which the New York lawsuit said were at or near the legal maximum in many states.
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One court filing cited by Reuters alleged that Credit Acceptance approved a $260 monthly loan for a mother of two who earned only $950 per month; the company collected $8,400 before the vehicle was repossessed twice.
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The debt relief is divided between borrowers whose vehicles were repossessed and those who retained them: $388 million is earmarked for repossession-related debt and $246 million for borrowers who kept their vehicles.
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State regulators alleged that Credit Acceptance relied on proprietary internal scores predicting low collection rates on principal, while its compensation structure and insufficient dealer oversight contributed to unlawful 'packing' of vehicle-service and other products.
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The settlement resolves litigation brought in 2023, including a January 2023 lawsuit filed by New York Attorney General Letitia James alleging deceptive and abusive conduct involving high-interest loans and add-on products.
Credit Acceptance Corp. agreed to pay $710 million to settle allegations that it trapped low-income borrowers in unaffordable subprime auto loans and sold them unnecessary add-on products. Claims Journal reported the deal with 40 states and Washington, D.C. includes $634 million in debt forgiveness for more than 55,000 borrowers, plus $60 million in direct restitution. The company denied wrongdoing but agreed to change how it approves loans and monitors dealers going forward.
The settlement resolves litigation filed in 2023, when New York Attorney General Letitia James accused Credit Acceptance of issuing loans at interest rates near the legal maximum — about 22% — to borrowers who could not afford them. Street Insider noted one court filing showed the lender approved a $260 monthly loan for a mother of two earning only $950 per month; the company collected $8,400 before seizing the vehicle twice.
How the $710 Million Breaks Down
Debt forgiveness accounts for the bulk of the settlement. Finger Lakes 1 reported $388 million goes to borrowers whose vehicles were repossessed, while $246 million covers those who kept their cars. The remaining funds — $60 million in restitution and $15.5 million to state attorneys general — will address direct losses and regulatory costs.
Risky Loans Sold to Low-Income Borrowers
State regulators said Credit Acceptance used internal scoring systems that predicted low collection rates but approved loans anyway. Tri-Cities Business News reported the company relied on a dealer compensation structure that encouraged risky lending. Insufficient oversight of dealers allowed them to bundle unnecessary vehicle-service contracts and other products into loans without proper disclosure.
New Rules to Prevent Future Abuses
Credit Acceptance must now warn borrowers when loans carry historically high default risk. The company will waive 95% of remaining debt for borrowers who default early and will stop suing to collect or selling that debt. Coast TV noted these changes require the lender to tighten underwriting standards, improve product disclosures, and strengthen oversight of dealer practices that led to the original complaints.
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