This time last year, LLW reported on the Department of Justice going after subprime auto lenders, and more recently we have reported on the CFPB’s targeting of subprime auto lenders. But Massachusetts has also gotten in on the regulatory action. On March 16, 2016, the Massachusetts Attorney General’s Office (MAG) announced that American Credit Acceptance, LLC (ACA) and Westlake Services, LLC (Westlake) agreed to provide $7.4 million to consumers, in connection with settling their alleged predatory practices of charging illegal interest rates. Specifically, ACA and Westlake filed assurances of discontinuances with the Suffolk Superior Court, and agreed to pay: (1) a combination of interest forgiveness and reimbursements for consumers that had loans with certain features; and (2) $225,000 to implement the agreements.
The MAG was targeting so called “GAP fees” which the MAG claims cause the effective interest rates on the auto loans to exceed 21 percent, which is the state interest cap. GAP is sold by car dealers, as a way for borrowers to limit the shortfall between the amount in an insurance claim and the amount still owed to the auto lender if the car is totaled.
Under the settlement, there will be additional audit work done to determine if other loans are also subject to refunds. On average, this latest settlement will provide each of the over 2,000 consumers with approximately $3,000 in relief. The MAG settlement with ACA and Westlake is just a portion of the $12 million the MAG has obtained in connection with its ongoing subprime loan review. Previously, the MAG announced a $5.4 million settlement with Santander USA Holdings Inc.
The MAG says its investigation into subprime auto lenders is ongoing, so there maybe additional companies under scrutiny.