- Key insight: The subprime auto lender Credit Acceptance originated loans in situations where it knew the borrowers could not repay, state attorneys general alleged.
- What's at stake: A coalition of 41 state AGs negotiated the settlement after the Consumer Financial Protection dropped out of a joint 2023 lawsuit filed by New York state.
- Forward look: Consumers will receive $60 million in cash restitution, while $388 million will be used to pay off the outstanding loans of borrowers whose vehicles were repossessed between late 2015 and late 2025.
Credit Acceptance Corp., one of the largest subprime auto-finance companies in the U.S., has agreed to provide $710 million to settle allegations by 41 states that it trapped low-income car buyers into high-risk loans that were designed to fail.
The
State investigations into Credit Acceptance have spanned nearly a decade.
The states said that in any given year, all Credit Acceptance contracts with borrowers whose scores were in the lowest 20% "have been set up to fail loans."
The consent order announced Thursday says that between 25% to 30% of Credit Acceptance's loans are 90 days past due and in default within 12 months of being originated. Within three years, 70% of the company's borrowers are in default, and 40% have had their vehicles repossessed, the
The settlement includes direct consumer restitution, with $60 million in cash to be distributed to consumers who received particularly high-risk loans. A much larger sum will go toward debt relief. Outstanding loan balances will be erased for Credit Acceptance borrowers whose vehicles were repossessed between November 2015 and November 2025, yielding $388 million in debt relief.
Another $246 million in debt relief will go to current borrowers to pay off their remaining loans. In addition, Credit Acceptance will pay $15 million directly to participating state attorneys general.
New Jersey Attorney General Jennifer Davenport said the company originated loans that borrowers could not afford.
"Access to a car helps families get to work, take their kids to school, and build financial stability — but when car payments become unaffordable, that stability turns into a spiral of debt and financial distress," Davenport said in a press release.
The lawsuit by state regulators also targeted the auto dealers' practice of selling "add-on," products. Regulators alleged that Credit Acceptance's compensation structures had the effect of incentivizing dealerships to add expensive products, such as vehicle-service contracts and guaranteed asset protection insurance, to the loans. Some dealerships allegedly did so without the consent or knowledge of the borrower.
"Predatory and deceptive lending practices are especially harmful when they target consumers who can least afford the consequences," said Christopher Peterson, acting director of New Jersey's Division of Consumer Affairs.
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Beyond the financial penalties, the consent agreement imposes strict operating restrictions to reform the company's subprime lending model.
Specifically, for recent risky loans that quickly failed, the company must offer qualifying consumers a 95% debt reduction and agree not to file collection lawsuits against them.
Further, the company is required to cap vehicle prices at 109% of their retail book value for certain high-risk borrowers. Credit Acceptance must also establish prepurchase risk disclosures, as well as monitor dealer networks and simplify the cancellation process for certain add-on products.
As for its dealers, the lender must create rules preventing partner dealerships from inflating vehicle prices based on a consumer's credit score or charging above advertised prices.
Credit Acceptance did not immediately respond to a request for comment. The company's stock price fell 1.8% on Thursday.
