Consumer Affairs investigates car dealerships and predatory loans

Craig D. Frazier | 12/4/2014, 3:39 p.m.

Last week, Department of Consumer Affairs Commissioner Julie Menin announced an unprecedented investigation into used car auto lending, issuing subpoenas to Santander Consumer USA Holdings and Santander Consumer Funding 3 LLC. The Spanish lender represents one of the country’s largest originators of auto loans.

This inquiry builds on DCA’s earlier investigations, which raised concerns that dealerships may be engaged in illegal predatory practices. “Studies show that subprime loans, which have been blamed for the country’s mortgage crisis, are growing at a staggering rate of more than 130 percent since the financial crisis,” said Menin. “For many families, especially those with low incomes, a car is one of the biggest purchases they make, and if they are looking into a subprime loan, it’s because they are already struggling financially.”

According to Santander Consumer USA’s 2013 annual report, they have retail installment loans with more than 2 million customers across the U.S. and relationships with nearly 14,000 automotive dealers in the U.S., including dozens of car dealerships in New York City. The commissioner said that dealerships are selling expensive high-interest subprime loans without informing consumers of information they are required to provide. Used car financing represents nearly two-thirds of their outstanding installment loans, 88 percent of which were subprime.

“The DCA is taking an innovative and aggressive approach to investigating used car dealer practices by looking at their relationships with banks,” she added. “DCA wants to make sure that New Yorkers can purchase used vehicles with confidence, knowing that the car they buy and the loan they use to pay for it are free of any hidden problems.”

The department did not disclose names of any dealerships it suspected of illegal lending practices, but if sanctioned, the agency could levy fines against them. In July, DCA issued subpoenas to 200 dealers, requiring them to provide their policies. The DCA recently hit a local dealership with $441,000 in fines.