Subprime Auto Loan Giant Pays $550 Million After Charges Of Predatory Practices

Image: Tim Boyle / Staff (Getty Images)
Image: Tim Boyle / Staff (Getty Images)
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Justice comes for a financial services company known for what many consider predatory auto loans, cars could become more enticing to more people after COVID, GM execs will visit recently-reopened plants, and some news on the PSA-FCA merger. All that and more in The Morning Shift for Wednesday, May 20, 2020.


1st Gear: Justice Comes For Subprime Auto Loan Giant Santander

Back in 2017, Jalopnik’s Ryan Felton wrote a feature story highlighting the ramifications of America’s rampant sub-prime auto loan practices, specifically mentioning financial institution Santander. Here’s a key quote from the piece, which is titled “How Subprime Car Loans Are Ruining Lives And Repeating The Mistakes Of The Housing Crisis”:

It may seem easy to write Woodrum off as ignorant of finance, or budgeting, or the car buying process. In reality, he’s one of thousands of people in recent years who have been ensnared in high-interest “subprime” car loans aimed at buyers with bad credit, often with no attempts to verify their income—loans that have led to multiple repossessions of the same vehicle and an endless cycle of repossession fees to get their cars back.


If there’s one company that most illustrates the recent rise of subprime auto lending in the U.S., it’s Santander Consumer USA, the American arm of Spanish financial institution Grupo Santander.

It’s a tragic situation, but recently, there’s been some positive news. Santander is now paying $550 million to settle charges related to what some call “predatory” auto loans that target low-income households. From the Wall Street Journal:

Thirty-three states and the District of Columbia accused Santander of extending loans that were too big relative to borrowers’ incomes, charging excessive fees and failing to monitor dealership loan-approval practices.

California Attorney General Xavier Becerra said Santander profited by extending high-interest loans to buyers “who were doomed from the start” to default.

The settlement includes $65 million of restitution for consumers. It also involves some $433 million in loan forgiveness, including for customers who have had cars repossessed but still owe money to Santander.

The states, according to Reuters, claimed that the U.S.’s largest subprime car financing firm violated consumer protection laws. From that news site:

California said Santander approved loans it expected would default at rates of greater than 70 percent and alleged “Santander’s aggressive pursuit of market share led it to underestimate the risk associated with loans by turning a blind eye to dealer abuse.”


Here’s a statement from Santander via the Wall Street Journal:

“Over the last several years, we have strengthened our risk management across the board—improving our policies and procedures to identify and prevent dealer misconduct, and tightening standards to ensure affordability.”


2nd Gear: Will People Buy Cars To Avoid Public Transportation?

Auto sales have experienced an exciting recovery in China, in part because of people’s desires to eschew public transportation for the protection of a car’s enclosed cabin. The question remains whether America’s auto recovery curve will in any way resemble the “vee-shaped” one that China’s car market has experienced lately. As carmakers open up assembly plants and states loosen stay-at-home restrictions, we’ll get a better idea.


The Financial Times discusses the topic in its story “Time to buy a car? Industry hopes for coronavirus silver lining.” The article talks about how automakers have for the past few years been pouring money into car sharing and taxi services, as younger people have preferred such methods of transportation to owning vehicles. But now, with COVID-19 having raised the importance of personal space, things may change.

The story begins by briefly highlighting China’s market, quoting a Hong Kong car industry analyst to get his view on the future of sales in the region:

“We suspect the recent shift among Chinese consumers in favour of private transport will persist as long as fears around Covid-19 linger,” wrote Bernstein’s Hong Kong-based auto analyst Robin Zhu.


The article then mentions a surge in U.K. car sales following a loosening of COVID restrictions, and how interest in car ownership there, as well as in the U.S., has spiked. From the story:

A recent survey by Auto Trader found that more than half of UK driving licence holders without a car are considering buying one in order to avoid using public transport after the coronavirus lockdown ends.

A similar pattern is emerging in the US. A fifth of 3,000 residents polled in mid-March by, a Chicago company which sells subscriptions to US dealerships to list their inventory online, said they were considering buying a car because of Covid-19.

About 43 per cent of respondents said they had stopped using public transportation, almost the same percentage as those hailing fewer ride-shares.


This could be a huge deal for the car world, as younger folks have apparently not been buying cars in recent years. From the article:

“The pandemic has the potential to reverse long-term trends of non-ownership among younger consumers, 35 per cent of whom say they’re looking at buying a vehicle,” says Markus Winkler, head of automotive at the consultancy Capgemini.

Although auto companies now have the opportunity to create a new base of loyal customers, he says they will need to take a new approach. “Almost 80 per cent of 25 to 35-year-olds have never owned a car, so traditional messages based on intricate knowledge of other products on the market won’t necessarily work,” he adds.


The story notes that, given the financial crisis that has arisen from COVID, it’s a bit silly to expect truly strong sales, though government incentives could help with that. A question that the Financial Times raises is whether such government incentives should favor EVs, or if they should be powertrain-agnostic in an effort to just boost sales outright.

