U.S., New York Sue Credit Acceptance, Alleging Predatory Auto Lending; Shares Decline, Reports Reuters

By Jonathan Stempel

NEW YORK – Credit Acceptance Corp is facing a lawsuit from the U.S. Consumer Financial Protection Bureau and New York Attorney General Letitia James. The regulators allege that the subprime auto lender engaged in predatory lending practices by pushing low-income borrowers into used-car loans that they could not afford.

The lawsuit claims that Credit Acceptance "sets consumers up to fail" by imposing high interest rates averaging around 22% and creating agreements with dealers that obscure the true cost of borrowing, sometimes contravening state usury laws.

According to CFPB Director Rohit Chopra, Credit Acceptance has been accused of obscuring the actual costs of its loans, leading car buyers into significant financial distress and aggressive debt collection practices on loans that the company’s own systems identified as unaffordable.

Regulators are seeking remedies that include the rectification of abusive loans, restitution for affected borrowers, and civil penalties of at least $1 million per day for violations of federal consumer protection laws.

Following the lawsuit’s filing in Manhattan federal court, shares of Credit Acceptance dropped as much as 14.3%, trading at $391.22, and were down 11% at $406.10 during mid-afternoon trading.

Credit Acceptance contends that its financing options help vehicle buyers regardless of their credit history, yet the company has not provided immediate comment on the lawsuit.

The allegations in the suit pertain to a time frame from November 2015 to April 2021, affecting an estimated 1.9 million consumers with a median FICO credit score of 546 and an annual gross income of $35,000.

Regulators pointed out that Credit Acceptance employs an algorithm to estimate its collection capacity from borrowers, including from repossessions, without considering their repayment ability. Additionally, it is claimed that the company encourages dealers to add expensive products, such as vehicle service contracts, without proper disclosure in loan agreements.

One case highlighted involves a mother of two, known as Ms. B, who earned only $950 per month but was approved for a $260-a-month loan. The company anticipated collections of $7,994 but ultimately collected over $8,400, and she faced repossession of her vehicle twice, according to the complaint.

"While Ms. B’s finances were decimated, [Credit Acceptance] profited," the complaint stated.

The case is recorded as Consumer Financial Protection Bureau et al v Credit Acceptance Corp, U.S. District Court, Southern District of New York, No. 23-00038.