The embattled subprime auto lender Santander Consumer USA Holdings has agreed to pay $26 million to settle charges that it knowingly provided loans to consumers who couldn’t afford them.

The settlement was announced Wednesday by attorneys general in Massachusetts and Delaware. Under the agreement, Santander Consumer, a unit of the Spanish banking giant Banco Santander, will pay $16 million in consumer relief and $6 million to the state of Massachusetts. Additionally, the company will pay roughly $3 million in consumer relief and $1 million to the state of Delaware.

The Dallas auto lender also agreed to strengthen oversight of its auto lending and securitization practices.

“After years of combatting abuses from subprime mortgage lenders, these practices are unfortunately familiar,” Massachusetts Attorney General Maura Healey said in a press release announcing the settlement.

Santander sign outside a branch.
Bloomberg News

At issue in the case is Santander Consumer’s oversight of financing provided through car dealerships. According to the attorneys general, the company funded loans through a group of dealers that it knew had track records of “extremely high” default rates and, in some cases, a history of fraud.

In an internal audit, Santander Consumer criticized its own oversight of dealer conduct as “inadequate,” according to the press release from Healey’s office. Still, the company continued to fund the loans.

In doing so, it violated state consumer protection laws by providing high-cost credit to consumers without having a “reasonable basis” to believe they could afford the loans, officials said.

“We are pleased to put this matter behind us so we can move forward and continue to focus on serving our customers,” Raschelle Burton, a company spokeswoman, said in an email. As part of the agreement, the company neither admitted to nor denied the allegations.

The settlement covers dealer management and underwriting practices from 2009 through 2014, Burton noted. The company has since put in place a new management team and has taken “significant steps” to strengthen its internal controls.

The announcement marks the latest in a string of headaches for Santander Consumer. The Federal Reserve last week ordered Santander Holdings USA, the auto lender’s Boston-based holding company, to strengthen its oversight. Santander Consumer has also recently struggled to get its accounting in order, after being forced to restate its earnings several times over the past year.

In addition to the settlement announced Wednesday, Santander Consumer has also received requests for information from a group representing 27 state attorneys general, according to the company.

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Kristin Broughton

Kristin Broughton

Kristin Broughton is a reporter for American Banker, where she writes about the business of national and regional banking.