There are lots of questions about what an auto industry recovery might look like in the U.S. It’s hard to guess at this moment, but carmakers are opening up plants, states are loosening stay-at-home orders, people want the protection of an enclosed vehicle cabin, and government incentives are on the horizon. These things point towards some level of auto sales recovery, though unemployment remains a tragic reality.


3rd Gear: GM Executives Will Visit Plants To Experience The New Workplace Protocols

Mary Barra, CEO of General Motors, will join executive VP of global manufacturing Gerald Johnson in a visit to the Lansing Delta Township stamping plant on Wednesday, the Detroit Free Press reports. It will be part of a multi-plant tour that will also include GM president Mark Reuss, and that will focus on assessing safety protocols at the facilities. From the story:

“They will experience the same safety protocols as employees. Then they will visit a few areas on the plant floor to see how they are safely executing their safety protocols,” the person said. “They will also visit the cafeteria and office areas to view the safety protocols implemented in those areas as well.”

GM’s executives will reach out to employees to check on their welfare and vet any concerns, said the person, who asked to not be named because they were not authorized to give the information to the media.


This comes after GM, Ford, and Fiat Chrysler opened 51 North American plants that have sat idle since March. Twelve thousand GM workers are back on the job, and executives showing up to facilities is not just a strong PR tactic, but also a good leadership move.

4th Gear: The FCA-PSA Merger Remains Alive

If you’re wondering whether the merger between Italian-American automaker Fiat Chrysler and French Automaker PSA Group has faded from existence due to coronavirus complications, the answer, per Reuters, is “no.” The marriage is still on:

The reasons behind the proposed merger of car makers Fiat Chrysler (FCHA.MI) and Peugeot-owner PSA (PEUP.PA) are “stronger than ever” as the COVID-19 pandemic adds to existing challenges facing the industry, the FCA chairman said on Wednesday.

Addressing shareholders in EXOR, the Agnelli family’s holding company, John Elkann, who is also EXOR chairman and CEO, said preparatory work for the merger proceeded “on time and as envisaged.”


Whether we’ll be reporting this exact same thing a year from now, we don’t know.

5th Gear: VW Dieselgate News

Remember when Dieselgate was a big deal? You know, when in the fall of 2015 the biggest car company on earth admitted to using software to cheat emissions tests, polluting the world with NOx gases that compromised the health of millions? I know, it seems relatively minor given what else is going on these days, but it was pretty major at the time, and VW has been paying for its transgressions for half a decade now, with tens of billions of dollars in fines and many other forms of restitution.


We’re going to keep hearing about the fallout from that for a while, but the most recent news comes to us from Reuters, who writes that VW has agreed to pay 9 million Euros to quash legal proceedings that allege that CEO Herbert Diess and Chairman Hans Dieter Poetsch held back “market-moving information on rigged emissions tests.” From the short article:

The court in Brunswick in VW’s home state of Lower Saxony was hearing charges of stock market manipulation against CEO Herbert Diess, as well as non-executive Chairman Hans Dieter Poetsch.


In a statement on Tuesday, VW said it believes the charges were unfounded but “it was in the automaker’s interest that the proceedings be terminated.”

It said Diess and Poetsch did not violate any laws or their fiduciary duties toward VW. The company, and not the former defendants, would therefore pay the fine, it said. The fine amounts to 4.5 million euros for each executive


Reverse: 1899: Bike Cop Arrests Man Driving EV At 12 MPH

Via Gizmodo:

If you think Manhattan traffic is slow today, consider that Jacob German was arrested on this day in 1899 for driving at the blistering speed of 12 mph. The speed limit he blasted past? Eight mph between streets, and 4 mph around corners.

He is unlucky enough to be remembered forever, as the New York Times recounted 115 years ago, as “the first man arrested for running an automobile too fast.”

What’s so fascinating about German’s arrest is how utterly strange it sounds today. His offending speed is what we’d consider an unbearably crawl. He was driving an electric car. And he was chased down for speeding by a policeman on bicycle.


Neutral: What’s the long-term solution to America’s weird auto-lending practices?

Will predatory loans continue to exist as they do today, or can we expect some sort of significant reform?

Sr. Tech Editor, Jalopnik. Owner of far too many Jeeps (Including a Jeep Comanche). Follow my instagram (@davidntracy). Always interested in hearing from engineers—email me.


It also involves some $433 million in loan forgiveness, including for customers who have had cars repossessed but still owe money to Santander.”

How is forgiving the loan on a car that has been repossessed and then likely sold off again considered a fine? That isn’t a fine, that’s how it’s supposed to work! Plus, repossession is their goal so that they can continue selling the same asset and collecting closing costs and high interest payments and fees without securing additional assets. It’s a dream come true if you have the heart of the devil.

The execs at Santander and other lending institutions that allow this type of predatory behavior need to rot in hell.